Law and global order: EU legislation on human rights due diligence

In 2019 a coalition of Ugandan and French civil society organisations became the first complainants to sue a transnational corporation under France’s 2017 duty of vigilance law. The group argues that the French oil giant, TotalEnergies, failed to conduct due diligence on the impact of its drilling activities in Uganda, resulting in serious human rights and environmental violations. On 15 December 2021, France’s supreme court delivered a significant victory for the coalition. Ending years of procedural wrangling, the court ruled that the merits of the case should be heard in a civil court according to the 2017 law – and not in a commercial court, as Total had argued. Therefore, Total could become the first European company ruled to have taken inadequate steps to ensure that human rights abuses do not take place anywhere in its value chain and partnerships.

The ruling comes at an opportune time for the French presidency of the Council of the European Union, which – as one element of its programme – aims to improve the EU’s social and environmental corporate governance. Many companies are already working to ensure their business practices align with UN and OECD guidance on human rights and responsible conduct. However, a mandatory human rights due diligence (HRDD) law would level the playing field, providing clarity for European firms and the EU’s partners. Such legislation would also complement the European Green Deal and Global Gateway initiatives.

Voluntary standards and mechanisms on HRDD are relatively ineffective, as they weaken incentives for responsible corporate behaviour. This is why the drive for mandatory HRDD laws has been gaining momentum. European countries are leading the way: France, Germany, the Netherlands, and Norway have all passed laws in the area. The first three of these countries account for slightly more than 49 per cent of the GNI of the EU. Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, Spain, Sweden, Switzerland, and the United Kingdom are either debating such laws or awaiting European HRDD legislation.

As with many EU policy initiatives, an HRDD law will have a significant impact beyond the union’s borders. Any European multinational or other company that operated in the single market would need to engage in responsible and ethical practices along its entire supply chain. Accordingly, the EU would leverage its market power and assume regulatory leadership to promote its values in the world. As an HRDD law would also affect trade relations, it should feature in the ongoing trade and sustainable development review.

For the EU’s partners, this would be a powerful mechanism to enhance the positive effects of multinationals’ business practices and curb the negative ones. It would help ensure that corporate activities align with the EU’s development goals in good governance and anticorruption. Developing countries have long pushed mechanisms to temper and manage multinational companies in global forums.

Some European companies have expressed concern about the effects of HRDD laws on their competitiveness. Indeed, there may be some short-term costs for these firms, particularly those that have not participated in voluntary standards and reforms. However, corporations should view the costs of HRDD laws not as a burden but as an investment. The fair practices that emerge from long-term, sustainable, and inclusive reform mean that companies can make savings and even develop new value-creation models, enhancing their social licence to operate.

If an HRDD law is to succeed, the European Commission will need to clearly communicate with European companies and partner countries and organisations on the issue. This will require coordination between the directorate-generals for trade and justice and consumers, as well the European External Action Service. Together, they should reach out to diplomatic, business, financial, industrial, and civil society stakeholders. They should educate these stakeholders about the law and its implications for current and future investments and other activities, and should provide advisory services to promote compliance with it.

If the EU fails to do so, this promising initiative could be widely interpreted as an imposition: an example of European arrogance and insensitivity that limits partner countries’ policy options. This would reduce the competitiveness of European companies abroad.

A constructive dialogue, in contrast, would highlight the benefits of HRDD laws. Such an approach would help establish a more just and equitable global business environment. Indeed, an HRDD law would provide the EU with an opportunity to mould sustainable development around the world.

The introduction of a mandatory, EU-wide HRDD law will create a consistency that benefits its partners and European companies. Furthermore, normalising and standardising HRDD beyond Europe would serve the EU’s economic, political, and security interests. It would enhance the rules-based international order by promoting openness and fairness, as well as peace and stability, through the protection of human rights. If the EU carefully communicates these advantages to all stakeholders, this will be an important step forward.