Study on due diligence requirements through the supply chain. Part III, country reports.
Date: 2020-02-20
Institutions: Directorate-General for Justice and Consumers
Subjects: Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Poland, Spain, Sweden, United Kingdom, company law, environmental impact, health risk, human rights, infringement of EU law, report, supply chain

Study on due diligence 
requirements through the 
supply chain 

PART III: COUNTRY REPORTS 

Lise Smit, Claire Bright, Robert McCorquodale, Matthias Bauer, Hanna Deringer, Daniela Baeza-
Breinbauer, Francisca Torres-Cortés, Frank Alleweldt, Senda Kara and Camille Salinier and Héctor 
Tejero Tobed 

January – 2020 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
        
       
 
 
EUROPEAN COMMISSION 

Directorate-General for Justice and Consumers 
Directorate— A — Civil and Commercial Justice 
Unit— A.3 — Company Law 

E-mail:  JUST-A3@ec.europa.eu  

European Commission 
B-1049 Brussels 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Study on due diligence 
requirements through the 
supply chain 

Part III: Country Reports 

Directorate General for Justice and Consumers 

3 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LEGAL NOTICE 

Printed by the British Institute of International and Comparative Law in United Kingdom  

Manuscript completed in January 2020 

First edition 

This  document  has  been  prepared  for  the  European  Commission  however  it  reflects  the  views  only  of  the 
authors,  and  the  Commission  cannot  be  held  responsible  for  any  use  which  may  be  made  of  the  information 
contained therein. 

The European Commission is not liable for any consequence stemming from the reuse of this publication.  

Luxembourg: Publications Office of the European Union, 2020 

© European Union, 2020 
Reuse is authorised provided the source is acknowledged.  The reuse policy of European Commission 
documents is regulated by Decision 2011/833/EU (OJ L 330, 14.12.2011, p. 39). 

For any use or reproduction of photos or other material that is not under the copyright of the European 
Union (*), permission must be sought directly from the copyright holders. 

PDF   ISBN 978-92-76-10593-0        doi: 10.2838/703732                 DS-01-20-078-EN-N  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONTENTS 

PART III COUNTRY REPORTS .......................................................................... 7 

BELGIUM COUNTRY REPORT ............................................................................ 7 

DENMARK COUNTRY REPORT ......................................................................... 22 

FINLAND COUNTRY REPORT .......................................................................... 38 

FRANCE COUNTRY REPORT ............................................................................ 56 

GERMANY COUNTRY REPORT ......................................................................... 95 

IRELAND COUNTRY REPORT ........................................................................ 117 

ITALY COUNTRY REPORT ............................................................................. 135 

THE NETHERLANDS COUNTRY REPORT ......................................................... 170 

POLAND COUNTRY REPORT ......................................................................... 197 

SPAIN COUNTRY REPORT ............................................................................ 227 

SWEDEN COUNTRY REPORT ........................................................................ 281 

UNITED KINGDOM COUNTRY REPORT ........................................................... 296 

 
 
 
 
 
 
 
PART III COUNTRY REPORTS 

BELGIUM COUNTRY REPORT 

Geert Van Calster;1 Siel Demeyere2 

I. OVERVIEW 

Belgium  implements  European  law  in  matters  concerning  supply  chain  due  diligence 
(‘SCDD’), with secondary law on financial reporting being the most obvious sector, with 
this    implemented  by  Belgium  without  gold  plating,  It  supports  the  use  of  international 
(voluntary) standards and by including SCDD in its overall corporate social responsibility 
agenda 
l’entreprise,  maatschappelijk  verantwoord 
ondernemen). 

  (responsabilité  sociétale  de 

General  laws,  both  substantive  and  procedural,  are  considered  to  be  flexible  enough  to 
accommodate SCDD, however not a single Act or Government Decree at any level of the 
Belgian institutional structure is aimed directly at SCDD. In summary therefore it may be 
said that Belgian law does not obstruct SCDD, however does little to encourage its use. 

It  would  be  easy  to  blame  a  perceived  lack  of  action  on  Belgium’s  complex  layer  of 
heads of power, with its sometimes opaque division of competencies between the federal 
level, the Regions and the Communities. However, in reality SCDD has simply not moved 
up  the  political  agenda,  influenced  also  by  the  firm  conviction  among  Belgian 
policymakers  that  human  rights  initiatives  in  the  supply  chain  overall  ought  to  remain 
voluntary. 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

1. 

a. 

Area of Regulatory Framework 

Corporations law (including director’s liability) 

2009 Belgian Code on Corporate Governance3 
2013 Wetboek van Economisch Recht (WER) (Code de droit économique)4 
2019  Company  Code  (Wetboek  van  Vennootschappen  en  Verenigingen,  WVV; 

(i) 
(ii) 
(iii) 
Code des sociétés et des associations); including re veil piercing 

b. 

Health, safety and regulatory law 

(iv) 

General tort law: Article 1382 Code Civil 1804 

c. 

Employment law 

(v) 

Article 1384 Civil Code: vicarious liability for employees 

1 Professor in the University of Leuven (KU Leuven); visiting professor at King’s College, London and Monash University, 
Melbourne. Member of the Belgian Bar. Many thanks to Esmée Bezie for assisting first author with insight into the implications 
of the French devoir de vigilance Statute. 
2 KU Leuven; Université de Lille. 
3 English version available at 
https://www.corporategovernancecommittee.be/sites/default/files/generated/files/page/corporategovukcode2009.pdf, or 
https://bit.ly/2vbpoc4 last accessed 18 April 2019. 
4 NL and FR version available at 
http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=nl&la=N&cn=2013022819&table_name=wet or 
https://bit.ly/1Mg8z1g last accessed 18 April 2019. 

7 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
d. 

Private international law and public international law 

Mostly subject to EU law. But see re veil piercing, sub 1. a (iii) above 
Additionally: 

(vi)  2004 Belgian Act on private international law 

2. 

