Contribution ID: 09a82302-963e-4704-8475-16051c49c95d
Date: 05/02/2021 16:02:34

Consultation Document Proposal for an
Initiative on Sustainable Corporate Governance
Fields marked with * are mandatory.

Disclaimer
This document is a working document of the Commission services for consultation and does not prejudge
the final decision that the Commission may take.
The views reflected on this consultation paper provide an indication on the approach the Commission
services may take but do not constitute a final policy position or a formal proposal by the European
Commission.
Please note that in order to ensure a fair and transparent consultation process only responses received
through the online questionnaire will be taken into account and included in the report summarising the
responses.

Introduction
Political context
The Commission’s political guidelines set the ambition of Europe becoming the world’s first climate-neutral
continent by 2050 and foresee strong focus on delivering on the UN Sustainable Development Goals[ 1],which requires changing the way in which we produce and consume. Building on the political guidelines, in
its Communication on the European Green Deal[2] (adopted in December 2019) and on A Strong Social
Europe for Just Transition[3] (adopted in January 2020) the Commission committed to tackling climate andenvironmental-related challenges and set the ambition to upgrade Europe’s social market economy.
The European Green Deal sets out that “sustainability should be further embedded into the corporate
governance framework, as many companies still focus too much on short-term financial performancecompared to their long-term development and sustainability aspects.”
Sustainability in corporate governance encompasses encouraging businesses to frame decisions in termsof their environmental (including climate, biodiversity), social, human and economic impact, as well as interms of the company’s development in the longer term (beyond 3-5 years), rather than focusing on shortterm gains.
As a follow-up to the European Green Deal, the Commission has announced a sustainable corporate
governance initiative for 2021, and the initiative was listed among the deliverables of the Action Plan on a
Circular Economy[4], the Biodiversity strategy[5] and the Farm to Fork strategy[6]. This initiative would buildon the results of the analytical and consultative work carried out under Action 10 of the Commission’s 2018
Action Plan on Financing Sustainable Growth and would also be part of the Renewed Sustainable Finance1Strategy.
The recent Communication “Europe's moment: Repair and Prepare for the Next Generation” (RecoveryPlan)[7] (adopted in May 2020) also confirms the Commission’s intention to put forward such an initiativewith the objective to “ensure environmental and social interests are fully embedded into businessstrategies”. This stands in the context of competitive sustainability contributing to the COVID-19 recovery
and to the long-term development of companies. Relevant objectives are strengthening corporate
resilience, improving predictability and management of risks, dependencies and disruptions including in the
supply chains, with the ultimate aim for the EU economy to build back stronger.
This initiative is listed in the Commission Work program for 2021 [8].
EU action in the area of sustainable corporate governance will complement the objectives of the upcoming
Action Plan for the implementation of the European Pillar of Social Rights, to ensure that the transitions
towards climate-neutrality and digitalisation are socially sustainable. It will also strengthen the EU’s voice at
the global scene and would contribute to the respect of human rights, including labour rights– andcorporate social responsibility criteria throughout the value chains of European companies – an objective
identified in the joint Communication of the Commission and the High Representative on the Global EU
response to COVID-19[9].
This initiative is complementary to the review of the Non-Financial Reporting Directive (NFRD, Directive
2014/95/EU[10]) which currently requires large public-interest companies to disclose to the public certain
information on how they are affected by non-financial issues, as well as on the company’s own impacts onsociety and the environment. The NFRD also requires companies to report on their social andenvironmental policies and due diligence processes if they have them, or otherwise explain why they do nothave any (comply or explain approach). Whilst the NFRD is based on incentives “to report”, the sustainablecorporate governance initiative aims to introduce duties “to do”. Such concrete actions would therefore
contribute to avoiding “greenwashing” and reaching the objectives of the on-going review of the NFRD too,in particular the aim of enhancing the reliability of information disclosed under the NFRD by ensuring thatthe reporting obligation is underpinned by adequate corporate and director duties, and the aim of mitigating
systemic risks in the financial sector. Reporting to the public on the application of sustainability in corporate
governance and on the fulfilment of directors’ and corporate duties would enable stakeholders to monitor
compliance with these duties, thereby helping ensure that companies are accountable for how they mitigate
their adverse environmental and social impacts.
The initiative would build upon relevant international standards on business and human rights andresponsible business conduct, such as the United Nations’ Guiding Principles on Businesses and Human
Rights and the OECD Guidelines for Multinational Enterprises and its Due Diligence Guidance for
Responsible Business Conduct.
As regards environmental harm linked to deforestation, the Commission is also conducting a fitness checkof the EU Timber Regulation and an impact assessment.
Finally, Covid-19 has put small and medium sized companies under financial pressure, partly due toincreased delay in the payments from their larger clients. This raises the importance of the role of board
members of companies to duly take into account the interests of employees, including those in the supply
chains as well as the interests of persons and suppliers affected by their operations. Further support2

