Erhvervsudvalget 2020-21
ERU Alm.del
Offentligt
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NOTE
1. februar 2021
Annex on the initiative on mandatory corporate due diligence
The Danish Government welcomes the European Commission’s
initiative
to
in-
troduce a legislative proposal on mandatory due diligence that encourages
sustainable and responsible business conduct globally by contributing to
an efficient smart mix of mandatory and voluntary measures.
COVID 19 has shown that in order to manage crises effectively and fle-
xibly, companies are well advised to have a close understanding of their
value chains, know their suppliers and cooperate with them to address any
adverse impacts and vulnerabilities.
Definition of due diligence
The term due diligence should be used in accordance with the risk-based
due diligence concept developed by the United Nations (UN) Guiding
Principles on Business and Human Rights (UNGPs) and OECD’s Guide-
lines for Multinational Enterprises as revised in 2011.
Risk-based due diligence is a process to identify, prevent, mitigate and ac-
count for harmful impacts caused by the company, or to which the com-
pany contributed, or impacts that are directly linked to its operations, pro-
ducts or services by its business relationship with another entity. Risk-ba-
sed due diligence is characterized as a management approach. It should be
an ongoing and contextual process that involves stakeholders, in particular
those affected by the risk.
The Danish Government will draw attention to the importance of due dili-
gence not becoming a tick-box exercise. The Commission can carefully
consider how to obtain the intended objectives of due diligence without
causing a shift from identifying and preventing harm on the ground through
a management process on to compliance with a statutory requirement; and
involve socio-legal expertise with knowledge of regulatory strategies on
organisational change to help provide input for this purpose.
Related regulation
Some EU regulation regarding risk-based due diligence is already in place
such as the EU Conflict Minerals Regulation, the NFRD Directive, the
Disclosure Regulation, and the standard setting Taxonomy Regulation. It
is therefore important to ensure that new regulation does not conflict or
overlap with existing legislations.
ERU, Alm.del - 2020-21 - Endeligt svar på spørgsmål 370: MFU spm. om den danske regering vil bekæmpe forslaget og i givet fald bedes oplyst, hvordan regeringen vil forsøge at standse dette forslag, til erhvervsministeren
In Denmark, mandatory reporting on corporate social responsibility (CSR)
was introduced with effect from the financial year 2009 through an amend-
ment to the Act on Financial Accounts.
In 2012, the Danish legislature adopted an Act that provided the Danish
OECD NCP with a statutory basis. According to the NCP Act, NCP Den-
mark is an independent body within the public administration. It comprises
five members, including three appointed based on nominations from indu-
stry, labour unions and civil society. A secretariat is provided by the Da-
nish Business Authority.
An EU legal framework
The Danish government acknowledges that mandatory EU due diligence
can contribute effectively to a more sustainable development, including in
non-EU countries. A harmonization in this area will reduce regulatory frag-
mentation between Member States and additional administrative burdens
for the companies, as emerging national laws in this field are quite diffe-
rent.
On the other hand, an EU legal framework can lead to possible risks. An
EU legislation on due diligence must be aware not to cause:
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Disproportionate administrative costs and procedural burdens
Penalization of smaller companies with fewer resources
Competitive disadvantage vis-à-vis third country companies not
subject to a similar duty
Responsibility for damages that the EU company cannot control
Disengagement from risky markets, which might be detrimental for
local economies
The UNGPs and OECD’s Guidelines
set out the aim for companies to iden-
tify and manage risks, ultimately and ideally to avoid harm. This presumes
an ongoing and contextual process suited to the dynamic character of the
risk in question. We recommend the Commission to be mindful that due
diligence as a legal standard of conduct may involve that due diligence
processes must be standardised risking to reduce the flexible, dynamic and
risk-based
characteristics of the UNGP and OECD Guidelines’ due dili-
gence concept.
