URU, Alm.del - 2020-21 - Bilag 125: Erhvervsministeriets orienteringsnotat samt høringssvar vedrørende bæredygtig selskabsledelse

Udenrigsudvalget 2020-21
URU Alm.del Bilag 125
Offentligt

NOTE

1. februar 2021

The Danish Government’s response to the public consultation on an

initiative on sustainable corporate governance

It is a key priority for the Danish Government to enable a green and susta-

inable transformation of the society. Private companies play a vital role in

order to fulfil the ambitions of the Paris agreement, the UN Sustainable

Development Goals, the purpose of the UN Guiding Principles for

Business and Human Rights and the OECD Guidelines for Responsible

Business Conduct.

The Danish Government supports the initiative of the Commission in the

European Green Deal to address how private companies can be further en-

couraged to structure decisions in terms of sustainability. The Danish

government believes that sustainability, growth and competitiveness must

be aligned and not be contradictions. That the most profitable and success-

ful companies of tomorrow are the companies where management acknow-

ledges that long-term sustainability is fundamental to their business. The

Danish Government appreciates the opportunity to comment on the Euro-

pean Commission’s preliminary approach to an initiative on sustainable

corporate governance. This response builds on a national consultation

about sustainable corporate governance in the autumn of 2020.

The Danish Government supports the intention of the initiative, but notes

that the approach indicated by the Commission contains two different sets

of regulations: mandatory due diligence and corporate governance. The

Danish Government, broadly supported by Danish stakeholders, strongly

encourage the Commission to treat the two sets of regulation separately.

Both the initiative on due diligence and the initiative on corporate gover-

nance are closely related to existing and new EU measures that aim at en-

couraging companies to further integrate sustainability. In order to achieve

an integrative approach, effective regulation and prevent unnecessary po-

licy overlap and incoherent regulation the Danish Government encourages

the Commission to ensure a detailed alignment with ongoing and newly

implemented initiatives such as the Non-Financial Reporting Directive

(NFRD), the Shareholder Rights Directive II (SRDII), the Disclosure Re-

gulation, the Taxonomy Regulation and the Circular Economy Action

Plan. This would also be in line with the principles for Better Regulation.

Due diligence

The Danish Government supports the purpose of the regulation on due di-

ligence to ensure that companies contribute to sustainable and responsible

URU, Alm.del - 2020-21 - Bilag 125: Erhvervsministeriets orienteringsnotat samt høringssvar vedrørende bæredygtig selskabsledelse

business conduct by describing possible risks of their adverse impacts on

e.g. human rights and labour rights issues, the environment etc. and on that

basis take steps to address the risks. Implementing risk-based due diligence

processes is key for a responsible supply chain management in line with

the UN Guiding Principles on Business and Human Rights, the ILO Tri-

partite Declaration of Principles concerning Multinational Enterprises and

Social Policy and the OECD Guidelines for Multinational Enterprises. It is

recommended that this basic purpose is clearly stated in the regulation and

mirrored in proposed requirements.

The Danish Government believes that regulating due diligence processes

will have

a significant impact in private companies’ sustainable decision-

making. This includes the engagement of directors in the process, which is

needed in order to further integrate sustainability in private companies and

to make questions of sustainability and responsible supply chain manage-

ment a matter for directors, and not just a sustainability department.

When considering due diligence regulation, it is the view of the Danish

Government that the following issues must be addressed in order for the

regulation to have the intended and needed impact:

Creating legal certainty

The aim for companies to identify and manage risks, ultimately and ideally

to avoid harm, presumes an ongoing and contextual process suited to the

dynamic character of the risks in question. A set standard of conduct for

companies’ due diligence to be measured against

can deliver legal certainty

for companies in regard to social expectations or potential penalties, or to

ensure a level playing field between companies. However, defining due

diligence as a standard of conduct might shift companies’ focus towards

compliance with that standard [tick-the-box]. This might detract from their

efforts to effectively identify and manage risks through an ongoing and

contextual process.

It is therefore the view of the Danish Government, that the Commission

should make careful considerations on this difficult issue of how to intro-

duce a legal standard of conduct without a trade-off in terms of the effec-

tive operational results of the due diligence process.

Proportionality

Considering the complex nature and novelty of due diligence legislation a

step-by-step approach in terms of scope and detail is a sensible and cauti-

ous approach. The Danish Government recommends the Commission to

start by regulating only larger companies (in line with the current require-

ments of the NFRD). Larger companies are also often the companies that

are engaged in complex value chains and who holds enough leverage to

influence the different parts of the value chains. The smaller companies

URU, Alm.del - 2020-21 - Bilag 125: Erhvervsministeriets orienteringsnotat samt høringssvar vedrørende bæredygtig selskabsledelse

will be affected indirectly as requirements trickle down the supply chains.

After gathering experiences, the scope can possibly be adjusted over time.

Access to remedy

The Danish Government finds it essential that any authority dealing with

supervision is competent and independent. However, there can be challen-

ges related to such supervision due to the complexity of cases dealing with

risked-based due diligence. Therefore, it can be beneficial to consider ex-

periences from the National Contact Point system, which is established as

a part of the OECD Guidelines, and deals with cases concerning risked-

based due diligence.

