Today the European Commission released its long-awaited proposal for a directive on corporate sustainability due diligence. The Investor Alliance for Human Rights welcomed the proposal as an important step forward but cautioned that significant gaps remain relative to expectations laid out in international frameworks, especially the UN Guiding Principles on Business and Human Rights.

In October of last year, a group of 94 investors representing more than US$6 trillion in assets released a statement calling for mandated human rights and environmental due diligence with specific recommendations for robust legislation. Today’s proposal, while the first of its kind for the EU with potential global effects, falls short on a number of fronts in its promise to promote sustainable business and investor practices and ensure accountability for harms.

For example, investors had called for comprehensive due diligence covering all business enterprises and financial institutions, small and large, public and private, based in and operating within the EU. By the Commission’s own estimates today’s proposed due diligence requirements would cover less than 1% of EU and non-EU companies – namely those with more than 500 employees and turnover of €150 million and those in certain high-risk industries with more than 250 employees and turnover of €40 million. SMEs would be exempt. Such a limited scope would allow human rights and environmental risks in value chains to go undetected and unaddressed.

Under the proposal, companies could be held civilly and administratively liable for harms committed at home or abroad by their subsidiaries, contractors, and suppliers. While an important step towards ensuring access to remedy for people harmed by business activities, numerous barriers to accessing justice remain unresolved in relation to time limitations, access to evidence, legal standing, and burden of proof.

Investors look to good corporate governance to ensure that mandated due diligence requirements are fulfilled and expect corporate boards to oversee and be accountable for the implementation of rigorous due diligence processes. And while under the proposal, company directors will have to integrate human rights, the environment, and the climate into their strategic decisions and oversee due diligence actions, provisions linking directors’ pay to sustainability criteria and requiring sustainability expertise on corporate boards were not included.

Investors can be directly linked to adverse impacts through their investment holdings in companies or projects implicated in human rights abuses and environmental harms. Comprehensive human rights and environmental due diligence by companies enables investors to identify the greatest risks to people and planet linked to portfolios and to fulfill our own responsibility to respect human rights. Therefore, as negotiations on the proposal move forward within the European Parliament and Council, the Investor Alliance hopes amendments will address these and other gaps. In the coming weeks, the Investor Alliance will collaborate with its investor network and civil society allies to provide a comprehensive analysis of the proposed directive.