Scope 

a. Rationale given by the State for the regulation (or lack of regulation) 

(i) 2009 Belgian Code on Corporate Governance 
This Code is essentially an implementation of EU Directive 2006/465 in the Belgian legal 
order. 

The Corporate Governance Code received statutory recognition in the Act of 6 April 2010 
for  the  reinforcement  of  corporate  governance.  This  Act  amended  article  96  of  the 
Company Code (Code des sociétés; Wetboek van vennootschappen) and introduced the 
obligation  for  listed  companies  to  assign  the  2009  Corporate  Governance  Code  as  their 
code of reference.6 

(ii) 2013 Wetboek van Economisch Recht (WER) (Code de droit économique) – 
Unfair Trading Practices Act. 
The provisions of this Code, as far as SCDD and human rights are concerned, essentially 
discipline  false  claims  made  by  companies  about  their  SCDD  and  human  rights  policies 
The Code qualifies as unfair trading practice, those company initiatives which purport to 
act in accordance with human rights and SCDD without reflecting real company practice. 
The Act transposes the 2005 Unfair Commercial Practices Directive.7 

(iii)  2019  Company  Code  (Wetboek  van  Vennootschappen  en  Verenigingen, 
WVV; Code des sociétés et des associations);8 including re veil piercing. 

Having  entered  into  force  on  1  May  2019  only,  the  Code  replaces  the  1999  Company 
Code and the 1921 Associations Code. The Act is meant to modernize Belgian company 
law,  making  it  more  transparent,  as  well  as  attractive  to  foreign  investors.  It  is  also  a 
general  tidying-up  exercise  following  many  years  of  piecemeal  transposition  of  EU 
secondary law. 

SCDD did not feature as a reason behind the new Act. As noted,  one of the key 
elements  of  human  rights  and  SCDD  in  Belgium  is  that  it  is  based  on  the  voluntary 
engagement  of  enterprises.  No  obligations  singularly  aimed  at  human  rights  or  SCDD 
have  been  introduced  in  company  law.  Nevertheless,  some  of  the  more  generic 
provisions  in  company  law  may  help  further  SCDD,  particularly  those  with  a  view  to 
ensuring transparency. 

(iv) General tort law: Article 1382 Code Civil 1804 
Belgium’s overall principle of non-contractual liability. 

(v) Article 1384 Civil Code: vicarious liability for employees 
The mother company will, however, generally not be liable for any fault committed by its 
subsidiary as the latter is not regarded as the appointee of the mother company. 

(vi) 2004 Belgian Act on private international law 

5 Directive 2006/46, OJ [2006] L224/1. 
6 Art. 96, §2, 1° Company Code 1999. 
7 Directive 2005/29 concerning unfair business-to-consumer commercial practices in the internal market. 
8 Official State Gazette 4 April 2019, available at 
http://www.ejustice.just.fgov.be/cgi/article.pl?language=nl&caller=summary&pub_date=2019-04-04&numac=2019040586 or 
https://bit.ly/2VRqF3J, last accessed 18 April 2019. 

8 

 
 
 
 
 
 
 
 
 
 
 
 
                                                        
Applies  only  in  the  rare  case  that  the  Brussels  Ia  Regulation  does  not  determine 
jurisdiction. 

b.  Size  and  type  of  business  covered,  including  level  of  turnover,  particular 
industry  sectors  and  type  of  supply  chain,  and  whether  public  procurement  is 
included 

2009 Belgian Code on Corporate Governance 

(i) 
Covers  listed  companies  only  as  far  as  the  statutory  obligation  to  implement  is 
concerned. All other companies may follow the code voluntarily. 

2013 Wetboek van Economisch Recht (WER) (Code de droit économique) 

(ii) 
Covers all corporations. 

(iii)  2019  Company  Code  (Wetboek  van  Vennootschappen  en  Verenigingen, 
WVV; Code des sociétés et des associations); including re veil piercing 
Covers  all  types  of  corporations  small  and  large.  As  noted,  no  specific  SCDD 
requirements are included for either small or large corporations. 

(iv) General tort law: Article 1382 Code Civil 1804 
General scope of application 

(v) Article 1384 Civil Code: vicarious liability for employees 

(vi) 2004 Belgian Act on private international law 

c.  Extent  of  human  rights,  environmental,  climate  change,  sustainability  and 
governance matters covered, and whether the regulation uses the terminology 
of human rights 

(i) 

2009 Belgian Code on Corporate Governance 

None  of  the  principles  of  the  2009  Corporate  Governance  Code,  specifically  relate  to 
human rights let alone SCDD. 
Human rights terminology is used only in a wide sense and only in Guideline 1.2, which 
invites the board to “pay attention to corporate social responsibility, gender diversity and 
diversity in general” when “translating values and strategies into key policies”. 

2013 Wetboek van Economisch Recht (WER) (Code de droit économique) 

(ii) 
None of the principles of the Code, specifically relate to human rights let alone SCDD. 

(iii)  2019  Company  Code  (Wetboek  van  Vennootschappen  en  Verenigingen, 
WVV; Code des sociétés et des associations); including re veil piercing 

None of the principles of the 2019 Company Code, specifically relate to human rights let 
alone SCDD. The 794 pages of the Government Bill introducing the Act9 mention human 
rights  twice  only,  with  respect  to  reporting  requirements:  see  for  further  detail  3  a  iii 
below. 

(iv)  General tort law: Article 1382 Code Civil 1804 
No specific mention of  human rights or SCDD 

(v) 

Article 1384 Civil Code: vicarious liability for employees 

9 Available (bilingual text) at http://www.dekamer.be/FLWB/PDF/54/3119/54K3119001.pdf or https://bit.ly/2KOMFLD, last 
accessed 18 April 2019. 

