As the European Union’s three legislative bodies sit down to reconcile their proposals for a draft directive on corporate sustainability due diligence, legislators have a brand-new tool to support their negotiation: the newly updated and renamed OECD Guidelines for Multinational Enterprises for Responsible Business Conduct (Guidelines). The EU directive will oblige EU states to set binding rules on EU-operating multinationals to both identify and address environmental, human rights, and labour rights harms associated with their operations. Binding due diligence obligations have long been a goal of policymakers, civil society, and unions. But EU-level disagreement over whether and to what extent the due diligence duty should apply to impacts downstream of the enterprise could jeopardize the effectiveness of the future directive – and create conflict with international norms, fragmentation of expectations for business, and uncertainty for corporate implementation. In parallel with the directive drafting process, this past February, the 25 EU governments adhering to the OECD Guidelines affirmed their intention to align domestic legislative and policy initiatives with the Guidelines. EU policymakers should keep their commitment to ensuring coherence between domestic due diligence laws and international standards – particularly the newly updated Guidelines – by ensuring the full up- and downstream scope of due diligence. ...

Reaffirmation of the downstream scope of due diligence in newly updated Guidelines

This week the OECD released updated Guidelines that assert even more clearly the downstream applicability of due diligence expectations. The updated text calls for companies to conduct due diligence over downstream business relationships such as sub-contractors, franchisees, investee companies, clients, and joint venture partners, as well as “entities in the supply chain that receive, license, buy or use products or services from the enterprise” (including foreseeable improper or misuse). The new Guidelines assert that enterprises can contribute to harms caused by natural person users or consumers and call on enterprises to use and build leverage over business relationships to address impacts linked through them, including by taking measures “prior to and at the point of sale”. The updated Guidelines still cover all sectors (including the financial sector) equally without applying different expectations to sectors classed as “high risk”.

Limitations on downstream coverage in the EU directive proposals

Although the international norms are clear, two of the three EU proposals diverge notably regarding downstream coverage: the European Commission’s proposal seeks up- and downstream due diligence only of impacts of “established business relationships”, a dangerous limitation that would depart significantly from international norms and exclude the vast majority of adverse impacts in global value chains. The European Council seeks due diligence over downstream distribution, transport, storage and disposal, but not use – again a limitation that would exclude numerous adverse impacts. Meanwhile, all three proposals exclude coverage of certain parts of the financial sector...

Conclusion

EU governments should heed the call of businesses, civil society, and the multilateral institutions that built the due diligence normative framework to align their domestic law with the OECD Guidelines, including its latest updated text. EU policymakers can’t go back on their stated intentions to advance policy coherence and a decade of their own practice promoting the Guidelines and due diligence guidance to downstream impacts. They should ensure the due diligence duty applies to the full value chain of all multinationals, full stop.