measures for SMEs also require careful consideration.
Results of two studies conducted for the Commission
To integrate properly sustainability within corporate strategies and decisions, the High-Level Expert Groupon Sustainable Finance[11] recommended in 2018 that the EU clarifies corporate board members´ duties
so that stakeholder interests are properly considered. Furthermore, they recommended for the EU torequire that directors adopt a sustainability strategy with proper targets, have sufficient expertise insustainability, and to improve regulation on remuneration.
In its 2018 Action Plan on Financing Sustainable Growth[12] the Commission announced that it would carryout analytical and consultative work on the possible need to legislate in this area.
The Commission has been looking at further obstacles that hinder the transition to an environmentally andsocially sustainable economy, and at the possible root causes thereof in corporate governance regulationand practices. As part of this work, two studies have been conducted which show market failures andfavour acting at the EU level.
The study on directors’ duties and sustainable corporate governance [13] evidences that there is a trend in
the last 30 years for listed companies within the EU to focus on short-term benefits of shareholders rather
than on the long-term interests of the company. Data indicate an upward trend in shareholder pay-outs,
which increased from 20% to 60% of net income while the ratio of investment (capital expenditure) andR&D spending to net income has declined by 45% and 38% respectively. The study argues thatsustainability is too often overlooked by short-term financial motives and that to some extent, corporate
short-termism finds its root causes in regulatory frameworks and market practices. Against these findings,
the study argues that EU policy intervention is required to lengthen the time horizon in corporate decisionmaking and promote a corporate governance more conducive to sustainability. To achieve this, it spells out
three specific objectives of any future EU intervention: strengthening the role of directors in pursuing theircompany’s long-term interest by dispelling current misconceptions in relation to their duties, which leadthem to prioritise short-term financial performance over the long-term interest of the company; improving
directors' accountability towards integrating sustainability into corporate strategy and decision-making; andpromoting corporate governance practices that contribute to company sustainability, by addressing relevant
unfavourable practices (e.g. in the area of board remuneration, board composition, stakeholder
involvement).
The study on due diligence requirements through the supply chain[14] focuses on due diligence processes
to address adverse sustainability impacts, such as climate change, environmental, human rights (including
labour rights) harm in companies’ own operations and in their value chain, by identifying and preventing
relevant risks and mitigating negative impacts. The study shows that in a large sample of mostly big
companies participating in the study survey, only one in three businesses claim to undertake due diligence
which takes into account all human rights and environmental impacts. Therefore voluntary initiatives, evenwhen backed by transparency do not sufficiently incentivise good practice. The study shows widestakeholder support, including from frontrunner businesses, for mandatory EU due diligence. 70% ofbusinesses responding to the survey conducted for the study agreed that EU regulation might provide
benefits for business, including legal certainty, level playing field and protection in case of litigation. The
study shows that a number of EU Member States have adopted legislation or are considering action in thisfield. A potential patchwork of national legislation may jeopardise the single market and increase costs for3

businesses. A cross-sectoral regulatory measure, at EU level, was preferred to sector specific frameworks.
Objectives of this public consultation
This public consultation aims to collect the views of stakeholders with regard to a possible Sustainable
Corporate Governance Initiative. It builds on data collected in particular in the two studies mentioned above
and on their conclusions, as well as on the feedback received in the public consultation on the Renewed
Sustainable Finance Strategy[15]. It includes questions to allow the widest possible range of stakeholders
to provide their views on relevant aspects of sustainable corporate governance.

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If you replied that you answer on behalf of a business, please specify the type ofbusiness:
institutional investor, asset manager
other financial sector player (e.g. an analyst, rating agency, data andresearch provider)
auditorother

Consultation questions
If you are responding on behalf of a large company, please indicate how large isthe company:
Large company with 1000 or more people employed
Large company with less than 1000 but at least 250 people employed
If you are responding on behalf of a company, is your company listed on the stockexchange?
Yes, in the EU
Yes, outside the EU
9Yes, both in and outside the EUNo
If you are responding on behalf of a company, does your company haveexperience in implementing due diligence systems?
Yes, as legal obligation
Yes, as voluntary measureNo
If resident or established/registered in an EU Member State, do you carry out (partof) your activity in several EU Member States?
Yes
No
If resident or established/ registered in a third country (i.e. in a country that is not amember of the European Union), please specify your country:

If resident or established registered in a third country, do you carry out (part of)your activity in the EU?
YesNo
If resident or established registered in a third country, are you part of the supply
chain of an EU company?
Yes
No

Section I: Need and objectives for EU intervention on sustainablecorporate governance
Questions 1 and 2 below which seek views on the need and objectives for EU action have already largely
been included in the public consultation on the Renewed Sustainable Finance Strategy earlier in 2020. The
Commission is currently analysing those replies. In order to reach the broadest range of stakeholders
possible, those questions are now again included in the present consultation also taking into account thetwo studies on due diligence requirements through the supply chain as well as directors’ duties andsustainable corporate governance.