Yet, without a legal
standard of conduct for companies’ due diligence
pro-
cesses it will be difficult to deliver legal certainty for companies regarding
societal expectations or potential sanctions, 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. This might detract from their efforts to effectively identify and
manage risks through an ongoing and contextual process. Evidence of
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ERU, Alm.del - 2020-21 - Endeligt svar på spørgsmål 370: MFU spm. om den danske regering vil bekæmpe forslaget og i givet fald bedes oplyst, hvordan regeringen vil forsøge at standse dette forslag, til erhvervsministeren
company actions and responses to increasingly detailed requirements on
non-financial reporting suggests that detailed requirements and penalties
may enhance compliance orientation at the cost of effective contextual due
diligence. The Commission should be mindful of the risk that EU legisla-
tion results in a mere tick-the-box exercise for companies with no real im-
pact. This means considering whether a standard of conduct will deliver
better protection for the violated part than a requirement about a manage-
ment process.
With the aim to introduce harmonized EU regulation the Danish Govern-
ment initially considers positively a horizontal due diligence regulation
that is cross-sectorial and cross thematic, covering human rights, social and
environmental matters and are in line with both UN Guiding Principles on
Business and Human Rights, the ILO Tripartite Declaration of Principles
concerning Multinational Enterprises and Social Policy and the OECD
Guidelines for Multinational Enterprises.
The horizontal regulation is preferable because many problems are not li-
mited to one sector or theme and it is often not possible to deal with them
in isolation. Where necessary the horizontal regulation could be comple-
mented by EU-level general or sector specific guidance or rules like the
Timber Regulation.
The Danish Government highlights that the initiative will have to find a
balance between flexibility and precision.
Scope of the due diligence legislation
Many European companies are part of global supply chains and engage in
business operations outside of the EU. It is therefore key that any legisla-
tive framework in the EU takes an international perspective in order not to
compromise the competitiveness of European companies and avoid losing
global market shares to companies that are not met by the same require-
ments and are not upholding the same standards.
Regulating only the largest companies, requirements will still trickle down
the value chains and affect many smaller companies as well. It is therefore
recommended to use a step-by-step approach and start with the largest
companies, while we collect knowledge and experience for mandatory re-
quirements for the largest companies before potentially expanding to smal-
ler companies.
Mandatory requirements to a simplified standard for SMEs would be an
ambitious goal in the long term, but in the short term a voluntary solution
accompanied by SME specific guidance is considered the optimal solution
in order to collect experiences and best practice. Regulation should be de-
veloped with respect to the resources available for small and medium size
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ERU, Alm.del - 2020-21 - Endeligt svar på spørgsmål 370: MFU spm. om den danske regering vil bekæmpe forslaget og i givet fald bedes oplyst, hvordan regeringen vil forsøge at standse dette forslag, til erhvervsministeren
companies. SMEs should have detailed non-binding guidelines catering for
their needs.
SME´s are not familiar with due diligence procedures to the same extent
as larger companies among other reasons because they are not covered by
NFRD requirements. It is important that proportionality principles take this
fact into account and that considerations are made regarding a special sy-
stem for the SME´s. The level of risk assessment should play a crucial role
in these considerations.
Consideration needs to be given to the practical challenge companies could
face to comply with legislation, including overview of large and complex
supply chains and how to handle subcontractors with which the company
does not have a direct relation. This is also in line with the OECD Guide-
lines, where leverage and responsibility go hand in hand.
Enforcement mechanism and sanctions
It is crucial that there is a realistic possibility of carrying out the control
necessary to ensure real impact of the rules. In addition, the role of sanc-
tions must be considered in more detail, because financially burdensome
sanctions in the form of compensation must be proportionate to the breach
of the obligations.
It is essential that affected stakeholders (victims) have the required resour-
ces to carry out a claim. Moreover, to obtain a compensation a legal stan-
dard of conduct would also be required
so that the company’s due diligence
can be assessed and found adequate or deficient. However, it is still impor-
tant to keep in mind, that risked-based due diligence is an on-going dyna-
mic process and must therefore not be a thick-the-box exercise.
