Amended Dutch due diligence proposal aims to increase pressure on Dutch legislator and European Commission
On 1 November 2022, six Members of the Dutch Parliament presented the amended Responsible and Sustainable Business Conduct Bill (Wet verantwoord en duurzaam internationaal ondernemen, "the amended Bill"1 ) to the Dutch legislature.
Application and scope
Certain EU companies – a general statutory duty of care
The amended Bill intends to impose a general statutory duty of care on certain EU companies – not tied to specific sectors – that know or reasonably can suspect that its own activities or its business relationships' activities may have adverse impacts on human rights or the environment in countries outside the Netherlands. If that is the case, such a company must (i) take all measures that can reasonably be requested from it to prevent such impacts; (ii) where impossible, mitigate or reverse these impacts as much as possible, and, where necessary, remedy such impacts; and (iii) where the impacts cannot sufficiently be mitigated, terminate the activities insofar as this can reasonably be requested from the company. The amended Bill contains a non-exhaustive list of examples specifying when (inter)national human rights, including labour rights, or the environment are negatively affected. This is the case if the value chain (the entirety of an undertaking's activities as well as activities of its business relationships) involves, for example, a restriction on the freedom of association and collective bargaining, discrimination, forced labour, child labour, climate change, environmental damages, unsafe labour conditions, violation of animal welfare regulations, slavery, or exploitation.
In line with an earlier statement of the Dutch Minister of Foreign Trade and Development Cooperation, the amended Bill aims to replace the Child Labour Due Diligence Act, which has been passed, but is not yet in effect.
Large EU companies – a due diligence obligation
Apart from the general statutory duty of care, large companies engaging in activities in countries outside the Netherlands would be obliged to conduct due diligence (a company qualifies as large if it exceeds at least two of the three following criteria on its balance sheet date: (1) balance sheet total: EUR 20 million; (2) net revenue: EUR 40 million; or (3) average number of employees during the financial year: 250). In line with the OECD Guidelines for Multinational Enterprises, the due diligence obligation for such companies consists of six elements: (1) having a due diligence policy in place for which one of the directors will become responsible; (2) making a risk assessment of the negative impacts of the business' own activities as well as those of the business relationships; (3) having an action plan and a climate plan to prevent, mitigate or terminate the identified risks of its own activities and its business relationships that cause or contribute to negative impacts; (4) monitoring of implementation and effectiveness; (5) reporting annually; and (6) having a remediation mechanism in place and offering remediation or contributing to it.
Large non-EU companies – a general statutory duty of care and a due diligence obligation
The general statutory duty of care and the due diligence obligation would also be imposed on large non-EU companies (see the criteria above), conducting activities in the Netherlands or selling products on the Dutch market.
Observations on the amended Bill
The amended version of the bill that was initially introduced in 2021 before the draft of the EU CSDDD was published, incorporates elements of the proposed EU CSDDD, the Building Blocks as presented by the Dutch government in its non-paper of November 2021 (see here for more details) and the (negative) advice of the Dutch Council of State on the March 2021 version of this bill.
The scope of the amended Bill goes further than the draft CSDDD which is limited to due diligence obligations for large companies and certain companies in high-sector industries only. One of the most striking differences is the introduction of a general statutory duty of care for all EU companies, even those that do not fall within the scope of the proposed EU CSDDD. This is in line with the Building Blocks and is based on the unwritten standard of care of Article 6:162 of the Dutch Civil Code ("DCC") as for example relied on by Milieudefensie et al. in the case against Shell (see further our briefing here). During the summer, the Dutch Minister of Foreign Trade and Development Cooperation explored whether other European Member States (i.e., France, Germany, Denmark, Sweden, Finland, Czech, Ireland and Estonia) are willing to incorporate such a general statutory duty of care in the EU CSDDD proposal. These Member States have not yet taken a position regarding such a general statutory duty of care.
In line with the proposed EU CSDDD, the amended Bill includes the administrative enforcement mechanism alongside civil liability provisions. Moreover, the initiators propose to introduce criminal enforcement in case of non-compliance with the reporting obligation. Similar to Article 22 (Civil Liability) of the proposed EU CSDDD, the amended Bill introduces a provision to help victims or groups of victims. Under Article 3:305a DCC, a representative entity may bring damages claims on behalf of (international) parties in a class action before any district court in the Netherlands. However, the court only allows class actions that have a sufficiently close connection to the Dutch jurisdiction. The amended Bill provides that Article 3:305a DCC class actions against a (foreign) company falling under the scope of the amended Bill are assumed to have a sufficiently close connection to the Dutch jurisdiction (in the sense of Article 3:305a(3)(b) DCC).
The initiators also propose to shift the burden of proof to the company, something that is not done under article 22 of the EC's CSDDD draft. Where victims can establish that the company's acts or omissions caused damage, the burden of proof shifts and the company needs to prove that it has not acted in breach of any obligation under the amended Bill. This amendment was included upon the advice of the Dutch Council of State and is designed to improve the victims' access to justice. This is also in line with the recently updated Dutch National Action Plan on Business and Human Rights.
In its Building Blocks the government advocated that listed small and medium-sized enterprises as defined in the EU Accounting Directive (2013/34/EU) and medium-sized companies in objectively identified high risk sectors should also fall within the scope of the new EU due diligence legislation. These companies do not fall under the scope of the due diligence obligation as formulated in the amended Bill. Another difference concerns the appointed authority for the administrative enforcement. In its Building Blocks the Netherlands invited the European Commission to consider whether the enforcement should take place at EU level or through the designation of national competent authorities. In the amended Bill, the initiators suggest appointing the Netherlands Authority for Consumers and Markets (Autoriteit Consument & Markt) as national supervisor of compliance with the Bill. The authority would be empowered to issue financial sanctions, including administrative fines, for non-compliance with the due diligence obligation.
By submitting this amended proposal, the Members wish to ensure that the Netherlands continues to be committed to developing ambitious national due diligence legislation and that the European Commission speeds up the legislative process at EU level. The legislator is likely to take the amended Bill into consideration. In May 2022, the Dutch Minister for Foreign Trade and Development Cooperation reconfirmed that she will publish her own proposal. This proposal is now scheduled for early 2023.The Dutch Minister of Foreign Trade and Development Cooperation is expected to advocate for ambitious EU due diligence legislation to generate maximum positive impact in third countries whilst safeguarding a level playing field for EU companies. It remains to be seen whether the Dutch political coalition proceed with the amended Bill, make further amendments or await the proposal of the Dutch Minister.
1 Please find an unofficial English translation of the Bill here.