10Question 1: Due regard for stakeholder interests’, such as the interests of
employees, customers, etc., is expected of companies. In recent years, interests
have expanded to include issues such as human rights violations, environmental
pollution and climate change. Do you think companies and their directors shouldtake account of these interests in corporate decisions alongside financial interestsof shareholders, beyond what is currently required by EU law?
Yes, a more holistic approach should favour the maximisation of social,environmental, as well as economic/financial performance.
Yes, as these issues are relevant to the financial performance of thecompany in the long term.
No, companies and their directors should not take account of these sorts ofinterests.
Do not know.
Please provide reasons for your answer:
We believe that the initiative on sustainable corporate governance will help the European Union progress inthe achievement of its sustainable finance ambitions, as set out in the Green Deal, as well as the attainmentof an environmentally and socially sustainable economy.
Considering sustainability as a broad concept, covering not only environmental impacts, but also social andeconomic aspects, is in line with the ambitious legislative proposal currently in discussion in the European
Parliament as well as with the European Commission’s double materiality approach. GRI (Global Reporting
Initiative) is very pleased to see the strong connection with the ongoing revision of the non-financial reporting
directive and applauds the Commission for the ambitious steps towards a mandatory sustainability reporting
regime with the same rigor and on equal footing with financial reporting.
GRI stands ready to work with the European Commission, other institutions and regulatory bodies to achieve
such objectives. As an independent non-profit international standard-setting organization that helps
businesses and governments worldwide understand and communicate their impact on critical sustainability
issues such as climate change, human rights, governance and social well-being, we provide the world’s
most widely used standards for sustainability reporting – the GRI Sustainability Reporting Standards (GRI
Standards).
Sustainability reporting has a key role to play, with the objective to make the impacts of organizations’activities on the economy, environment and people transparent, and to enable dialogue and informed
decision-making, thereby facilitating a just transition. We believe that all companies need to provide reportingthat addresses financial considerations and their external impacts – both of which are of equal importance –in order to give stakeholders a complete picture of corporate performance. Without full disclosure on
sustainability impacts, it is impossible to assess the private sector contribution towards sustainable
development.
The GRI Standards are designed to enhance the global comparability, accessibility and quality of information
regarding sustainability impacts, thereby fostering greater transparency and accountability of organizations.
They are developed through an independent, global and multi-stakeholder standard setting process, focused11

on public interest and guided by a rigorous due process protocol.
Companies around the world regularly use the GRI standards as the basis for reporting financially material
Environmental, Social and Governance (ESG) issues as well as issues that impact society. According torecent research by KPMG, 73% of the world’s 250 largest companies prepare their sustainability reports
using the GRI Standards (https://home.kpmg/xx/en/home/insights/2020/11/the-time-has-come-survey-ofsustainability-reporting.html). Further, they are referenced or required by 168 policies in 67 countries aroundthe world (https://www.carrotsandsticks.net/).
The practice of disclosing sustainability information inspires accountability, helps identify and manage risks,and enables organizations to seize new opportunities. Reporting with the GRI Standards supports
companies, public and private, large and small, to protect the environment and improve society, while at thesame time thriving economically by improving governance and stakeholder relations, enhancing reputation
and building trust.

Question 2: Human rights, social and environmental due diligence requires
companies to put in place continuous processes to identify risks and adverse
impacts on human rights, health and safety and environment and prevent, mitigate
and account for such risks and impacts in their operations and through their value
chain.
In the survey conducted in the context of the study on due diligence requirements
through the supply chain, a broad range of respondents expressed their preference
for a policy change, with an overall preference for establishing a mandatory duty at
EU level.
Do you think that an EU legal framework for supply chain due diligence to address
adverse impacts on human rights and environmental issues should be developed?
Yes, an EU legal framework is needed.
No, it should be enough to focus on asking companies to follow existing
guidelines and standards.
No action is necessary.
Do not know.
Please explain:
GRI strongly supports the idea that sustainability should be further embedded into corporate governanceframeworks through an EU legal framework, which should:- include a vision of corporate governance that embraces a rigorous multi-stakeholder approach andencourages companies to account for their sustainability impacts; and- implement the ambition to foster coherence and complementarity with the revision of the non-financial
reporting directive (NFRD).
We believe that the EU should strive for convergence of similar reporting requirements in various legislative
initiatives focused on sustainability topics and matters of responsible business conduct. Ultimately, the
NFRD would be the logical place to bring related reporting requirements together to foster alignment and12minimize the reporting burden for companies. Concrete goals and targets can be part of separate
legislations, all referring to the NFRD for the way to report on them to ensure comparability and usability ofthe data (standards as a reporting language).
In this context, GRI welcomes mandatory human rights and environmental due diligence legislations andreporting requirements that embed best practice and are aligned with authoritative intergovernmental
instruments for responsible business conduct. We see transparency as an enabler for behavioral change
and therefore disclosure requirements as a key component of any effective due diligence legislation. We
strongly support the Commission’s plan to develop a corporate obligation to carry out due diligence as wellas mandatory disclosure on human rights and environmental due diligence.
The GRI Universal Standards are being revised to further incorporate reporting on human rights andenvironmental due diligence, with an expected release in 2H 2021. The revisions have been developed inline with the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational
Enterprises and the OECD Due Diligence Guidance for Responsible Business Conduct. They have beendeveloped by a multi-stakeholder Technical Committee of experts, which included the participation of theUnited Nation’s Office of the High Commissioner for Human Rights (OHCHR) and the OECD. In developing
a sustainable corporate governance framework including due diligence requirements, we recommend that
the Commission builds on these existing authoritative instruments as well.