9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
No specific mention of human rights or SCDD 

(vi)  2004 Belgian Act on private international law 
No specific mention of human rights or SCDD 

d.  Jurisdictional  extent  of  business  covered,  including  whether  it  includes 
activity by subsidiaries or business relations of corporate nationals located in a 
different State and operating outside the State of the regulation 

2009 Belgian Code on Corporate Governance 

(i) 
Subsidiaries are mentioned only in relation to transparency of executives’ pay. 

2013 Wetboek van Economisch Recht (WER) (Code de droit économique) 

(ii) 
No specific mention of subsidiaries or business relations. 

(iii)  2019  Company  Code  (Wetboek  van  Vennootschappen  en  Verenigingen, 
WVV; Code des sociétés et des associations); including re veil piercing 

Given the lack of any specific SCDD provisions, reference to subsidiaries on this issue is 
not included. 

(iv)  General tort law: Article 1382 Code Civil 1804 
No specific mention of human rights or SCDD 

(v) 

Article 1384 Civil Code: vicarious liability for employees 

No specific mention of human rights or SCDD 

(vi)  2004 Belgian Act on private international law 
No specific mention of human rights or SCDD 

3. 

Content of Regulation 

a.  Overview  and  description  of  the  required  measures  for  business  (such  as 
requirement to adopt human rights due diligence or a vigilance plan) 

2009 Belgian Code on Corporate Governance 

(i) 
See above. Human rights terminology is used only in a wide sense and only in Guideline 
1.2,  which  invites  the  board  to  “pay  attention  to  corporate  social  responsibility,  gender 
diversity  and  diversity  in  general”  when  “translating  values  and  strategies  into  key 
policies”. 

(ii) 

2013 Wetboek van Economisch Recht (WER) (Code de droit économique) 

Unfair  commercial  practices  are  targeted  by  a  ‘black  list’  of  practices,  which  are  per  se 
unfair,  as  well  as  two  more  general  standards.  The  black  list in  particular is  interesting 
for  plaintiffs  to  rely  on,  as  Article  VI.100  of  the  Belgian  Code  of  Economic  Law  states, 
inter alia, that the following practices are misleading and therefore unfair: 
1.  Claiming to have signed a code of conduct, while this is not the case; 
2.  Applying a label of trust, quality or the like without the required permission; 
3.  Claiming that a code of conduct has been recognised by a public or other authority, 

while this is not the case; 

4.  Claiming that a company, including its commercial practices, or a product has been 
recommended,  recognised,  approved  or  allowed  by  a  public  or  private  authority, 
while this is not the case. 

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Article VI.98, 2° is a first more general requirement and specifically targets the breach of 
a code of conduct, as already provided for in Article 6 (2) of the Directive. Under Article 
VI.98,  The  breach  will  be  considered  as  an  unfair  commercial  practice  under  the 
following conditions: 

a) the code of conduct must not be a mere letter of intent, but a verifiable (verifiable, 
verifieerbaar) obligation, and 
b) the company has indicated in the context  of a  commercial practice that it is bound 
by the code of conduct. 

The  breach  of  the  code  of  conduct  will  then  be  considered  to  be  an  unfair  commercial 
practice when it has induced or could have induced the average consumer to engage in a 
transaction, which he/she would otherwise not have engaged in. 

Article  VI.97  includes  the  most  general  standard  and  may  also  be  relevant  in  a  human 
rights  and  SCDD  context:  providing  incorrect  information  is  disciplined,  as  is  providing 
factually  correct  information  which  nevertheless  misleads  the  average  consumer.  Of 
particular  relevance  here  is  the  reference  (sub  ,3°)  to  ‘the  nature  of  the  sales  process’ 
and, sub 6°, the qualities of the corporation, including any prizes or labels received. It is 
suggested that whether the standard of misleading is met, is judged against the general 
requirements  of  professional  diligence  in  the  sector.  The  latter  can  be  made  more 
concrete  by  taking  into  account  codes  of  conduct  that  are  applied  in  the  relevant 
sector.10 
Here,  too,  misrepresentation  is  only  considered  to  be  an  unfair  commercial  practice 
when  it  has  induced  or  could  have  induced  the  average  consumer  to  engage  in  a 
transaction,  which  he/she  would  otherwise  not  have  engaged  in.  While  the  protection 
against unfair commercial practices is aimed at consumers, a company can also rely on 
these  provisions  and  act  against  unfair  commercial  practices  of  another  company  when 
the professional interests of the claiming company are at stake (art. VI.104). 

When  a  court  finds  that  a  commercial  practice  of  a  certain  company  is  unfair,  a 
prohibitory injunction will follow. Additionally, once a commercial practice is found to be 
unfair, that counts as sufficient proof  of a  fault in the sense  of Article  1382 Civil Code: 
this enables a claim in tort (see below Error! Reference source not found.) which can 
e  brought  be  both  competitors  and  consumers  (commensurate  with  any  damage  they 
may have suffered. 

(iii)  2019  Company  Code  (Wetboek  van  Vennootschappen  en  Verenigingen, 
WVV; Code des sociétés et des associations); including re veil piercing 

Human rights terminology is only included in reporting  requirements.  This is the one 
area  which  one  could  optimistically  stretch  to  include  SCDD  and  it  has  not  changed  in 
the  2019  version  of  the  Act  as  compared  to  the  version  of  1999.  Directors  of  every 
company  are  obliged  to  publish  their  annual  accounts  and  the  requirements  for  those 
accounts  depend  on  the  size  of  the  company. 11 Much  of  the  report,  attached  to  the 
annual  accounts,  is  purely  financial.  One  of  the  elements  however  in  the  report  that  is 
imposed on most companies, relates to human rights, but it will not always be included. 
Only  when  it  is  necessary  for  a  good  understanding  of  the  development,  the  results  or 
the  position  of  the  company,  must  the  analysis  of  the  company  not  only  mention 
financial  elements,  but  also  non-financial  essential  performance  indicators,  including  ‘in 
particular  information  concerning  environmental  and  staff  issues’.  Human  rights  issues 
are  absent  verbatim  however  the  use  of  the  wording  ‘in  particular’  is  clearly  non-
exhaustive. 
It  is  clear  that  recalcitrant  corporations  may  quite  easily  circumvent  this  reporting 
requirement. 
Listed  companies  are  also  obliged  to  report  on  the  application  of  the  aforementioned 
Good Governance Code. 

