In an era riddled with uncertainty, economic, environmental, and social crises, the recent focus has shifted towards the promotion of sustainable practices in the global economy. To make this pivot effective, influential economic players first had to be identified and brought on board, followed by the drafting of regulatory framework introducing responsibilities vis-à-vis both stakeholders and society. The system of cheap products shipped from overseas, in reality, hid heavy costs in terms of blatant human rights violations, child labor, corruption, and environmental tragedies – just not for Western consumers. Deadly catastrophes like the collapse of the Rana Plaza in 2013^[1] shed light on the need to regulate global supply chains in order to combat the violation of human rights, inhumane labor conditions, exploitation, discrimination, and environmental destruction.

The European Community cannot afford to turn a blind eye when basic rights such as the right to a clean and healthy environment[2], the free choice of work[3], and the livelihood of future generations are at stake. In 2019, the European Commission set the priorities for the upcoming years with the European Green Deal.^[4] It mentioned tackling climate and environmental-related issues as this generation’s defining task, all while putting people first and paying attention to “regions, industries and workers who will face the greatest challenges”, highlighting the need for “a new path of sustainable and inclusive growth”. The recent adoption of national legislation ensuring fair conditions in supply chains gives reason for optimism but still presents a fragmented landscape. In order to level the playing field in the Internal Market, in 2022, the European Commission introduced a proposal comprising rules for mandatory corporate environmental and human rights due diligence as part of a Sustainable Corporate Governance initiative^[5]. The European Parliament’s plenary session at the start of June has opened the door to the final phase of negotiations on the Corporate Sustainability Due Diligence Directive proposal (CSDDDP)^[6].

In the following, two cornerstone developments of corporate sustainability due diligence in national legislation will be analyzed, notably the French and German acts. These two national laws are the first examples of mandatory due diligence with an extraterritorial scope, which constituted the main driving force behind the CSDDDP which recently sparked heated debates in EU politics. Considering that these two laws have been in force for some time, it is now possible to understand their modus operandi and what to expect from a similar European legislation.

France was the first to adopt a law on the mandatory duty of vigilance (Loi de Vigilance^[7]) in 2017, followed by Germany in 2022, entering in force at the beginning of 2023, regulating supply chains (Lieferkettensorgsfaltsplichtengesetz^[8], or by its more commonly used name which I will also be using in this article, Lieferkettensgesetz).

Even though the structure of the French regulation is in conformity with the United Nations Guiding Principles on Business and Human Rights^[9] (UNGPs), proposed by the UN Special Representative on business and human rights in 2011, it is of lesser detail than its new German counterpart, its rules merely modifying the French Code de commerce, and aligning themselves with already established procedures, including by laying down rules for a “whistleblowing” procedure already detailed in French legislation. Under the French act, enterprises must also put in place a vigilance plan and alert mechanism in order to identify risks and to mitigate infringements on human and fundamental rights, as well as the health and security of persons and the environment, elaborated as part of a multi-stakeholder initiative within a given sector or on a regional scale.^[10]  If a company served with formal notice to comply with the obligations set out fails to do so within three months of the formal notice being served, the competent court may, at the request of any person with an interest in the matter, enjoin the company to comply, subject to a fine where appropriate. The rules establishing the active legal capacity of persons with a legitimate interest in a trial are of great importance, as they have opened the possibility for NGOs and other actors to step up in defense of ESG considerations.^[11]

The French law’s value chain scope is extended to companies’ own operations, as well as that of their subsidiaries. The goal of the German Act has been defined as ‘protecting the rights of people who produce goods for the German market’. As such, the German legislation extends its scope to that of the French act and also goes a step further choosing to regulate activities regarding not only ‘established business relationships’ with suppliers and subcontractors but also direct suppliers and indirect suppliers in case they gain knowledge of possible instances of abuse. Other than uniform, cross-sectoral mandatory regulation, other countries have introduced sectoral laws, the most notable being the Child Labor Act in the Netherlands^[12] and have benefitted from soft-law principles in different forms: corporate governance codes in Spain^[13], “covenants” in the Netherlands^[14], and a National Action Plan in Poland^[15], to implement EU standards.

It is also important to note, that both acts, with slightly different margins, apply to only some of the largest global companies^[16], as one of the main critiques of due diligence regulations has been the unnecessarily large administrative duty that they transfer upon SMEs, which do not benefit the extensive administrative apparatus larger companies enjoy. Though several other EU laws indirectly influence sustainable corporate governance such as the Non-Financial Reporting Directive^[17], the Sustainable Finance Disclosure Regulation^[18], or the Taxonomy Regulation^[19], they regularly exclude SMEs from their direct scope of application, nevertheless, indirectly, through reporting obligations down the supply chain, find themselves affected.