Question 3: If you think that an EU legal framework should be developed, pleaseindicate which among the following possible benefits of an EU due diligence duty isimportant for you (tick the box/multiple choice)?
Ensuring that the company is aware of its adverse human rights, social andenvironmental impacts and risks related to human rights violations othersocial issues and the environment and that it is in a better position to
mitigate these risks and impacts
Contribute effectively to a more sustainable development, including in nonEU countries
Levelling the playing field, avoiding that some companies freeride on theefforts of others
Increasing legal certainty about how companies should tackle their impacts,
including in their value chain
A non-negotiable standard would help companies increase their leverage inthe value chain
Harmonisation to avoid fragmentation in the EU, as emerging national laws
are different
SMEs would have better chances to be part of EU supply chains
Other
Question 3a. Drawbacks

13Please indicate which among the following possible risks/drawbacks linked to theintroduction of an EU due diligence duty are more important for you (tick the box/multiple choice)?
Increased administrative costs and procedural burden
Penalisation of smaller companies with fewer resources
Competitive disadvantage vis-à-vis third country companies not subject to asimilar duty
Responsibility for damages that the EU company cannot control
Decreased attention to core corporate activities which might lead toincreased turnover of employees and negative stock performance
Difficulty for buyers to find suitable suppliers which may cause lock-in effects(e.g. exclusivity period/no shop clause) and have also negative impact on
business performance of suppliers
Disengagement from risky markets, which might be detrimental for local
economies
Other

Section II: Directors’ duty of care – stakeholders’ interests
In all Member States the current legal framework provides that a company director is required to act in theinterest of the company (duty of care). However, in most Member States the law does not clearly define
what this means. Lack of clarity arguably contributes to short-termism and to a narrow interpretation of the
duty of care as requiring a focus predominantly on shareholders’ financial interests. It may also lead to adisregard of stakeholders’ interests, despite the fact that those stakeholders may also contribute to the longterm success, resilience and viability of the company.

Question 5. Which of the following interests do you see as relevant for the longterm success and resilience of the company?
Relevant

Not

I do not know/I do

relevant

not take position

the interests of shareholders
the interests of employees
the interests of employees in the company’s supply chain
the interests of customers
the interests of persons and communities affected by theoperations of the company
the interests of persons and communities affected by thecompany’s supply chain

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the interests of local and global natural environment,
including climate
the likely consequences of any decision in the long term(beyond 3-5 years)
the interests of society, please specify
other interests, please specify

the interests of society, please specify:

Question 6. Do you consider that corporate directors should be required by law to(1) identify the company´s stakeholders and their interests, (2) to manage the risks
for the company in relation to stakeholders and their interests, including on the longrun (3) and to identify the opportunities arising from promoting stakeholders’interests?
I
I

agree

strongly

to

agree

some
extentI
disagreeto someextentI

I dostronglynotdisagree

know

I do
not
take
position

Identification of the company´sstakeholders and their interests
Management of the risks for thecompany in relation to
stakeholders and their interests,
including on the long run
Identification of the opportunities
arising from promoting
stakeholders’ interests

Please explain:

Question 7. Do you believe that corporate directors should be required by law to
set up adequate procedures and where relevant, measurable (science –based)targets to ensure that possible risks and adverse impacts on stakeholders, ie.
human rights, social, health and environmental impacts are identified, prevented
and addressed?

15

I strongly agree
I agree to some extent
I disagree to some extent
I strongly disagree
I do not know
I do not take position
Please explain:
All major reporting frameworks require such disclosures, including the GRI Standards, in line with the UN
Guiding Principles on Business and Human Rights and OECD instruments:- GRI 102-29: “The reporting organization shall report the following information:
a. Highest governance body’s role in identifying and managing economic, environmental, and social topics
and their impacts, risks, and opportunities – including its role in the implementation of due diligenceprocesses.
b. Whether stakeholder consultation is used to support the highest governance body’s identification andmanagement of economic, environmental, and social topics and their impacts, risks, and opportunities.”- GRI 102-30: “The reporting organization shall report the following information:
a. Highest governance body’s role in reviewing the effectiveness of the organization’s risk management
processes for economic, environmental, and social topics.”
Needless to say that any legal requirement should be clearly linked to a mandatory reporting requirement
based on a high quality standard aligned with the aforementioned international authoritative instruments. The
vast majority of European companies and non-European companies with operations in the EU currently
reporting on their sustainability impacts already use the GRI Standards. In order to avoid undue reporting
burden for companies that are already reporting on a wide range of impacts voluntarily, mandating widelyused standards to report in line with the new legal requirements would be desirable.

Question 8. Do you believe that corporate directors should balance the interests ofall stakeholders, instead of focusing on the short-term financial interests ofshareholders, and that this should be clarified in legislation as part of directors’ dutyof care?
I strongly agree
I agree to some extent
I disagree to some extent
I strongly disagree
I do not know
I do not take position
Please provide an explanation or comment:
GRI’s current definition of impact defines the term as referring “to the effect an organization has on theeconomy, the environment, and/or society, which in turn can indicate its contribution (positive or negative) to16

sustainable development.” This definition includes long-term sustainability impacts and extends to all
disclosures of the GRI Standards.

Question 9. Which risks do you see, if any, should the directors’ duty of care bespelled out in law as described in question 8?

How could these possible risks be mitigated? Please explain.

Where directors widely integrate stakeholder interest into their decisions alreadytoday, did this gather support from shareholders as well? Please explain.

Question 10. As companies often do not have a strategic orientation onsustainability risks, impacts and opportunities, as referred to in question 6 and 7, doyou believe that such considerations should be integrated into the company’s
strategy, decisions and oversight within the company?
I strongly agree
I agree to some extent
I disagree to some extent
I strongly disagree
I do not know
I do not take position
Please explain:
The GRI Standards (GRI 102-26) do require reporting on the “highest governance body’s and senior
executives’ roles in the development, approval, and updating of the organization’s purpose, value or mission
statements, strategies, policies, and goals related to economic, environmental, and social topics.”