10 Caucheteux and Roegiers (2015), 660. 
11 See art. 94 Belgian Company Code 1999; Article 3:6:§1 in fine, 2019 Code. 

11 

 
 
 
 
 
 
 
                                                        
Certain  listed  companies,  credit  institutions  and  insurance  undertakings  with  over  500 
employees  are  subject  to  more  stringent  transparency  requirements  because  of 
Directive  2014/95,  transposed  without  gold  plating  (the  Belgian  Government  requiring 
exactly  the  obligations  of  the  Directive  and  nothing  more)  by  an  Act  of  18  December 
2015.  Pension  funds  and  collective  investment  funds  had  already  been  subject  to 
transparency  requirements,  as  to  the  question  whether  they  take  into  account  social, 
ethical and environmental aspects in their investments strategies.12 Information may be 
given in a declaration and report, yet it need not be included in the annual account and 
report. 

b. Veil piercing 
In  this  context  veil  piercing  refers  to  situations  in  which  a  subsidiary  or  daughter 
company is liable, for whatever reason, and the creditors of the daughter company also 
(try to) engage the liability of the mother company – attributability might be the better 
term. 13 Veil  piercing  is  in  the  first  place  aimed  at  insolvency  situations  and  only  few 
might be relevant in a SCDD context.14 This can be shown in a brief overview of relevant 
veil  piercing  grounds  in  Belgian  law.  Of  note  is  that  veil  piercing  or  attributability 
discussed  here,  targets  the  mother  company,  not  its  directors:  the  latter  issue  is 
discussed below, under ‘directors liability’. 

Abuse of right (abus de droit, rechtsmisbruik) is a popular veil piercing ground in Belgian 
law. The privilege of limited liability is a right that may be abused.15 Claimant first has to 
prove  that  the  subsidiary  is  liable,  no  matter  what  the  basis  for  its  liability  is.  Then,  a 
claim  against  the  mother  company  for  abuse  of  the  privilege  of  limited  liability  may  be 
filed.  Proof  that  the  mother  company  does  not  earn  the  privilege  of  limited  liability 
because  it  did  not  respect  the  rules  concerning  the  autonomy  of  the  subsidiary,  will 
pierce  the  veil.16 However,  the  threshold  for  abuse  is  high  as  only  when  the  right  was 
exercised  in  a  way  that  obviously  goes  beyond  the  way  it  would  be  exercised  by  a 
reasonably forward-looking and careful person, there is an abuse.17 

Concealment  (simulation,  veinzing),  fraud  (fraude,  bedrog)  and  the  creation  of  false 
appearances  (apparence,  rechtmatig  vertrouwen)  are  three  other  grounds  available  for 
veil  piercing  in  Belgian  law, 18 but  they  are  less  popular.  There  is  concealment  when 
parties  to  a  contract  intentionally  differentiate  between  their  expressed  and  actual 
intentions.19 According to article 1321 Belgian Civil Code, third parties can choose to rely 
on  the  consequences  of  the  expressed  intentions  or  on  the  consequences  of  the  actual 
intentions.20 Concealment  can  be  a  tool in  a  company  group  to  organize  the  insolvency 
of a certain company in order to escape from its creditors. A company that was founded 
with  merely  this  goal  is  considered  a  fictitious  company  (socitété  fictive). 21  The 
indications of concealment match to a large extent the indications of abuse of right, such 
as  the  absence  of  decent  bookkeeping,  the  malfunction  of  organs,  and  the  lack  of 
decision-making  power  of  organs.22 Multinational  enterprises  will,  however,  rarely  have 

12 Art. 42-47 of the Act of 28 April 2003 concerning supplementary pensions (Loi relative aux pensions complémentaires); art. 
58, §1 and art. 88, §1 Act of 3 August 2012 concerning institutions of collective investments (Loi relative aux organismes de 
placement collectif); Aydogdu (2016b), 894; Enneking et al. (2015), 162. 
13 See also Van Calster (2019), forthcoming. 
14 For a more elaborate CSR-oriented analysis, see Demeyere (2015b), 397-399. 
15 Such abuse was historically based on articles 544 and 1382 of the Civil Code but is now by some said to be a general 
principle of law. See De Boeck (2011), 6 and 8-10; Van Ommeslaghe (2013a), 65, no. 22 and 73, no. 25. 
16 Brüls (2004), 312; Cornelis (1989), 181; Geens, Denef, Tas, Hellemans and Vananroye (2000), 342; Geens and Wyckaert 
(2011), 340; Ronse, Nelissen-Grade, van Hulle, Lievens and Laga (1986), 939 and 948-949; Ronse and Lievens (1986), 137 
and 170; Vandekerckhove (2007), 32. A shareholder might have set up a subsidiary to prevent its creditors from reaching its 
assets. 
17 Cass. be. 10 March 1983, Arr. Cass. 1982-1983, p 847; De Boeck (2011), 12; Geens and Wyckaert (2011), 343; Ronse, 
Nelissen-Grade, van Hulle, Lievens and Laga (1986), 949. 
18 See e.g. Court of Appeal Antwerp 12 December 1995, TRV 1996, p 62; Cass. be. 6 December 1996, C.950260.N, 
www.cass.be. 
19 Wéry (2011), 877. 
20 Geens and Wyckaert (2011), 326; Van Gerven and Van Oevelen (2015), 227. 
21 See e.g., Court of Appeal Bastia 19 October 2011, no. 10/00457, www.legifrance.gouv.fr. This case is based on French law, 
but is a good example for Belgian law as well since the rules on concealment are nearly identical. 
22 Schoonbrood-Wessels (1993), 474. 