The Lieferkettensgesetz also follows the structure of the UNGPs, standing on three pillars: protect, respect, and remedy. This tripartite logic is reflected in the German Act, identifying first due diligence obligations with the mandatory establishment of a risk management and assessment system and protective measures like the implementation of a human rights strategy, policy statements, training, and preventive measures.^[20] The Act provides for remedial action as well in cases of a violation of human rights or environmental obligations in its own business area or by a supplier and establishes an accessible, confidential, and comprehensible complaints procedure to be conducted by impartial persons.^[21] The law also opens the possibility for persons to authorize domestic trade unions and non-governmental organizations to bring proceedings to enforce their rights in their own capacity.^[22]

Though both laws have entered into force, their case law is still rather scarce, partially due to the fact that both are still rather new, but also because these types of cases rarely arrive at trial. Most recently, a landmark case against TotalEnergies^[23] in France was dismissed without a decision on the merits. The case was filed by six NGOs arguing that during the development of the East African Crude Oil Pipeline (EACOP) TotalEnergies failed to adhere to their duty of vigilance, as the project would take land from more than 100.000 persons without adequate compensation, and that the company equally failed to minimize environmental damages. The plaintiffs asked for TotalEnergies to establish and publish a vigilance plan, and to execute its vigilance mechanisms by compensating the people living on the affected territories and ensuring sufficient nutrition for them until the restoration of land quality and offering the people the possibility to participate in decision-making in the EACOP and Tilenga projects, and called for the suspension of the execution of the two projects.

The case was passed from one court to another as a ticking time bomb. Though the claims were filed at the judicial tribunal in Nanterre, TotalEnergies argued that the case should be heard by a commercial court. This was ruled against by the Paris Court and it was decided that a judicial tribunal should have jurisdiction on the case, a ruling which TotalEnergies appealed against. The Paris Court’s decision was however confirmed, and the case was moved to a single judge. With regards to the company’s projects’ pressing timeline, causing infringement on locals’ basic rights and endangering their livelihood, the plaintiffs asked for interim measures to suspend TotalEnergies’ operations until the final decision. The case was dismissed by the interim judge arguing that the claims exceed its competence and should be examined in depth based^[24] on the merits of the case. The basis for dismissal in the judgment was also the “modification of claims” since the 2018 initial formal notice. As such, the merits of the case were not ruled on, and the long-awaited verdict of the first duty of vigilance case left civil society disappointed. Currently, there are ongoing cases against several companies including Suez, BNP Paribas, McDonald’s, Yves Rocher, and Casino Group. The first German case was also recently filed at the German Federal Office of Economics and Export Control (BAFA) by the National Garments Workers Federation and with the support from the European Centre for Constitutional and Human Rights against Tom Tailor, Amazon, and IKEA, the date of the filing marking the 10^th anniversary of the Rana Plaza tragedy.

On the basis of its current text, the EU’s future CSDD Directive will take on to integrate due diligence in policies, identify, prevent, and mitigate adverse human rights and environmental impacts, and establish and maintain a complaints procedure. The proposal will also push companies to comply with the Paris Agreement and take measures to ensure that their business operations are in line with the 1,5 degree Celsius global warming limit. During the trilogue phase, several conflicting issues^[25] will have to be solved between the Parliament and the Council, including the definition of terms such as “established business relationship”, “downstream value chain” and “appropriate measures” as well as resolve among others the question of the responsibility of directors.

The French and German acts have laid down the bases for an adequate corporate sustainability due diligence framework. The new European legislation will be based on the same principles, with the advantage^[26] of preventing legal fragmentation, additionally with an aim of meeting investor expectations through transparency and satisfying consumers with increasing needs for ethically produced products. Since national CSDD laws are new, they provide a rather scarce case law, with no tangible results so far. But taking into consideration the heated debate between the European Parliament and the Council on the European CSDDD proposal, it is fair to expect, the Directive is not going to be more ambitious than the national laws. Nevertheless, the CSDDD Proposal, if adopted, is going to be an important step towards a more sustainable world economy, but without rules setting out the liability of directors, by leaving out the financial sector, or allowing contractual liability exclusions, there is a risk of the application of a watered down European framework.