Enforcement of directors’ duty of care
Today, enforcement of directors’ duty of care is largely limited to possible intervention by the board of
directors, the supervisory board (where such a separate board exists) and the general meeting ofshareholders. This has arguably contributed to a narrow understanding of the duty of care according towhich directors are required to act predominantly in the short-term financial interests of shareholders. In
addition, currently, action to enforce directors’ duties is rare in all Member States.

17

Question 11. Are you aware of cases where certain stakeholders or groups (suchas shareholders representing a certain percentage of voting rights, employees, civilsociety organisations or others) acted to enforce the directors’ duty of care on
behalf of the company? How many cases? In which Member States? Whichstakeholders? What was the outcome?
Please describe examples:

Question 12. What was the effect of such enforcement rights/actions? Did it giverise to case law/ was it followed by other cases? If not, why?
Please describe:

Question 13. Do you consider that stakeholders, such as for example employees,
the environment or people affected by the operations of the company as
represented by civil society organisations should be given a role in the enforcementof directors’ duty of care?
I strongly agree
I agree to some extent
I disagree to some extent
I strongly disagree
I do not know
I do not take position
Please explain your answer:
GRI’s current definition of stakeholder defines the term as “entity or individual that can reasonably be
expected to be significantly affected by the reporting organization’s activities, products and services, orwhose actions can reasonably be expected to affect the ability of the organization to successfully implement
its strategies and achieve its objectives.” Following this definition, stakeholders should be involved in theenforcement of the duty of care, even if only at the level of their interests being represented, thereby
preserving a multi-stakeholder approach, as desired also by the Commission (NFRD inception impact
assessment).

Question 13a: In case you consider that stakeholders should be involved in theenforcement of the duty of care, please explain which stakeholders should play arole in your view and how.

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GRI’s current definition of stakeholder specifies that “stakeholders include entities or individuals whose rights
under law or international conventions provide them with legitimate claims vis-à-vis the organization.”
Further, they “can include those who are invested in the organization (such as employees andshareholders), as well as those who have other relationships to the organization (such as other workers who
are not employees, suppliers, vulnerable groups, local communities, and NGOs or other civil society
organizations, among others).”

Section III: Due diligence duty
For the purposes of this consultation, “due diligence duty” refers to a legal requirement for companies toestablish and implement adequate processes with a view to prevent, mitigate and account for human rights(including labour rights and working conditions), health and environmental impacts, including relating toclimate change, both in the company’s own operations and in the company’s the supply chain. “Supply
chain” is understood within the broad definition of a company’s “business relationships” and includes
subsidiaries as well as suppliers and subcontractors. The company is expected to make reasonable efforts
for example with respect to identifying suppliers and subcontractors. Furthermore, due diligence isinherently risk-based, proportionate and context specific. This implies that the extent of implementing
actions should depend on the risks of adverse impacts the company is possibly causing, contributing to or
should foresee.

Question 14: Please explain whether you agree with this definition and provide
reasons for your answer.
GRI believes that a definition of “due diligence duty” should not be limited to the supply chain but, rather, bealigned with the aforementioned authoritative instruments while covering business relationships moregenerally, including relationships with all entities in the value chain (both upstream and downstream).
Moreover, consistent with authoritative instruments, such definition should include a duty for organizations toprovide for or cooperate in the remediation, through legitimate processes, of negative impacts they havecaused or contributed to.
The GRI Standards embed the existing best practice in responsible business conduct to translate it into
reporting mechanisms. The disclosures are based on expectations for businesses contained ininternationally recognized instruments, which include the ILO Tripartite Declaration of Principles concerning
Multinational Enterprises and Social Policy, the OECD Guidelines for Multinational Enterprises and OECD
Due Diligence Guidance for Responsible Business Conduct, and the UN Guiding Principles on Business andHuman Rights. Consequently, the exposure draft of the revised GRI Universal Standards defines due
diligence as follows: “Due diligence is the process through which an organization identifies, prevents,
mitigates, and accounts for how it addresses its actual and potential negative impacts on the economy,
environment, and people, including impacts on human rights. The organization should address potential
negative impacts through prevention or mitigation. It should address actual negative impacts throughremediation, in cases where it identifies it has caused or contributed to those impacts. (…)”