12 

 
 
 
 
 
 
                                                        
such a poor administration, but if they have, this can be deployed to the benefit of the 
victims of the subsidiary’s practices. 

Fraud  is  another  legal  basis  that  exists  in  Belgian  law  to  establish  the  liability  of  a 
mother company.23 The maxim fraus omnia corrumpit means that no one may invoke his 
own  fraud  in  order  to  justify  the  application  of  legal  rules  to  his  benefit.  The  maxim  is 
recognised  as  a  general  principle  of  law,24 and  the  judiciary  will  rely  on  the  principle  to 
hold  a  mother  company  liable  if  the  mother  company  itself  does  not  respect  the  legal 
autonomy  of  its  subsidiary  but  invokes  it  vis-à-vis  third  parties.  Fraud  will  lead  to  the 
impossibility  to  invoke  a  certain  act  (inopposabilité). 25 The  existence  of  the  separate 
legal personality can then not be invoked against the victims. 

The judge-made theory of creation of false appearances is a last possibility to establish 
the liability of the mother company.26 In Belgian law, the legitimate confidence of a third 
party  in  a  certain  situation  can  be  honoured  by  forcing  the  person  that  created  the 
appearance to live up to it.27 It is rather unlikely that this theory will be relevant when a 
subsidiary has caused damage in tort. The damage then just happens to the victim and 
the  victim  did  not  think  about  the  constellation  of  the  company  or  group  so  he/she 
cannot  have  had  legitimate  confidence  in  the  unity  of  the  group.  Even  for  contractual 
creditors,  a claim on the basis  of  creation of  false appearances is only accepted in rare 
situations. Fraud or concealment would overall seem more attractive to plaintiffs, as the 
latter require no proof of the legitimate confidence in the created situation. 

A  final  way  to  hold  a  mother  company  liable for  the  debt  of  its  subsidiary  occurs  when 
the  mother  company  can  be  designated  as  a  director  of  the  subsidiary.  The  mother 
company  might  then  be  liable  on  legal  grounds  specific  to  company  law  or  based  on 
general tort law. Both are discussed below. 

c. Directors’ liability 
Company  law  is  also  concerned  with  the  liability  of  the  director(s)  of  a  company. 
Directors  may  be  liable  based  on  company  law,  or  based  on  common  tort  law  (see 
below).  While  several  provisions  have  been  inserted  regarding  director’s  liability,  only 
one  category  of  them  seems  relevant  for  the  purposes  of  current  study,  namely  the 
liability towards the company and towards third parties for a breach of the provisions of 
the  Belgian  Company  Code  or  a  breach  of  the  articles  of  incorporation. 28  We  have, 
however, just shown that only few provisions in the Belgian Company Code have a clear 
SCDD impact. This is mainly a breach of the eventual obligation to publish non-financial 
indicators in the annual report. 
An  extra  hurdle  for  liability  will  be  the  required  causality  between  the  breach  and  the 
damage. Especially when the breach consists in a lack of action, such as an omission in 
the  annual  report,  is  it  hard  to  prove  causality.29 Article  128  jo.  96  Belgian  Company 
Code  1999  makes  it  a  crime  to  breach  the  obligation  to  give  a  true  image  of  the 
company  in  the  annual  report.  In  case  such  a  crime  is  committed,  the  wrongful  act  of 
the director(s) will be certain, but this still leaves the victim with the proof of causality. 

We will deal with tort law below, but a caveat should already be added on the potential 
tortious liability of a director towards a contracting party of the company. In Belgian law, 
so-called  ‘executory  agents’  (agent  d’exécution,  uitvoeringsagent)  can  only  be  liable  in 
tort  towards  the  contracting  party  of  their  principal  under  the  same  conditions  as  the 
principal could be liable in tort towards his contracting party. Conditions are strict. 

23 See Lenaerts (2013-14), 362. For the French language version of this text, see Lenaerts (2014), 98–115. 
24 Lenaerts (2013-14), 362; Wéry (2011), 248. 
25 Van Gerven and Van Oevelen (2015), 82. 
26 Wéry (2011), 876. 
27 Cauffman (16 February 2005), 15–18. 
28 Artt. 263 and 528 Belgian Company Code 1999. See extensively Vandenbogaerde (2009), 82-121. 
However, it is not always clear whether a provision of the articles of incorporation really has statutory value and is thus a ble to 
engage the liability of the director(s). See Vandenbogaerde (2009), 85-87. 
29 Vandenbogaerde (2009), 93, no. 108. 

13 

 
 
 
 
 
 
 
 
                                                        
Other  provisions  concerning  the  liability  of  the  directors  are  mainly  directed  towards 
insolvency  situations, 30  or  can  only  be  invoked  by  the  company,  but  not  by  third 
parties.31 They seem of no relevance to the current study. 

(iv)  General tort law: Article 1382 Code Civil 1804 

Article  1382  Civil  Code  reads  ‘[any]  act  whatever  of  man,  which  causes  damage  to 
another,  obliges  him  by  whose  fault  it  occurred,  to  compensate  it.’32 Article  1383  Civil 
Code provides the same for negligence causing damage. In Belgian law, a person incurs 
liability  under  article  1382  or  article  1383  when  three  elements  are  present:  a  fault, 
damage, and a causal link between the fault and the damage. Legal persons are subject 
to  these  provisions,  just  as  natural  persons.  When  a  representative  of  the  legal  person 
commits a fault, it will be imputed to the legal person.33 A new draft of the Belgian Civil 
Code did not make its way through parliament as a result of the Government becoming a 
caretaker  Government  at  the  end  of  2018  –  however  the  contents  of  the  new  Article 
replacing  Article  1382,  were  not  materially  changed.  However,  the  proposed  articles 
5.146  ff  still  apply  the  same  three  elements. 34 The  liability  of  a  legal  person  for  its 
representatives will, however, be characterised as vicarious liability.35 

