Editor's Note: Dr. Johannes Weichbrodt is partner and James Ford and Libby Reynolds are associates at Mayer Brown LLP. This post is based on a Mayer Brown memorandum by Dr. Weichbrodt, Mr. Ford, Ms. Reynolds, Sam Eastwood, Musonda Kapotwe and Peter Pears. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita; and For Whom Corporate Leaders Bargain (discussed on the Forum here); and Stakeholder Capitalism in the Time of COVID, both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).
On 23 February 2022, the European Commission published its much-anticipated draft corporate sustainability and due diligence directive (the Draft Directive), after a number of delays (see our Previous Blog). The Draft Directive sets out a proposed EU standard for human rights and environmental due diligence (HREDD). This includes an obligation for companies to take appropriate measures to identify actual and potential adverse human rights and environmental impacts arising from their own operations or those of their subsidiaries and, where related to their value chains, from their "established business relationships". The Draft Directive also provides a mechanism for sanctions to be imposed for non-compliance with the due diligence obligations and provides for director responsibility and accountability in relation to a company's HREDD programme.
Whilst the Draft Directive remains subject to further legislative scrutiny and approval, it provides the most detailed insight yet as to the scope and form of the prospective EU HREDD obligations, and it provides a helpful template for corporates to continue developing their due diligence policies and procedures designed to identify, assess and mitigate adverse human rights and environmental impacts-both in their operations and in their supply chains.
Furthermore, the Draft Directive will have implications for banks, insurers and other financial institutions, which will have to undertake further due diligence on clients and their subsidiaries to whom they extend loans, credit and other financial services1 in light of the obligations set out therein.
Originally published 15 March 2022 (Harvard Law School Forum on Corporate Governance)
1. "Other financial services" are not expressly defined in the Draft Directive.
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Previously published in the Harvard Law School Forum on Corporate Governance.