Question 15: Please indicate your preference as regards the content of suchpossible corporate due diligence duty (tick the box, only one answer possible).
Please note that all approaches are meant to rely on existing due diligencestandards, such as the OECD guidance on due diligence or the UNGPs. Please19note that Option 1, 2 and 3 are horizontal i. e. cross-sectorial and cross thematic,
covering human rights, social and environmental matters. They are mutually
exclusive. Option 4 and 5 are not horizontal, but theme or sector-specificapproaches. Such theme specific or sectorial approaches can be combined with ahorizontal approach (see question 15a). If you are in favour of a combination of ahorizontal approach with a theme or sector specific approach, you are requested tochoose one horizontal approach (Option 1, 2 or 3) in this question.
Option 1. “Principles-based approach”: A general due diligence duty basedon key process requirements (such as for example identification andassessment of risks, evaluation of the operations and of the supply chain,risk and impact mitigation actions, alert mechanism, evaluation of theeffectiveness of measures, grievance mechanism, etc.) should be defined at
EU level regarding identification, prevention and mitigation of relevant
human rights, social and environmental risks and negative impact. Theseshould be applicable across all sectors. This could be complemented by EUlevel general or sector specific guidance or rules, where necessary
Option 2. “Minimum process and definitions approach”: The EU should
define a minimum set of requirements with regard to the necessary
processes (see in option 1) which should be applicable across all sectors.
Furthermore, this approach would provide harmonised definitions forexample as regards the coverage of adverse impacts that should be thesubject of the due diligence obligation and could rely on EU and international
human rights conventions, including ILO labour conventions, or otherconventions, where relevant. Minimum requirements could becomplemented by sector specific guidance or further rules, where necessary.
Option 3. “Minimum process and definitions approach as presented in
Option 2 complemented with further requirements in particular forenvironmental issues”. This approach would largely encompass what isincluded in option 2 but would complement it as regards, in particular,
environmental issues. It could require alignment with the goals ofinternational treaties and conventions based on the agreement of scientificcommunities, where relevant and where they exist, on certain key
environmental sustainability matters, such as for example the 2050 climate
neutrality objective, or the net zero biodiversity loss objective and could
reflect also EU goals. Further guidance and sector specific rules could
complement the due diligence duty, where necessary.

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Option 4 “Sector-specific approach”: The EU should continue focusing on
adopting due diligence requirements for key sectors only.
Option 5 "Thematic approach": The EU should focus on certain key themes
only, such as for example slavery or child labour.
None of the above, please specify
Please specify:

Question 15a: If you have chosen option 1, 2 or 3 in Question 15 and you are infavour of combining a horizontal approach with a theme or sector specificapproach, please explain which horizontal approach should be combined withregulation of which theme or sector?

Question 15b: Please provide explanations as regards your preferred option,
including whether it would bring the necessary legal certainty and whether
complementary guidance would also be necessary.
GRI is in favor of a horizontal approach that should be applicable to all companies, combined with a sectorspecific approach. We believe that the diligence duty should consider impacts on the economy, environment,
and people, including human rights.

Question 15c: If you ticked options 2) or 3) in Question 15 please indicate whichareas should be covered in a possible due diligence requirement (tick the box,
multiple choice)
Human rights, including fundamental labour rights and working conditions(such as occupational health and safety, decent wages and working hours)
Interests of local communities, indigenous peoples’ rights, and rights ofvulnerable groups
Climate change mitigation
Natural capital, including biodiversity loss; land degradation; ecosystems
degradation, air, soil and water pollution (including through disposal ofchemicals); efficient use of resources and raw materials; hazardous
substances and waste
Other, please specify

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Question 15d: If you ticked option 2) in Question 15 and with a view to creating
legal certainty, clarity and ensuring a level playing field, what definitions regarding
adverse impacts should be set at EU level?

Question 15e: If you ticked option 3) in Question 15, and with a view to creating
legal certainty, clarity and ensuring a level playing field, what substantial
requirements regarding human rights, social and environmental performance (e.g.
prohibited conducts, requirement of achieving a certain performance/target by acertain date for specific environmental issues, where relevant, etc.) should be set at
EU level with respect to the issues mentioned in 15c?

Question 15f: If you ticked option 4) in question 15, which sectors do you think the
EU should focus on?

Question 15g: If you ticked option 5) in question 15, which themes do you think the
EU should focus on?

Question 16: How could companies’- in particular smaller ones’- burden be reducedwith respect to due diligence? Please indicate the most effective options (tick thebox, multiple choice possible)
This question is being asked in addition to question 48 of the Consultation on the
Renewed Sustainable Finance Strategy, the answers to which the Commission iscurrently analysing.
All SMEs[16] should be excluded
SMEs should be excluded with some exceptions (e.g. most risky sectors orother)
Micro and small sized enterprises (less than 50 people employed) should be
excluded
Micro-enterprises (less than 10 people employed) should be excluded
SMEs should be subject to lighter requirements (“principles-based” or“minimum process and definitions” approaches as indicated in Question 15)

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SMEs should have lighter reporting requirements
Capacity building support, including funding
Detailed non-binding guidelines catering for the needs of SMEs in particular
Toolbox/dedicated national helpdesk for companies to translate due
diligence criteria into business practices
Other option, please specify
None of these options should be pursued
Please explain your choice, if necessary
In our response to the NFRD consultation, we advised against the development of simplified reporting
standards for smaller companies and suggested to draw from existing standards used by large reportingorganizations.
The main reason for this suggestion is that when reporting by smaller companies is not based on the same
reporting standards as the ones used by larger reporting organizations, the disclosed information cannot beeasily used to inform reporting on activities and business relationships in the value chain. We believe that
this would make it more difficult to aggregate information both for public reporting and supply chain reporting,while hampering the possibilities to compare.