The  first  condition,  fault,  can  be  a  wrongful  act  or  a  wrongful  omission  and  consists  in 
the violation of a statutory rule or the violation of a duty of  care, whether intentional or 
not.36 When a person does not act as a reasonably forward-looking and careful person, 
as a bonus pater familias, he/she has infringed the general duty of care. Overall, a fault 
is  easily  accepted  and  a  culpa  levissima  suffices  to  engage  the  liability  of  the  person 
committing  the  fault.37 It  will  be  interesting  to  see  in  future  Belgian  case  law  whether 
that  demanding  duty  of  care  is  equally  upheld  for  companies  in  a  human  rights  and 
SCDD  context,  particularly  in  the  absence  hitherto  of  a  general  SCDD  requirement.  In 
this  respect,  developments  of  French  case-law  on  its  devoir  de  vigilance  will  be  of 
particular interest, as Belgian case-law tends to employ French authority  – albeit in the 
case  at  issue  this  may  well  be  varied  given  that  Belgium  does  not  have  plans  for 
statutory intervention as is the case for the devoir de vigilance. 

Another relevant element is the ease with which a contractual breach is equated with a 
fault in case the contractual breach causes damage to a third  party. While according to 
Belgian  scholarship  and  the  Belgian  Court  Supreme  Court,  a  fault  must  be  separately 
proven,  case-law  of  lower  courts  shows  that  no  separate  proof  of  a  fault  is  required 
when a contractual breach has been proven.38 When a company in this way has accepted 
certain (enforceable) human rights or SCDD obligations in a contract, a breach of such a 
contract can serve as a basis for a third party to prove a fault of the company. In such a 
case,  a  third  party  would  not  need  a  contractual  provision  in  favour  of  a  third  party  in 
order to be able to rely on the contract. 

If  the  damage  is  caused  by  a  subsidiary,  it  will  not  be  easy  to  prove  that  the  mother 
company  has  committed  a  fault  as  well. 39 If  a  mother  company  has  made  a  human 
rights or SCDD statements, however, the mother company set the standard for the duty 
of  care  higher  for  itself.  In  that  case,  it  arguably  will  be  accepted  more  easily  that  the 
mother  company  be  liable  for  its  subsidiary’s  acts  or  negligence. 40  Apart  from  this 

30 See artt. 265 and 530 Belgian Company Code. 
31 See e.g. artt. 262 and 527 Belgian Company Code. 
32 “Tout fait quelconque de l'homme, qui cause à autrui un dommage, oblige celui par la faute duquel il est arrivé, à le 
réparer.” 
33 Simonart (1995), 451. 
34 See also Commissie tot hervorming van het aansprakelijkheidsrecht (2018), 39 ff. The proposal and the explanatory 
memorandum are available online in a French and Dutch version: https://justitie.belgium.be/nl/bwcc (last accessed 1 May 
2019). 
35 See article 5.158 of the bill. 
36 Van Gerven and Van Oevelen (2015), 368; Van Ommeslaghe (2013b), 1219-1220, no. 830. 
37 Van Ommeslaghe (2013b), 1225, no. 834. 
38 Demeyere (2015a), 35, no. 79. 
39 See also Demeyere (2015b), 393. 
40 Compare Queinnec and Caillet (2010), 654. 

14 

 
 
 
 
 
 
 
                                                        
hypothesis, it can be argued that the mother’s omission to intervene is a fault. When the 
mother  company  knew  about  the  unacceptable  acts  of  its  subsidiary  and  looked  the 
other way, a judge might decide the mother company be liable because it did not use its 
ability  to  control  to  end  the  unacceptable  practices. 41 One  might  even  go  further  and 
argue that even if the mother company did not know about the unacceptable acts, it is 
liable for  omission because it did not follow its subsidiary up closely enough. The latter 
two  applications  of  the  fault  in  a  company  group  context  come  down  to  liability  as  de 
facto  director  (dirigeant  de  fait). 42  The  mother  company  might  have  assumed  the 
management  of  its  subsidiary  and  will  be  liable  for  faults  it  commits  in  its 
management.43 When the judge decides whether something amounted to a fault or not, 
he must however take into account the policy margin a director has.44 

The  damage  is  the  loss  of  a  pecuniary  or  other  benefit  and  can  be  material  or 
immaterial.45 Proving that this condition is fulfilled will, in most cases, be the easiest part 
of proving liability under article 1382 or 1383 Civil Code.46 

The claimant also has to prove the causal link between the fault and the damage before 
it can recover damages. Belgian law clearly adheres to the ‘equivalence doctrine’.47 This 
means that there is a causal link whenever the fault has contributed to the existence of 
the  damage.  This  view  on  the  causal  link  as  valid  in  current  Belgian  law  is  very 
permissive.  With  regard  to  the  causal  link,  the  defendant  can  escape  or  reduce  liability 
by  proving  that  he/she  was  not  the  only  factor  contributing  to  the  creation  of  the 
damage. Force majeure, acts by a third party and a fault of the victim itself can all break 
the  causal  link  and  lead  to  a  division  of  liability. 48  However,  this  will  not  really 
disadvantage  the  claimants  as  whenever  the  company  is  partly  liable,  it  is  liable  in 
solidum  to  pay  the  whole  amount  of  damages  it  owes  to  the  claimants.49 Only  later,  it 
can (try to) claim the determined amount back from the other persons that are liable. 

(v) 

Article 1384 Civil Code: vicarious liability for employees 

In Belgian law, a person is not only liable for his/her own acts or omissions but also for 
the  acts  and  omissions  by  his/her  appointee(s)  (préposé,  aangestelde).  Article  1384, 
third  limb  Civil  Code  states  that  ‘masters  and  employers  [are  liable]  for  the  damage 
caused  by  their  servants  and  employees  in  the  functions  for  which  they  have  been 
employed’.50 An employer or any other ‘appointer’ is thus liable for a fault committed by 
his employees, or ‘appointees’,51 while employees themselves will only rarely be liable.52 
Article  1384  was  enacted  to  ensure  that  a  victim  can  claim  damages  from  a  solvent 
person. The ‘master’ plays a guaranteeing role.53 This ratio is definitely valid for liability 
in group law and it can be analysed whether a company would not only be liable for its 
own employees, but might incur any vicarious liability for a daughter company as well. 

