New EU corporate accountability law ‘riddled with loopholes’

99% of Irish businesses to be excluded from new EU rules aimed at preventing corporate damage to the environment and exploitation of communities.

A coalition of Irish humanitarian aid organisations, trade unions and academics has today criticised new rules proposed by the EU aimed at cleaning up global supply chains and minimising negative global impacts of business on workers, communities, and the environment, warning that they are inadequate and full of flaws and exemptions.

Under the proposed law, some EU companies would be required to undertake ‘due diligence’ checks along their full supply chains to prevent human rights and environmental abuses. However, it will apply only to companies with an annual turnover of over €150 million and more than 500 employees. In high-risk industries like agriculture and fashion, companies with more than 250 employees would be covered. All other businesses would be exempt.

Sorcha Tunney, Coordinator of the Irish Coalition for Business and Human Rights (ICBHR), established to champion greater corporate accountability, said: “This is a crucial step forward but we need to get it right. Communities around the world have been waiting years for new EU rules to end exploitation and prevent abuses along global supply chains.”

She added: “We need to take forced labour, deforestation and oil spills out of our shopping baskets once and for all, but this proposal just doesn’t go far enough and is riddled with loopholes. It looks like an ineffective tick-box exercise that only very few companies will be required to undertake.”

The coalition said that by limiting its scope to so few companies, the proposal turns a blind eye to many harmful business impacts. The European Commission has stated that, if passed in its current form, 99% of companies would be exempt. Based on latest CSO data, the ICBHR estimates that less than 700 Irish companies will have to do checks, including several in particularly high-risk sectors.

Conor O’Neill, Head of Policy & Advocacy at Christian Aid Ireland, said: “Neither turnover nor staff size alone can properly measure a company’s capacity to harm human rights or the environment. We work with communities badly impacted by the infamous Cerrejón mine in Colombia, now facing pollution of their air and water. While the coal is mined and shipped to Europe, the Dublin-based Coal Marketing Company (CMC) that sells it would not be covered as it has only 27 employees. How can we clean up supply chains if so many businesses are exempt?”

Earlier this month, over 100 high profile companies, investors, business associations and initiatives, including IKEA, Primark, Danone and Patagonia, called for ambitious and mandatory corporate human rights and environmental due diligence (mHREDD) legislation from the EU. They state that “many European SMEs, including signatories to this statement, acknowledge that responsibility for human rights and the environment is not a matter of company size”, arguing that all businesses should be required to carry out proportional checks along their supply chains.

Jim Clarken, CEO of Oxfam Ireland, said: “Businesses, including businesses in Ireland, have been calling for a level playing field which will allow them to actively separate themselves from the worst human rights and environmental abuses around the world. But this proposal is a long way from the Commission’s ‘gamechanger’ aspirations. We need a law that makes all companies, not just the biggest, responsible for their human rights and environmental violations, and provides real certainty for business, workers and consumers.”

In October the ICBHR published a report “Make it Your Business” highlighting corporate human rights abuses in low-income countries around the world by Irish companies. It sets out the need for strong corporate accountability legislation requiring businesses operating in Ireland, to identify and prevent human rights abuses and environmental damage occurring in their operations, anywhere in the world. An effective law would ensure companies can be liable for any harm done to communities affected by their activities.

Caoimhe de Barra, CEO of Trócaire, another coalition member said: “Our leaders need to fix this draft EU law and make it work. As the legislation is hammered out in Brussels, the Irish Government and MEPs must step up and ensure it’s free of loopholes. We need this new law to be strong and effective if we’re to clean up the supply chains of Irish and EU companies, keep people safe from harm and help prevent runaway climate change. It should apply to all Irish businesses, put clear responsibilities on companies to prevent abuses in their supply chains, and allow communities to seek justice in Irish courts if abuses happen.”

Andrew Anderson, Executive Director of Front Line Defenders, said: “While we welcome this significant move towards holding companies to account for their actions, moving forward any future legislation should acknowledge that engaging with human rights defenders and rightsholders on the ground is crucial for companies to effectively identify and address harm.

While we are happy to see the expansion of Directive (EU) 2019/1937 (the Whistle-blower directive) to also cover the protections of persons reporting breaches in this new directive, we regret that the draft law makes no explicit reference to human rights defenders or to the risks that they face despite the high levels of attacks against human rights defenders around the world, and despite effective due diligence relying on the information human rights defenders share. The EU has made significant commitments to the protection of human rights defenders, and we expect the forthcoming legislation to reflect these commitments.”

The new EU Proposals:

• Human rights and environmental due diligence: Under the proposed law, some EU companies would be required to undertake ‘due diligence’ along their full supply chains to prevent human rights and environmental abuses. Due diligence is a process of identifying, preventing, ceasing, mitigating and accounting for the negative impacts of business activities, including those of subsidiaries, subcontractors, and suppliers.

• Limited scope: the proposed legislation will apply only to companies with an annual turnover of over 150 million euro and over 500 employees. In high-risk industries like agriculture and fashion, companies with more than 250 employees would be covered, while all other businesses would be exempt.

• Dangerous loophole: while companies will have a duty of care for their entire supply chains, the proposed law contains a dangerous loophole. The extent of a company’s duty of care can be weakened through contractual agreements with companies lower in the supply chain, which could effectively allow companies to offload their due diligence obligations onto their suppliers.

• Barriers to taking cases against Irish companies: under the proposed law, companies could be held liable for harms committed at home or abroad by their subsidiaries and contractors along their supply chains, and their victims will have the opportunity to file lawsuits before Irish courts. However, the draft law does nothing to address the serious legal hurdles that communities face to take such cases – including high costs, short time limits, limited access to evidence, and a disproportionate burden of proof. The Commission wants companies to adopt a climate transition plan in line with the 1.5 degree target of the Paris climate agreement. However, the proposal does not foresee any specific consequences for the breach of this duty, which risks making the climate duty ineffective.

• Community consent not included: A corporate obligation to obtain consent from indigenous peoples when business projects may affect their land, territory and resources, is also missing from the text. Around the world, indigenous peoples are dispossessed or denied rights to their land and attacked, threatened, and killed for defending their territories, often from corporate activities.

• Stakeholder engagement is not included: The Directive does not require engagement with rightsholders only saying that companies shall carry out consultations with potentially affected groups where relevant.

• Human rights defenders are not named as key stakeholders: The proposal does not name human rights defenders as key to the HREDD process and there are no requirements to address reprisal risk against human rights defenders and other participants in consultations or complainants to grievance mechanisms.

• Irish public support: a national opinion poll conducted through IPSOS/MRBI in June 2021 for the Irish Coalition for Business & Human Rights showed strong public support for strong new corporate accountability laws for Irish businesses, with 81% of Irish people believing that an Irish company acting unethically in a low-income country should be subject to regulation here in Ireland.

The Irish Coalition for Business and Human Rights is a coalition of civil society organisations, academic experts and trade unions working collaboratively to progress corporate accountability, based on respect for human rights and the environment.