Question 17: In your view, should the due diligence rules apply also to certain thirdcountry companies which are not established in the EU but carry out (certain)
activities in the EU?
YesNo
I do not know
Question 17a: What link should be required to make these companies subject tothose obligations and how (e.g. what activities should be in the EU, could it belinked to certain turnover generated in the EU, other)? Please specify.
We believe that any due legislation should consider the globalized nature of today’s economy by addressing
the sustainability impacts of home-based companies beyond national borders, thereby aligning withinternational authoritative instruments that are applicable to all companies, regardless of geography.
Consequently, the obligation to undertake due diligence for European companies should apply throughout
their full supply chain, beyond the activities carried out within the EU. By extension, it should also apply tothird-country companies that supply products or services to European companies.
GRI strongly supports a globalized system that will unlock the value of the reported information by facilitatingcomparability and analysis. It acknowledges the fact that business and trade are by definition global in23nature, while it also minimizes the reporting burden for all companies. And, finally, globally applicable
reporting standards recognize the reality that companies and their value chains impact by definition a global
set of stakeholders.

Question 17b: Please also explain what kind of obligations could be imposed onthese companies and how they would be enforced.
The accountability that results from reporting is a strong driver for companies to fulfill their responsibility torespect human rights, as articulated in the UNGPs. GRI sees transparency as an enabler for behavioral
change and therefore disclosure requirements as a key component of any effective due diligence legislation.
In addition to our response to question 17a, we strongly advise to mandate widely used reporting standards
that are aligned with international authoritative instruments. With the forthcoming revised GRI Universal
Standards, the GRI Standards are the most comprehensive set of sustainability reporting standards that aredeveloped in line with international expectations for responsible business conduct.

Question 18: Should the EU due diligence duty be accompanied by other measures
to foster more level playing field between EU and third country companies?
Yes
No
I do not know
Please explain:

Question 19: Enforcement of the due diligence duty

Question 19a: If a mandatory due diligence duty is to be introduced, it should beaccompanied by an enforcement mechanism to make it effective. In your view,which of the following mechanisms would be the most appropriate one(s) to
enforce the possible obligation (tick the box, multiple choice)?
Judicial enforcement with liability and compensation in case of harm caused
by not fulfilling the due diligence obligations
Supervision by competent national authorities based on complaints (and/or
reporting, where relevant) about non-compliance with setting up andimplementing due diligence measures, etc. with effective sanctions (such as
for example fines)
Supervision by competent national authorities (option 2) with a mechanismof EU cooperation/coordination to ensure consistency throughout the EU
Other, please specify
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Please provide explanation:

Question 19b: In case you have experience with cases or Court proceedings inwhich the liability of a European company was at stake with respect to humanrights or environmental harm caused by its subsidiary or supply chain partner
located in a third country, did you encounter or do you have information about
difficulties to get access to remedy that have arisen?
Yes
No
In case you answered yes, please indicate what type of difficulties you haveencountered or have information about:If you encountered difficulties, how and in which context do you consider they could(should) be addressed?

Section IV: Other elements of sustainable corporate governance
Question 20: Stakeholder engagement
Better involvement of stakeholders (such as for example employees, civil society organisations
representing the interests of the environment, affected people or communities) in defining how stakeholderinterests and sustainability are included into the corporate strategy and in the implementation of thecompany’s due diligence processes could contribute to boards and companies fulfilling these duties more
effectively.

Question 20a: Do you believe that the EU should require directors to establish andapply mechanisms or, where they already exist for employees for example, use
existing information and consultation channels for engaging with stakeholders inthis area?
I strongly agree
I agree to some extent
I disagree to some extent
I strongly disagree
I do not know25I do not take position
Please explain.
According to the GRI Standards, companies should report on:- the processes for consultation between stakeholders and the highest governance body on economic,
environmental, and social topics (GRI 102-21);- the stakeholder groups engaged by the organization (GRI 102-40);- the basis for identifying and selecting stakeholders with whom to engage (GRI 102-42); and- the approach to stakeholder engagement, including frequency of engagement by type and by stakeholder
group, and an indication of whether any of the engagement was undertaken specifically as part of the report
preparation process (GRI 102-43).

Question 20b: If you agree, which stakeholders should be represented? Please
explain.
See response to Question 13a: GRI’s current definition of stakeholder specifies that “stakeholders include
entities or individuals whose rights under law or international conventions provide them with legitimate claims
vis-à-vis the organization.” Further, they “can include those who are invested in the organization (such as
employees and shareholders), as well as those who have other relationships to the organization (such asother workers who are not employees, suppliers, vulnerable groups, local communities, and NGOs or othercivil society organizations, among others).”

Question 20c: What are best practices for such mechanisms today? Whichmechanisms should in your view be promoted at EU level? (tick the box, multiple
choice)Is best practiceShould be promoted at EU level

Advisory body
Stakeholder general meeting
Complaint mechanism as part of due diligence
Other, please specify

Question 21: Remuneration of directors
Current executive remuneration schemes, in particular share-based remuneration and variable
performance criteria, promote focus on short-term financial value maximisation [17] (Study on directors’
duties and sustainable corporate governance).
Please rank the following options in terms of their effectiveness to contribute to countering remuneration
incentivising short-term focus in your view.

This question is being asked in addition to questions 40 and 41 of the Consultationon the Renewed Sustainable Finance Strategy the answers to which the26Commissioniscurrently

analysing.