The Danish Government recommends the Commission to learn from the

NCP system that handles cases of violation of international standards and

principles of global responsible business conduct. Moreover, NCPs are re-

sponsible for raising awareness of what responsible business conduct

entails. Since the Danish NCP is law-based, it can handle cases of whether

public authorities in addition to civil society organizations and companies

act in compliance with the due diligence principles set up by the OECD

Guidelines. Moreover, the Danish NCP has the possibility to take on cases

on its own instigation.

Corporate Governance

The Danish Government acknowledges that in order to achieve e.g. the

goals of the Paris agreement on climate change and the Sustainable Deve-

lopment Goals it is vital that businesses contributes to a sustainable deve-

lopment. The Danish Government believes that the most profitable and

successful companies of tomorrow are the companies where management

acknowledges that long-term sustainability is fundamental to their business

and who effectively use this knowledge in their everyday management.

The Danish Government agrees with the Commission that it is necessary

to empower directors to further integrate a wider range of interests into

corporate decision-making than just the interests of the shareholders in or-

der to avoid a narrow focus on the short term. For a company to succeed

and maintain its ‘licence to operate’,

directors need to effectively work

with long-term sustainability. However, this is not, in our view, promoted

or achieved by restricting the ability of the directors to act in the way they

deem most effective, or by stripping the directors of instruments at their

disposal. The focus should be on encouraging companies to work with

sustainability, not limit their ability to act the in the manner the see fit.

The Danish Government believes that introducing mandatory due dili-

gence as described above, would be the most effective and proportionate

instrument to achieve the empowerment of the companies and their direc-

tors and to make sure that companies work effectively with long-term

URU, Alm.del - 2020-21 - Bilag 125: Erhvervsministeriets orienteringsnotat samt høringssvar vedrørende bæredygtig selskabsledelse

sustainability. The Danish Government finds that hard regulation of direc-

tors’ duties and liability could hamper the ability of companies to deliver

on the sustainability agenda in the most effective way.

Directors’ duties and directors’ liability

To enable a green and sustainable transformation of the society the Danish

Government finds it essential that private companies use and allocate re-

sources in order to fulfil this transition by making long-term investments

including in new technologies, sustainable business models and supply

chains. However, reducing companies’ opportunity e.g. to pay out divi-

dends to shareholders and share buybacks can potentially harm the perfor-

mance and competitive position of a company, the ability to attract venture

capital, and the possibility to allocate capital to companies that need capital

in order to develop new technology.

Furthermore, the right to hold shares and the economic rights attached to

this ownership, such as the right to dividend in a company, are a part of the

private property rights for the shareholders protected in article 73 of the

Danish Constitution. Limitation of such property rights must comply with

the rules of expropriation.

While we share intention of companies contributing to long-term sustaina-

bility, the potentially harmful effects should therefore be considered very

carefully before moving forward with such proposals.

Stakeholders’ involvement

in company decisions and the enforcement of

the duty of care

It is the view of the Danish Government that many of the most successful

Danish companies in recent years are the ones who have shown that they

take into account the interests of their stakeholders and the surrounding

society. The Danish Government thus supports the view that

companies’

stakeholders’ interests are very relevant and that the best way of engaging

these stakeholders is by introducing mandatory due diligence. However, it

is often unclear who these stakeholders are and it is often difficult to nar-

row down the most relevant stakeholders, and then in which form, how,

and when they should be involved. It is a concern for the Danish Govern-

ment that if the regulation outlined by the Commission is adopted, it may

have negative consequences if the companies do not comply with a duty to

involve certain stakeholders. This could lead to a general increase in the

circle of litigants entitled to sue the company, which then would introduce

a high degree of legal uncertainty for companies.

Scope

As regards the scope of the outlined initiative, it is unclear which compa-

nies will be included, including listed/non-listed companies, large compa-

nies,

SME’s and/or

micro-enterprises. Significant burdens will be imposed

URU, Alm.del - 2020-21 - Bilag 125: Erhvervsministeriets orienteringsnotat samt høringssvar vedrørende bæredygtig selskabsledelse

SME’s and micro-enterprises

if they become part of potential legisla-

tion. The Danish Government does not consider it appropriate to allow ex-

ternal stakeholders to have a direct influence on the management of espe-

cially

SME’s and micro-enterprises.

Impact assessment

The Commission’s upcoming proposal is primarily based on the heavily

criticized report by Ernest and Young (EY)

”Study

on directors’ duties and

sustainable corporate governance”.

The conclusions from the report

have

been criticized by e.g. company law professors around the world and nu-

merous business organizations. This criticism was repeated from Danish

stakeholders in the hearing by the Danish Government leading up to this

response. The Danish Government is therefore of the opinion that the need

and the foundation for an upcoming EU proposal on corporate governance

has not been documented and we recommend the Commission to provide

a better basis for decision-making.

Final remarks

The Danish Government has decided not to fill in the questionnaire as we

find it difficult to provide precise and nuanced answers to many of the que-

stions by filling in the questionnaire. This is a viewpoint shared by many

Danish stakeholders and we urge the Commission to consider other inputs

provided by Member States and stakeholders to gain a representative un-

derstanding of the stakeholder engagement. Two annexes are attached to

further elaborate our contributions towards mandatory due diligence and

corporate governance.

The Danish Government would once again encourage the Commission to

separate the two initiatives on mandatory due diligence and corporate

governance and focus on a legislative proposal on mandatory due diligence

since this would be the best way to achieve the goal of companies actively

contributing to a more sustainable future.

The Danish Government remains at your disposal for any further questions

and stands ready to contribute throughout the process.