The Push for International Companies to Better Integrate Human and Environmental Rights Protections

1. The new version of the draft European Corporate Sustainability Due Diligence Directive (“CSDDD”) applies to companies with more than 1000 employees and 450 million of yearly turnover

Although a provisional deal on the final version of the proposal of European Corporate Sustainability Due Diligence Directive (“CSDDD”) was reached on 14 December 2023 between the European Parliament and the Council of the European Union, the text was rejected on 28 February 2024 in the absence of a qualified majority vote at the Council of the European Union. Postponed several times, the draft Directive was rejected by 14 countries, including Germany, Italy and France, the latter having notably requested the modification of the thresholds for the applicability of the CSDDD to companies with more than 5,000 employees instead of 500 as originally agreed.

The CSDDD proposal aims to create a mandatory corporate due diligence duty towards certain large EU and non-EU companies to identify, stop, prevent, mitigate and account for negative impacts on human rights and the environment in the company’s own operations, that of its subsidiaries and also with its supply chain commercial partners.

The proposal also required certain companies to implement a plan which shall ensure the compatibility of their business strategy to the 1.5°C global warming threshold in line with the COP Paris Agreement.

However, the Belgian Presidency of the EU Council pushed to offer a new compromise draft in order to try to convince the EU Member States to vote on a compromised version of the CSDDD before the European parliament elections in June.

The new proposal notably increases the general thresholds to target largest companies, limits the scope to “direct” relationships within the chain of activities and allows flexibility on the final legal adoption. EU Member States have finally agreed on the latest CSDDD version on Friday 15 March after months of negotiations and the postponement of the last vote. This new version of the draft Directive has been submitted to the Parliament for a final vote. The applicability thresholds have been substantially increased and apply solely to companies which have both a yearly turnover of 450 million euros or more as well as 1 000 employees or more.  According to the first existing analyses[1], if this new draft is adopted, approximately 5,400 companies should fall within the scope of the Directive, which represents a major reduction of 67% compared with the 16,389 companies covered by the rules provisionally approved last December 2023.

2. International companies are still to comply with the French extraterritorial legislation on the duty of care of parent companies

European and International groups should already be aware of this notion of “duty of care” of parent companies since such duty already exists under French law, albeit under different conditions. Indeed, France adopted on March 2017[2] a pioneering and extraterritorial legislation which obliges large French and Foreign corporate groups to implement a certain corporate sustainability due diligence plan. Thus, international groups shall apply this legislation in particular when their workforce amounts to at least:

i. 5,000 employees within their own organization and in subsidiaries with head offices located in France;

OR

ii. 10,000 employees in their own organization and in subsidiaries with head offices located in France or abroad.

After issuing a couple of procedural rulings, the Paris Judicial Tribunal has adopted for the first time on 5 December 2023[3], a decision on the merits on the conformity assessment of a vigilance plan issued by the French postal company, La Poste.

La Poste has been ordered to complete its vigilance plan and effectively implement various vigilance measures concerning harassment, undeclared work and illegal subcontracting, as a result of its imprecise and too general risk mapping. In addition, the tribunal ordered the company to supplement its vigilance plan with a mechanism for alerting and collecting reports after consulting representative trade unions, as required by law, and to publish a proper system for monitoring vigilance measures.

However, the Paris first degree Court did not grant the Union’s request to publish an exhaustive list of the company’s partners. In this respect, the Court stated that the company shall be entitled to invoke trade secret protection if such information gave it a competitive advantage, but that such argument should not prevail in all circumstances. In this case, the Court ruled that the precise identification of subcontractors and suppliers was not essential to the detection of risks, the effective implementation of the plan and its assessment and that such disclosure was therefore not necessary. La Poste has appealed against this decision and the future decision of the Court of Appeal will guide companies in the implementation of their vigilance plan.

It is interesting to note that the due diligence requirements must therefore be balanced against the protection of trade secrets. The upcoming litigation will shape the application of the French law on duty of care of multinationals (also called the “Law on the duty of vigilance”), especially as the Paris Court of Appeal announced at the beginning of this year the creation of a special chamber dedicated to litigation in regard to duty of care and environmental liability.

More generally, several international compliance laws require that targeted international groups ensure respect for human rights in the value chain, as established notably by the US Uyghur Forced Labor Prevention Act[4], the Canadian’s Fighting Against Forced Labour and Child Labour in Supply Chains Act,[5] the UK Modern Slavery Act[6], the South Korean[7] and Japanese[8]’s National Action Plans on Business and Human Rights, and with the forthcoming EU Deforestation Regulation[9] which shall enter into force in December and the EU proposal on a Forced Labor Ban[10] which intends to target products placed or made available in the Union market or exported from the European Union to third countries.

International groups need to prepare for compliance with all of these protective rules and  map their supply chains in an efficient, relevant and adequate manner.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

[1] Analysis of the Centre for Research on Multinational Enterprises (SOMO), based on the Orbis and Eurostat databases and consulted by Euractiv

[2] Law no. 2017-399 of 27 March 2017 on the duty of care of parent companies and ordering companies

[3] Judicial Tribunal, 5 December 2023, n°21/15827

[4] Public Law 117-78, 23 December 2021, an Act to ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China do not enter the United States market, and for other purposes (“UFLPA”)

[5] S.C. 2023, c.9, 11 May 2023, Fighting Against Forced Labour and Child Labour in Supply Chains Act

[6] Modern Slavery Act 2015 C.30

[7] South Korea, National Action Plan (NAP) for the promotion and protection of Human Rights, Chapter 8 – Business and Human Rights, 9 August 2018

[8] Japan, National Action Plan (NAP) on Business and Human Rights, 2020-2025

[9] Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing

[10] Proposal for a Regulation of the european Parliament and of the Council on prohibiting products made with forced labour on the Union market, provisional deal reached  on 5 march 2024