Ranking 1-7 (1: least efficient, 7: most efficient)

Restricting executive directors’ ability to sell the shares they receive as pay
for a certain period (e.g. requiring shares to be held for a certain period after
they were granted, after a share buy-back by the company)

Regulating the maximum percentage of share-based remuneration in the
total remuneration of directors

Regulating or limiting possible types of variable remuneration of directors (e.
g. only shares but not share options)

Making compulsory the inclusion of sustainability metrics linked, forexample, to the company’s sustainability targets or performance in thevariable remuneration

Mandatory proportion of variable remuneration linked to non-financial
performance criteria

Requirement to include carbon emission reductions, where applicable, in thelists of sustainability factors affecting directors’ variable remuneration

Taking into account workforce remuneration and related policies whensetting director remuneration

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Other option, please specify

None of these options should be pursued, please explain

Please explain:

Question 22: Enhancing sustainability expertise in the board
Current level of expertise of boards of directors does not fully support a shift
towards sustainability, so action to enhance directors’ competence in this area
could be envisaged [18] (Study on directors’ duties and sustainable corporate
governance).
Please indicate which of these options are in your view effective to achieve thisobjective (tick the box, multiple choice).
Requirement for companies to consider environmental, social and/or humanrights expertise in the directors’ nomination and selection process
Requirement for companies to have a certain number/percentage ofdirectors with relevant environmental, social and/or human rights expertise
Requirement for companies to have at least one director with relevant
environmental, social and/or human rights expertise
Requirement for the board to regularly assess its level of expertise on
environmental, social and/or human rights matters and take appropriate
follow-up, including regular trainings
Other option, please specify
None of these are effective options
Please explain:28

According to GRI 102-27, companies should report on the “measures taken to develop and enhance thehighest governance body’s collective knowledge of economic, environmental, and social topics.”

Question 23: Share buybacks
Corporate pay-outs to shareholders (in the form of both dividends and sharebuybacks) compared to the company’s net income have increased from 20 to 60 %in the last 30 years in listed companies as an indicator of corporate short-termism.
This arguably reduces the company’s resources to make longer-term investments
including into new technologies, resilience, sustainable business models andsupply chains[19]. (A share buyback means that the company buys back its own
shares, either directly from the open market or by offering shareholders the option
to sell their shares to the company at a fixed price, as a result of which the numberof outstanding shares is reduced, making each share worth a greater percentage ofthe company, thereby increasing both the price of the shares and the earnings per
share.) EU law regulates the use of share-buybacks [Regulation 596/2014 on
market abuse and Directive 77/91, second company law Directive].
In your view, should the EU take further action in this area?
I strongly agree
I agree to some extent
I disagree to some extent
I strongly disagree
I do not know
I do not take position
Question 23a: If you agree, what measure could be taken?

Question 24: Do you consider that any other measure should be taken at EU levelto foster more sustainable corporate governance?
If so, please specify:

Section V: Impacts of possible measures
Question 25: Impact of the spelling out of the content of directors’ duty of care and of the due diligence duty
o n

t h e

c o m p a n y29

Please estimate the impacts of a possible spelling out of the content of directors’ duty of care as well as adue diligence duty compared to the current situation. In your understanding and own assessment, to what
extent will the impacts/effects increase on a scale from 0-10? In addition, please quantify/estimate inquantitative terms (ideally as percentage of annual revenues) the increase of costs and benefits, if possible,
in particular if your company already complies with such possible requirements.

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TableIntroduction of these duties in binding
Introduction of these duties in binding
law, cost and benefits linked to setting up
Non-binding guidance. Rating 0-10

/improving external impacts’
identification and mitigation processes
Rating 0 (lowest impact)-10 (highest
impact) and quantitative data

law, annual cost linked to the fulfilment
of possible requirements aligned with
science based targets (such as forexample climate neutrality by 2050, net
zero biodiversity loss, etc.) and possible
reorganisation of supply chains
Rating 0 (lowest impact)-10 (highest
impact) and quantitative data

Administrative costs including costs
related to new staff required to deal withnew obligations
Litigation costs
Other costs including potential indirect
costs linked to higher prices in the
supply chain, costs liked to drawbacks
as explained in question 3, other thanadministrative and litigation costs, etc.
Please specify.
Better performance stemming fromincreased employee loyalty, better
employee performance, resource
efficiency
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Competitiveness advantages stemmingfrom new customers, customer loyalty,sustainable technologies or otheropportunities
Better risk management and resilience
Innovation and improved productivity
Better environmental and social
performance and more reliable reporting
attracting investors
Other impact, please specify

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Please explain:

Question 26: Estimation of impacts on stakeholders and the environment
A clarified duty of care and the due diligence duty would be expected to havepositive impacts on stakeholders and the environment, including in the supply
chain. According to your own understanding and assessment, if your company
complies with such requirements or conducts due diligence already, please
quantify / estimate in quantitative terms the positive or negative impact annually
since the introduction of the policy, by using examples such as:- Improvements on health and safety of workers in the supply chain, such as
reduction of the number of accidents at work, other improvement on working
conditions, better wages, eradicating child labour, etc.
- Benefits for the environment through more efficient use of resources, recycling ofwaste, reduction in greenhouse gas emissions, reduced pollution, reduction in theuse of hazardous material, etc.
- Improvements in the respect of human rights, including those of local
communities along the supply chain- Positive/negative impact on consumers- Positive/negative impact on trade- Positive/negative impact on the economy (EU/third country).

Contactjust-cleg@ec.europa.eu

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