A mother company  will, however, generally not be liable for any fault committed by its 
subsidiary  as  the  latter  is  not  regarded  as  the  appointee  of  the  mother  company, 
although  some  authors  argue  so. 54 However,  a  director  of  the  subsidiary  can,  at  the 
same time, be an employee of the mother company, in which case the mother company 

41 See also Aydogdu (2016a), 698, no. 56; Thomas (2013), no. 13. 
42Gallez (2013),  163. 
43 Cornelis (1989), 166. 
44 Vandenbogaerde (2009), 131. 
45 Van Gerven and Van Oevelen (2015), 453 and 459. 
46 Queinnec and Caillet (2010), 654. 
47 Van Gerven and Van Oevelen (2015), 423. 
48 Van Gerven and Van Oevelen (2015), 437 ff. 
49 Cass. be. 10 July 1952, Pas. 1952, I, 738, Arr.Cass. 1952, 650; ibid. 563. 
50 “Les maîtres et les commettants [sont responsables] du dommage causé par leurs domestiques et préposés dans les 
fonctions auxquelles ils les ont employés.” This article may in the future be replaced by article 5.157 with a similar scope. 
51 The concept of ‘appointee’ is broader than that of ‘employee’, but liability for other appointees than employees is irrelevant 
in this context. 
52 See art. 18 Belgian Employment Contracts Act (act of 3 July 1978): the employee will only be liable for fraud, his culpa lata, 
and his not accidental culpa levis. 
53 See Malinvaud, Fenouillet and Mekki (2014), 473–474. 
54 See e.g. Queinnec and Caillet (2010), 652–653. 

15 

 
 
 
 
 
 
                                                        
can  be  vicariously  liable  for  its  employee.  It  can  also  be  argued  that  the  director  is 
appointed by the mother company even if he/she is not an employee in the strict sense. 
In this case, it is not imaginary that a fault of the director will engage the liability of the 
mother company on the basis of article 1384 Civil Code.55 

To engage the liability of the employer, three conditions have to be fulfilled. 

First,  there  has  to  be  a  bond  of  subordination  or  appointment.  The  employee  is 
 
not  only  socially  or  economically  dependent  on  the  employer  or  ‘appointer’,  but  the 
employer has the right to give orders and instructions, although he need not  exercise 
this  right.56 It  might  be  so  that  the  employee  is  granted  considerable  freedom  to  act 
and it is not even required that the employee acted in accordance with the instructions 
of  the  employer.57 The  first  condition  is  even  fulfilled  when  the  defendant  has,  in  the 
eyes of a reasonable third party, created the appearance that he/she  has the right to 
give orders and instructions.58 A labour contract is not required, nor need there be any 
wage for the employee.59 
Second, the employee has to have committed a fault as defined in articles 1382 
 
and  1383  Civil  Code,  although  the  liability  of  the  employee  himself  must  not  be 
established.60 
Third,  is  that  the  employee  has  caused  the  damage  while  exercising  his/her 
 
function. 61 A  mother  company  will  probably  argue  that  the  person  that  caused  the 
damage  only  exercised  his  function  in  the  subsidiary  and  not  the  function  he/she  has 
for  the  mother  company.  However,  the  last  condition  is  interpreted  particularly  broad 
and it is enough that the damage would not be present in such a way if the subordinate 
had never been employed.62 Once these three conditions are fulfilled, the employer has 
no defence as this provision enacts a non-rebuttable presumption of liability.63 

(vi)  2004 Belgian Act on private international law 

In  the  rare  cases  where  the  Brussels  Ia  Regulation  is  not  applicable,  the  2004  Belgian 
Act  on  private  international  law  (hereafter  ‘PIL  Act’)  applies.  In  a  commercial  or  civil 
matter specifically, the PIL Act will apply when the defendant is not domiciled within the 
EU  and  there  is  no  other  basis  for  its  applicability  (such  as  exclusive  matters  of 
jurisdiction).64 The Act also applies when the matter of the issue is not addressed by the 
Brussels  I  Recast  or  another  EU  Regulation,  such  as  the  Insolvency  Regulation.65 Given 
the unlikely applicability of the PIL Act, we will only briefly describe the main jurisdiction 
rules that can be found in it. 

The  general  jurisdiction  clause  can  be  found  in  article  5  and  provides  that  the  Belgian 
courts have jurisdiction when the defendant has his domicile (domicile, verblijfplaats) or 
usual place of residence (residence habituelle, voornaamste verblijfplaats) in Belgium.66 
In  case  of  a  legal  person,  the  usual  place  of  residence  is  understood  as  the  principal 
establishment  (établissement  principal,  voornaamste  vestiging)  (art.  4,  §2,  2°).  Article 
5, §2 is also relevant as it states that a Belgian judge also has jurisdiction when a claim 
concerns  the  exploitation  of  a  secondary  establishment  (établissement  secondaire, 
nevenvestiging)  in  Belgium,  in  case  the  legal  person  does  not  have  a  domicile  or 

55 De Moor III.6-37 and III.6-44. 
56 Cass. be. 27 February 1970, Pas. 1970, I, 565; Ronse and Lievens (1986), 162. 
57 Cass. be. 3 January 2002, no. C.99.0035.N, AJT 2001-02, 768, note I. BOONE. 
58 Van Gerven and Van Oevelen (2015), 395. 
59 Ronse and Lievens (1986), 163. 
60 Van Gerven and Van Oevelen (2015), 397. 
61 Van Gerven and Van Oevelen (2015), 398. 
62 See, for instance, Cass. be. 7 February 1969, RW 1968–1969, 1545. An employer is, for instance, even liable when his 
employee causes a traffic accident while driving a company car without a driver’s licence after his working hours. See Cass. be. 
2 October 1984, Arr.Cass. 1984–1985, 181. 
63 Van Gerven and Van Oevelen (2015), 394. 
64 Art. 6 (1) Brussels I Recast; Van Calster (2014), 129. 
65 Art. 2 Belgian PIL Code; Erauw (2009), 147, no. 74. 
66 Article 4 determines what the domicile or usual place of residence of a person is. See also Erauw (2009), 150, no. 79 ff. 

