The Proposed Dutch Mandatory Due Diligence Law: What to expect and what will be the implications?News
Following an EU delay, the Netherlands is committed to adopting a national mandatory due diligence law. The implementation of this legislation would be a big step towards the protection of human rights and the environment on a global level.
Implementation of mandatory due diligence legislation in the Netherlands may happen sooner than expected. Particularly because the Dutch are well-prepared. In early 2021, they already put forward a legislative proposal for Responsible and Sustainable International Business.
Bill on Responsible and Sustainable Business
The Dutch Bill for the Responsible and Sustainable International Business Conduct (the ‘Bill’) follows its Child Labour Due Diligence Act which is due to come into effect mid-2022. Upon publishing the Child Labour Due Diligence Act, the consensus was that there was also a need for broader legislation, covering human rights and the environment in general. To date, the Bill has not entered into force yet.
The Bill was proposed in 2021, likely to increase pressure on the European Commission to implement a European-wide legislation. The Bill draws an important distinction between a duty of care [zorgplicht] and a due diligence obligation [gepaste zorgvuldigheid].
Duty of care
The duty of care will apply to all legal entities that are incorporated in the (Caribbean) Netherlands, as well as large foreign companies conducting activities in the Netherlands or selling a product on the Dutch market. The duty of care imposed on all companies is to prevent adverse impacts on human rights and the environment, throughout operations and the value chain. Adverse human rights or environmental impacts may include freedom of association, collective bargaining, discrimination, forced labour, child labour, unsafe labour, (modern) slavery, and environmental damage.
The duty of care cannot be enforced administratively or criminally. Although, it does open companies up to tort litigation based on the breach of the statutory duty of care imposed by the Bill.
The due diligence obligation will be applied more narrowly to companies meeting two out of three of the following criteria: (i) an employee base of at least 250 employees; (ii) a balance sheet exceeding 20 million euros; and (iii) a net turnover of more than 40 million euros. In comparison to the German mandatory due diligence legislation, the Dutch Bill will be applicable to many more companies. The German version will apply to 3000 workers initially, and 1000 workers later on. For companies subject to the due diligence obligation, the legislation consists of six elements to be implemented: (i) a due diligence policy; (ii) a risk assessment; (iii) an action plan regarding termination of adverse human rights impacts; (iv) continuous monitoring; (v) reporting on an annual basis; (vi) establishment of a grievance mechanism and contribution to remediation.
For breach of the due diligence obligation, the Bill introduces administrative, civil, and criminal enforcement mechanisms. The administrative mechanism will be the main one and will consist of an independent public regulator that can issue binding instructions and financial sanctions. Its decisions will be public. The regulator can choose to issue positive guidance as well as punitive enforcement. Where the regulator imposes financial sanctions twice within five years, a company (or an officer) that continues to violate the due diligence obligation will be criminally liable, resulting in fines or jail time.
The Dutch Non-Paper
More recently, on the 5th of November, 2021, the Netherlands published a non-paper. Herein, it discussed the importance of far-reaching, mandatory due diligence legislation on the EU-level. Although traditionally, the Netherlands has favoured voluntary measures over legislative frameworks as regards business and human rights. However, upon review of the effectiveness of the voluntary measures, they are now of the opinion that harder measures are needed for human rights and environmental due diligence.
The Non-Paper suggests measures much like the Bill. This includes the wide scope of the Bill, the requirements, and the enforcement mechanisms proposed. Similar to the Bill, the Netherlands is in favour of an enforcement mechanism that does not only serve a punitive function. Rather, the mechanism must have a positive enforcement function as well. Finally, on the EU level, the Netherlands is unsure whether national or EU enforcement would work better but invites the European Commission to consider the pros and cons of both.
What to expect?
Although there is no formal proposal yet for the mandatory due diligence legislation, it is not too much of a stretch that the mandatory due diligence legislation will resemble the Bill. This is confirmed by the Dutch authority, who had indicated that the Dutch legislation will be broader and more stringent than the legislation in neighbouring jurisdictions.
The Dutch stance is made even clearer in its non-paper. Although the Dutch preference remains to be legislation provided on an EU-level, it will very likely move forward with national legislation while the European Commission continues to extend its deadline. Even more so, once implemented, the Dutch will not be likely to accept lower standards on a European level, so the Dutch mandatory due diligence legislation is a good precursor of what to expect from the European Commission. This is already clear from the Non-Paper issued, which discusses proposals much like those included in the Bill.
5 steps to prepare for the impending Dutch mandatory due diligence legislation
Although no formal legislation has been proposed yet, nor has the Bill been implemented, it is more than likely that within the next year(s) a binding legal framework will be introduced in the Netherlands, very much in line with the Bill.
Especially due to the wide scope this potential legislation will have, many businesses currently do not have the required policies and processes in place. These are the 5 steps you can take today to ensure your business is prepared for the introduction of new legislation:
- Map out your supply chain and determine the risks associated with your suppliers through a human rights impact assessment.
- Set up proportionate measures through policies and processes to address the risks you have found.
- Disclose how you are taking measures to counter adverse human rights impacts throughout the supply chain.
- Review the measures you are taking as well as your human rights impact assessment on at least an annual basis.
- Set up a mechanism to handle complaints and issues throughout the supply chain.