In general, the general aim of regulation and enforcement is not to oblige
companies to compensate victims in individual cases. This means that pri-
vate enforcement still has an important role to play, holding companies
liable under tort law for the harmful effects of human rights violations.
Access to Remedy
Access to remedy for risks that occur in host countries as a result of the
activities of multinational enterprises is often restricted due to the jurisdic-
tional limits of national courts. As home state courts typically cannot deal
with issues occurring in host states or along the supply chain in third coun-
tries, affected stakeholders need to apply for remedy with institutions in
their own country. Weak institutions, law and/or enforcement in host states
can make access to courts difficult or ineffective for affected stakeholders
in those countries.
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ERU, Alm.del - 2020-21 - Endeligt svar på spørgsmål 370: MFU spm. om den danske regering vil bekæmpe forslaget og i givet fald bedes oplyst, hvordan regeringen vil forsøge at standse dette forslag, til erhvervsministeren
The present system on due diligence is voluntary and is based primarily on
the UN Guiding Principles for Responsible Business Conduct and OECD’s
Guidelines for multinational enterprises. Part of the OECD Guidelines is
the establishment of the NCP system, where the national contact points
(NCP´s) are intended to raise awareness of the OECD Guidelines and to
establish a complaint-handling system where everyone has the opportunity
to file a complaint concerning a company that does not carry out due dili-
gence as mentioned in the guidelines. An essential element of the system
is a mediation function. In addition, the NCP’s can make statements,
including criticisms, in connection with the company’s compliance with
OECD guidelines, as well as make recommendations in this regard. There
is no possibility of the NCP awarding financial compensation to the com-
plainant.
The Danish NCP is renowned for being law-based, for including both pri-
vate companies and public institutions and for providing opportunities to
take up cases on the NCP´s own initiative. Central parts of the Danish sy-
stem are the task of creating awareness of the OECD Guidelines, the broad
and simple right of complaint with no fee and a simple complaint proce-
dure, the use of alternative solutions based on dialogue and mediation and
the opportunity to give criticism and recommendations which are publis-
hed on the NCP´s website. Based on experience the Danish NCPs involve-
ment in specific cases and its recommendations often help the companies
to develop their due diligence processes. Therefore, the promotional tasks,
complaint procedures, mediation possibilities and publishing of criticism
and recommendations should be preserved in a new system on due dili-
gence.
The Danish Government recommends the Commission to consider learnings
from the OECD NCP system regarding access to non-judicial remedy and we
would be pleased to exchange experience from the Danish law-based NCP.
The NCP system has a unique possibility of granting affected stakeholders
access to remedy due to the extraterritorial competence and the conflict-sol-
ving approach. It secures access to justice and is less costly than a judicial
system.
Stakeholder engagement
In the due diligence processes, it is important to engage relevant stakehol-
ders. The UNGP and the OECD guidelines use the expression “affected
stakeholders”. That is to be understood as persons that are or can be directly
affected by adverse impacts in which case, they will become victims or
violated. This is relevant both in the process of identifying the risks and in
process of investigating whether the risk has been handled in a responsible
manner.
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ERU, Alm.del - 2020-21 - Endeligt svar på spørgsmål 370: MFU spm. om den danske regering vil bekæmpe forslaget og i givet fald bedes oplyst, hvordan regeringen vil forsøge at standse dette forslag, til erhvervsministeren
The Danish Government recommends the Commission to clearly define
the roles of stakeholders in order to improve legal certainty for companies.
Summing up it appears important to combine the aims of legal certainty,
level
playing field, enforcement and victims’ access to (substantive)
remedy with civil claims and equality of arms that appear to presume a
legal standard of conduct, with due diligence as a risk management process
and the aim of companies not causing harm. Due diligence must not be-
come a tick-box exercise. This is in accordance with the idea of due dili-
gence as a management process that is ongoing, contextual and fit to iden-
tify risks that may be subject to dynamic change.
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