Will there be a statutory duty of care for corporate social responsibility for Dutch companies? It seems to be headed in that direction, now that caretaker Minister De Bruijn of Foreign Trade and Development Cooperation has announced that he will prepare legislation that will require Dutch companies to take responsibility for their supply chains. The new legislation would include a duty to conduct due diligence on human rights, labor rights and the environment. The choice for Dutch legislation is somewhat unexpected, in light of the earlier SER advice to await European legislation. This is particularly the case given that minister De Bruijn is a caretaker Minister – after all, a caretaker government official is supposed to limit themselves to “non-controversial” legislation.
The fact that corporate responsibility has changed from 'nice-to-have' to 'must-have' is becoming increasingly evident in legal developments around the world. A legislative duty of care of this nature and scope would nonetheless be far-reaching for Dutch companies. At the same time, the lack of clarity in relation to the duty to conduct human rights due diligence has been confusing for companies – and KPMG The Netherlands would certainly welcome any legislation that sets clear standards on a topic as complex as this.
EU developments on a draft Directive
The EU draft directive on due diligence in supply chains has been eagerly anticipated across Europe. The proposal was already announced by Euro Commissioner of Justice Reynders in the spring of 2020. In March of this year, it seemed that such a proposal could potentially gain broad support in the EU, after the European Parliament adopted MEP Lara Wolters' Initiative proposal. However, a draft Directive from the European Commission had not yet been published. The proposal was expected to be published by the European Commission on December 8, 2021.
This week, however, it disappeared unexpectedly and without further explanation from the legislative agenda. Due to the nature of the bill – a broad duty of care for companies in relation to social and environmental responsibility – it was expected that the legislative process may not be a smooth one. After all, for some of the EU Member States, human rights violations likely also take place in their own backyard. The impact of a statutory duty of care for those Member States would be potentially great. The European Commission was not expected to immediately present an innovative and ambitious proposal with broad support. But the fact that the proposal would not come to fruition was not to be expected either.
The Dutch government was also waiting for the EU proposal. In October 2021, the SER called for “a European approach that prioritizes improving conditions for people and the environment in the supply chain and combines smart due diligence legislation with joint action to tackle prioritized risks at sector level.”
A specific Dutch initiative – based on the Child Labor Duty of Care Act and the International Corporate Social Responsibility Bill – therefore seemed to be off the table. The only escape was that if the EU did not make any progress, the Netherlands would still take the initiative for its own act of legislation.
A Dutch Act of Legislation?
Last week, caretaker Minister De Bruijn was so disappointed in the lack of decisiveness at EU level that he announced last week that he would take steps to adopt Dutch ICSR legislation. And that's great: many companies have a need for more clarity about what is expected of them in terms of due diligence. In the 10+ years that I have now been working on business & human rights, the momentum for such legislation has not been so great.
It is not yet clear what the new legislation would look like, and how this will impact companies acting on the Dutch market, but there are already some hints. Caretaker Minister De Bruijn has already said that it in his view, it is unacceptable to wait any longer for the Child Labor Due Diligence Act to come into effect. That law was adopted on October 24, 2019 and has not yet entered into force, as it requires further clarification through a General Administrative Order (See also in Dutch A.L. Vytopil, ‘Het Wetsvoorstel Zorgplicht Kinderarbeid: naar een wettelijke zorgplicht voor maatschappelijk verantwoord ondernemen?’, Bb 2017/79).
It is quite possible that outgoing Minister De Bruijn will elaborate on the Bill on Responsible and Sustainable International Business. That proposal would impose a legal duty of care to conduct due diligence on all companies engaged in foreign trade that enter the Dutch market. This would mean that if a company knew or could reasonably suspect that its activities could lead to adverse impacts on human rights, labor rights or the environment, it would be obliged to take measures in accordance with the OECD guidelines for Multinational Enterprises to identify and prevent the adverse effects of its activities. Where prevention is not possible, the company would be obliged to limit the adverse impacts, to reverse them and/or to arrange for recovery. The company could also be obliged to refrain from its activities that would have an adverse impact, insofar as this could be required of it. The OECD Guidelines, which clarify what the Dutch government expects of companies when doing international business in the field of corporate social responsibility) and the UN Guiding Principles on Business & Human Rights are the guiding standards behind this bill.
There is still a lot that is unclear at the moment. How the proposed bill would be enforced and by which authority (the bill provides for administrative, civil and criminal enforcement) remains to be seen. For example, the ICSR bill does not specify how to deal with complex, international trade chains of large companies, which often have tens of thousands to several hundred thousand business partners. It is therefore not clear to what extent companies are required to map out the adverse effects in their entire trade chain and even whether such complexity has been taken into account. In addition, it is still unclear what the scope of a new law would be. This may also depend on developments in this sphere at an EU level. At the same time, Minister De Bruijn is a caretaker, and a law of this nature will soon be labeled as "controversial".
But anticipating a future EU directive (which must then be transposed into Dutch law) is of course always possible. With De Bruijn's decision, there is at least momentum – even if this announcement just adds to pressure at EU-level. And if not at EU level, then across individual Member States. In addition to the Netherlands, several other Member States (including Germany) are in the process of drafting legislation to raise the CSR-bar for companies or have recently adopted it. The time is now.
How KPMG can support your human rights journey – and beyond
Would you like to discuss whether your company is ready for new due diligence legislation? Would you like to know more about the steps your company should take to map its impact based on the OECD guidelines or the UN Guiding Principles? Would you like to know more about the Corporate Sustainability Reporting Directive or the Green Taxonomy? We would be happy to discuss this with you, in order to prepare your company for new legislation.
KPMG in the Netherlands has a dedicated Human Rights Services team that combines over 30 years’ of legal and social sustainability experience supporting businesses in their journey to understand and manage their actual and potential impacts on people, and the resulting business risk.
