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Corporate due diligence and accountability

The recent developments on the scandal involving many of the world's biggest fashion brands in the Xinjiang Uygur products sourcing from China are showing once again how important due diligence is to prevent human rights and environmental adverse impacts along the value chain.


The European Parliament paved the way in that matter to require companies to conduct due diligence to identify, address and remedy their impact on human rights and the environment throughout their value chain.

The EP voted on March 10th 2021 for the adoption of a binding EU law that ensures companies are held accountable for harm to human rights, the environment and good governance in their supply chains and business relationships. The law would oblige companies to identify, address and remedy aspects of their value chain (all operations, direct or indirect business relations, investment chains) that could or do infringe on human rights (including social and labour rights), the environment (e.g. contributing to climate change or deforestation) and good governance (e.g. corruption and bribery).

The law should apply to all large undertakings governed by EU law or established in the European Union, including those providing financial services. The rules should also apply to publicly listed SMEs and high-risk SMEs, which should receive technical assistance to comply with the requirements. Companies that want to access the EU internal market, including those established outside the EU, would have to prove that they comply with the due diligence obligations.

The companies concerned would be obliged to implement a due diligence strategy which will be reviewed at least once a year and made public. Companies would be required to identify and assess the nature and context of their activities and determine whether their activities and business relationships are causing negative impacts. They must map their value chain and adopt all proportionate and appropriate policies and measures to halt, prevent or mitigate negative impacts. Companies should ensure that their business strategy and policies are consistent with their due diligence strategy. In addition, they should ensure that their business relationships implement and enforce human rights, environmental and good governance policies that are consistent with their due diligence strategy. Companies should regularly monitor the compliance of subcontractors and suppliers with their obligations.

Companies should engage with stakeholders, trade unions and workers’ representatives in the development and implementation of their due diligence strategy to which they can contribute.

Where a company finds that it is directly linked to an adverse impact, it should implement a remedy which may include: financial or non-financial compensation, restoration of the previous situation, public apology, restitution, rehabilitation or contribution to an investigation. Member State competent authorities should have the power to conduct investigations to ensure that companies comply with the obligations set out in the law. Companies shall provide all the assistance necessary to facilitate the performance by the competent authorities of their investigations.

The European Commission has announced it will present its legislative proposal later this year.

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