Dutch government moves ahead with human rights due diligence legislation
The Dutch government has started working on a national human rights due diligence legislation, to be implemented swiftly. This follows the recent announcement by the European Commission (EC) that it will again delay the publication of its proposal for a sustainable corporate governance directive to 2022. This article considers likely key aspects of the Dutch law and how businesses can prepare.
Background mandatory human rights due diligence
The 2010 United Nations Guiding Principles (UNGP) on responsible business conduct introduced the concept of human rights due diligence (HRDD). This is an ongoing risk management process that a reasonable and prudent company needs to follow to identify, prevent, mitigate and account for how it addresses its adverse human rights impacts.
The process includes four key steps: assessing actual and potential human rights impacts; integrating and acting on the findings; tracking responses; and communicating about how impacts are addressed.
The HRDD process has also been included in the 2011 version of the OECD Guidelines on Responsible Business Conduct, and has since taken flight. Going beyond its original non-binding and non-legal nature, over the past years, several Member States such as France and, more recently, Germany, have introduced mandatory domestic legislation (also called mandatory HRDD or mHRDD).
The European Commission announced it would present an EU-wide mandatory human rights and environmental due diligence legislation in 2021. This is to prevent fragmentation of the single market through various national initiatives and provide the EU with a harmonised set of due diligence rules applicable across all Member States.
But seizing the initiative, the European Parliament put forward a recommendation with an accompanying text for a sustainable corporate governance directive in March 2021. This outlined potential obligations and sanctions to be imposed on companies operating on the EU market.
This is a hotly contested proposal that has seen major push back from the European Commission’s own regulatory scrutiny board.
After these delays, the formal proposal of the Commission is now likely to be published only in 2022.
The delay is very likely due to practical difficulties in applying the rules to such a broad set of companies and on such a wide spectrum of topics – human rights, forced labour, environment, governance. This raised concerns among various stakeholders and several Member States. This is where the Dutch process becomes particularly interesting.
Background to Dutch legislative process
Respective Dutch governments have traditionally had a strong preference for voluntary mechanisms to improve responsible business conduct, most notably in the form of the sectoral responsible business covenants.
A recent review of these covenants found, however, they have failed to substantially increase the number of companies “performing” human rights due diligence.
As a result, the government had commissioned a study of different options to enact business and human rights violations.
But when the EC indicated it wanted to develop a sustainable corporate governance directive including mandatory HRDD provisions, the government’s socio-economic advisory council and the responsible minister took the view that the development of European regulation should prevail over domestic legislation, provided the EU legislative process would not result in undue delays.
A large section in parliament, however, has a strong preference to enact domestic legislation and even proposed a legislative initiative, including mandatory HRDD provisions.
As outlined above, the original deadline to share a proposal in 2021 will not be met. In light of the substantial pressure from the Dutch Parliament, and with a view to putting additional pressure on the European Commission, the responsible minister has indicated in a parliamentary debate that the Dutch government will start working on national HRDD legislation, to be implemented swiftly.
Although there is no proposal yet, the responsible minister shared some insights about the envisaged legislation:
- The minister has indicated the Dutch legislation will be broader and more stringent than the legislation in neighbouring jurisdictions (Germany, France, UK). In the 11 March 2021 Dutch legislative initiative, the national parliament had called for an expansion of the scope of the Child Labour Law to cover also other human rights impacts, such as discrimination and environmental damage.
- The legislation will apply to companies with more than 250 employees – substantially less than, for example, the German threshold requirement of 3000 workers (initially) and 1,000 (at a later stage).
- The due diligence obligation will most likely not only apply to human rights in a traditional definition, but also to environmental issues and climate change.
- Most SMEs with less than 250 employees have no due diligence obligation, but will have a transparency obligation – similar to the UK modern slavery statements. This could differ from the European approach outlined by the European Parliament, which recommends the Commission apply the due diligence rules also to publicly listed and high-risk SMEs.
- A recent proposal by the government’s socio-economic advisory council suggested a number of methods to alleviate the administrative burden. A number of those will likely be included in the legislative proposal, including allowing a sectoral approach to certain obligations, allowing collective grievance mechanisms, and easing the transparency requirements for medium-sized companies.
Actions for clients
Human rights due diligence is a policy rather than a mandatory legal principle, and a mere copying of the United Nations Guiding Principles into hard law is fraught with complications. The HRDD initiatives of the European Parliament and Dutch legislature are not well thought-out and contain confusing drafting.
Nevertheless, NGOs have already started public campaigns to make the legislation as broad and mandatory as possible. The government has indicated it wants to act swiftly on this, so we expect a lot of activity around this proposal in the months ahead. Businesses should seek to have their voice heard in the legislative process and guide the legislators in Brussels and The Hague.
Human rights due diligence will become a key aspect of mandatory and voluntary standards for business in the years ahead. Setting up human rights policies, incorporating these policies into corporate governance and management functions and ensuring a proper implementation are no easy task. They require time and effort. Businesses should start preparing their supply chains now. In Brussels and Amsterdam, we’re here to help you.