EU: Study highlights the need for downstream due diligence obligations in the mining equipment sector
"Downstream due diligence in the European mining equipment industry", 3. March 2023
Brief Summary
European mining equipment manufacturers are on a large scale cooperating with and supplying mining projects that are known for human rights abuses and environmental destruction as a number of various business relationships show. The lack of legislation requiring companies to have human rights and environmental due diligence policies for their so-called downstream value chains makes this possible.
Apart from highlighting the need for downstream due diligence obligations for mining equipment manufacturers, this study examines existing policies of 14 mining equipment manufacturers. As some corporations have already started to implement respective processes, our assessment shows that downstream due diligence is feasible. Most companies, however, have so far only established selective measures and do not have a coherent strategy to implement due diligence in their downstream value chains effectively. Moreover, it is striking that most of the implemented measures lack binding commitments and transparent communication. This undermines the possibility of rights holders and other stakeholders to rely on their proper implementation. Existing approaches must therefore evolve, become mandatory and integrated at company level to ensure effective downstream due diligence.
In this respect, we furthermore outline the downstream due diligence obligations under the UN Guiding Principles for Business and Human Rights (UNGP) and assess the potential of the European Commission’s proposal for a Corporate Sustainability Due Diligence Directive (CSDDD). We also identify how European mining equipment manufacturers can use and increase theirleverage for human rights and environmental due diligence, for example through industry cooperation, capacity building, and cooperationwith other stakeholders beyond the mining equipment industry. [...]
The following amendments are necessary to ensure that the CSDDD is effective and achieves comprehensible downstream due diligence and impact on the ground:
- Widen the definition of risk sectors and apply due diligence obligations to all companies in these sectors:
Art. 2 (1b) CSDDD defines three sectors with very high risks for human rights and environmental harm along the value chain. Currently, the definition of the risk sector of (mineral) resource extraction does not include suppliers of extractive activities (Art. 2 (1b: iii). Policymakers should therefore ensure that companies supplying the defined risk sectors are also included. Moreover, due diligence obligations should not only apply to companies with more than 250 employees and a turnover of 40 million euros in these risk sectors, as proposed by the European Commission. Instead, any company operating in these highrisk sectors should be required to conduct due diligence along their value chains using a risk-based approach. Only micro enterprises should be exempted. Furthermore, the directive should apply to any business relationship in these risk sectors, not only to companies that generate at least half of their annual turnover in these sectors.
- Apply due diligence obligations to the entire value chain:
According to the current proposal of the European Commission, due diligence obligations shall only apply to ‘established business relationships’ (Art. 1(1a) in connection with. Art. 3 (e, f) CSDDD), which represents a major obstacle for effective (downstream) due diligence practices. While we welcome the negotiating position of the Council rejecting this concept, we consider its suggestion to replace ‘value chains’ by ‘chains of activity’ a significant step backwards. The CSDDD must introduce a risk-based obligation to prevent and eliminate adverse human rights and environmental impacts throughout the entire value chain. This study has demonstrated that the mining equipment industry can create significant leverage. As long as the limitation to established business relationships is maintained, the directive contains significant legal loopholes: due diligence obligations could easily be circumvented by restructuring value chains. Policymakers should furthermore ensure that due diligence obligations cannot be circumvented by operating through intermediaries. This would only further dilute the directive.
- Apply the directive to a wider range of companies:
This study has shown that (downstream) due diligence obligations for companies with fewer than 500 employees and an annual turnover of 150 million euros are not only feasible, but also necessary. Even small companies can contribute to and be directly linked to human rights violations and environmental harm. Policymakers should therefore replace the current restriction (Art. 2 (1a) CSDDD) with a restriction to all companies with more than 250 employees. This would also be in line with the EU definition for SMEs as companies with fewer than 250 employees and a turnover of less than 50 million euros. Furthermore, the directive should introduce a risk-based approach to ensure the proportionality of the due diligence measures to be taken by companies. [...]
Germanwatch contacted all companies mentioned in the report and gave them the opportunity to respond.