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Adria NIESSNER is a final year law student at Eötvös Loránd University and Master 1 student at the joint Hungarian and French law program of Panthéon-Assas and Eötvös Loránd Universities. She is a Corporate Legal Intern at a leading international law firm in Budapest and she specializes in corporate and employment law.

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[1]‘Bangladesh building collapse kills at least 123, injures more than 1000’ https://edition.cnn.com/2013/04/24/world/asia/bangladesh-building-collapse/index.html (Accessed: 26 June 2023)

[2] For further information on this topic: https://www.undp.org/sites/g/files/zskgke326/files/2023-01/UNDP-UNEP-UNHCHR-What-is-the-Right-to-a-Healthy-Environment.pdf

[3] For further information on this topic: https://discovery.ucl.ac.uk/id/eprint/10125709/1/Mantouvalou_Article%2015.pdf

[4] European Commission, ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – The European Green Deal’ COM (2019) 640 final (11 December 2019).  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52019DC0640 (Accessed: 26 June 2023)

[5]Sustainable Corporate Governance Initiative https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12548-Sustainable-corporate-governance (Accessed: 26 June 2023)

[6]European Commission, Proposal for a Regulation of the European Parliament and of the Council on Corporate Sustainability Due Diligence, COM(2022) 51 final https://oeil.secure.europarl.europa.eu/oeil/popups/ficheprocedure.do?lang=en&reference=2022/0051(COD)

[7]Loi n° 2017-399 du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre, JO 28 mars 2017. (In English: Law No. 2017-399 of 27 March 2017 relating to the duty of vigilance of parent companies and ordering companies, OJ 28 March 2017.) https://www.legifrance.gouv.fr/jorf/id/JORFTEXT000034290626 (Accessed: 26 June 2023)

[8]Act on Corporate Due Diligence Obligations in Supply Chains, 22 July 2021. https://www.bgbl.de/xaver/bgbl/start.xav?startbk=Bundesanzeiger_BGBl&jumpTo=bgbl121s2959.pdf#__bgbl__%2F%2F*%5B%40attr_id%3D%27bgbl121s2959.pdf%27%5D__1689929270506 (Accessed: 26 June 2023)

[9]United Nations Guiding Principles on Business and Human Rights https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf (Accessed 26 June 2023)

[10] Loi de Vigilance, Article 1.

[11] Loi de Vigilance, Article 2.

[12]Child Labor Due Diligence Act, NL, 2019. https://www.eerstekamer.nl/9370000/1/j9vvkfvj6b325az/vkbklq11jgyy/f=y.pdf (Accessed: 26 June 2023)

[13] Good Governance Code of Listed Companies, Spain. https://www.cnmv.es/DocPortal/Publicaciones/CodigoGov/CBG_2020_ENen.PDF (Accessed: 26 June 2023)

[14]Agreements on International Responsible Business Conduct https://www.imvoconvenanten.nl/en/agreements (Accessed: 26 June 2023)

[15]  Polish National Action Plan for the Implementation of the United Nations Guiding Principles on Business and Human Rights 2017-2020. https://www.ohchr.org/sites/default/files/Documents/Issues/Business/NationalPlans/PolandNationalPland_BHR.pdf (Accessed: 26 June 2023)

[16] Loi de Vigilance, Article 1. Lieferkettensgesetz, Section 1(1).

[17] Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, OJ L 330/1 (15 November 2014).

[18] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector, OJ L 317/1 (9 December 2019).

[19] Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088, OJ L 198/13 (22 June 2020).

[20] Lieferkettensgesetz, Section 3(1)

[21] Lieferekettensgesetz, Section 8

[22] Lieferekettensgesetz, Section 11(1)

[23]‘Amis de La Terre France, The National Association of Professionnal Environmentalists, Africa Institute for Energy Governance v. TotalEnergies SE’,  N° Portalis 352J-W-B7G-CXB4, 2023 : https://www.amisdelaterre.org/wp-content/uploads/2023/02/decisiontj-paris-totalouganda-28fev2023.pdf (Accessed: 26 June 2023)

[24] Ongoing cases: https://plan-vigilance.org/les-affaires-en-cours/ (Accessed: 26 June 2023)

[25]CSDDDP Legislative Train https://www.europarl.europa.eu/legislative-train/theme-an-economy-that-works-for-people/file-legislative-proposal-on-sustainable-corporate-governance (Accessed: 26 June 2023)

[26] Questions and Answers: Proposal for a Directive on corporate sustainability due diligence https://ec.europa.eu/commission/presscorner/detail/en/qanda_22_1146 (Accessed: 26 June 2023)