16 

 
 
 
 
 
 
                                                        
principal establishment in Belgium.67 Article 6 confirms the legitimacy of a  forum clause 
in  favour  of  Belgian  courts,  but  contains  an  application  of  forum  non  conveniens  for 
instances where the case has ‘no meaningful link’ to Belgium (art. 6, §2). The latter is, 
however,  applied  restrictively. 68  Article  11  contains  a  forum  necessitatis  clause  and 
allows jurisdiction of the Belgian courts when no other provision contradicts this and the 
case has narrow ties with Belgium, while a procedure abroad appears impossible or while 
it  would  be  unreasonable  to  demand  that  the  claim  is  introduced  abroad.  The  PIL  Act 
also contains a clause on connected claims, similar to the Article 8 anchor mechanism of 
the Brussels I Recast. 

Article  96  PIL  Act  provides  extra  possibilities  for  jurisdiction  concerning  contractual  and 
tortious obligations. For contractual obligations, Belgian judges will also have jurisdiction 
when the obligation has arisen in Belgium, or is or should be performed in Belgium. For 
liability  in  tort,  the  Belgian  judges  will  have  jurisdiction  when  the  tort  has  occurred  (or 
threatens to occur) completely or partly in Belgium or if and in so far as the damage has 
occurred  (or  threatens  to  occur)  in  Belgium.  Employment  and  consumer  contracts  are 
again  subject  to  a  special  regulation.  Article  97,  §2  adds  to  article  96  that  the 
employment  is  performed  in  Belgium  when  the  employee  usually  performs  his  work  in 
Belgium at the moment the dispute arises. A forum clause will only be valid when it has 
been  agreed  upon  after  the  dispute  concerning  the  employment  of  consumer  contract 
has arisen (art. 97, §3). 

In  summary,  the  PIL  Act  does  not  therefore  offer  claimant  unexpected  interesting 
possibilities  to  bring  a  claim  in  a  Belgian  court.  Except  for  articles  6  and  11,  the  Code 
does not create other possibilities than the Brussels I Recast. 

With  an  Act  of  1993,  however,  Belgium  had  allowed  for  universal  jurisdiction  for 
international  crimes.  The  1993  Belgian  Genocide  Law69 allowed  prosecution  for  war 
crimes, even when committed in an internal conflict, against both a natural person and a 
legal person, even in absentia. The latter meant that the person involved did not need to 
be  present  on  Belgian  territory  to  prosecute  that  person.70 The  amendments  of  199971 
broadened  the  scope  of  the  Belgian  Genocide  Law  and  also  included  the  prosecution  of 
genocide and crimes against humanity. Article 5, §3 moreover stated  that no immunity 
connected  to  an  official  capacity  could  prevent  prosecution. 72  Especially  since  1999, 
victims discovered the Act and several complaints were launched, also against heads of 
state in function.73 Only very serious international crimes could be prosecuted under the 
Belgian  Genocide  Law,  but  in  a  human  rights  or  SCDD  context,  such  crimes  are  not 
unimaginable.  A  complaint  for  instance  was  made  against  TotalFinaElf  for  its  alleged 
complicity in the military junta in Burma.74 

Under  international  pressure, 75  the  Belgian  Genocide  Act  was  repealed  and  some 
provisions of the Act, none granting universal jurisdiction, were introduced in the Belgian 
Criminal Code and the Code on Criminal Procedure.76 

The only relevant human rights procedure that was started in Belgium is the TotalFinalElf 
case under the Belgian Genocide Act. In April 2002, four refugees from Myanmar filed a 
complaint  against  the  company  for  its  alleged  involvement  in  human  rights  violation  in 
the  course  of  construction  and  exploitation  of  gas  pipelines. 77  The  procedure  was 

67 See Erauw (2009), 152, no. 81. 
68 Erauw (2009), 153, no. 82. 
69 Act of 16 June 1993 concerning the punishment of serious violations of the Geneva Conventions of 12 August 1949 and on 
the additional protocols of 8 June 1977, BS 5 August 1993, 17751. 
70 Wouters (2003-04), 10. 
71 Act of 10 February 1999 concerning serious violations of international humanitarian law, BS 23 March 1999. 
72 See Wouters (2003-04), 11. 
73 For a brief overview, see Wouters (2003-04), 12. 
74 Wouters (2003-04), 12. 
75 The USA had, for instance, threatened to block the expansion of the NATO headquarters in Brussels. See Wouters (2003-
04), 17. 
76 Act of 5 August 2003, BS 7 August 2003, 40506. 
77 See Enneking et al. (2015), 163. 

17 

 
 
 
 
 
 
 
                                                        
however overtaken by the legislative changes and the repeal of the Belgian Genocide Act 
in 2003. The Belgian Supreme Court decided in 2005 that the proceedings could not be 
continued, and that the complaint was inadmissible since there was no more legal basis 
for jurisdiction of the Belgian courts.78 The case was eventually terminated in 2008 after 
a couple more appeals to the Constitutional Court and the Supreme Court.79 

e. Key legal elements of the obligation 

2009 Belgian Code on Corporate Governance 

(i) 
Vague guideline of intent only. 

2013 Wetboek van Economisch Recht (WER) (Code de droit économique) 

(ii) 
Infringement of stated intent. 

(iii)  2019  Company  Code  (Wetboek  van  Vennootschappen  en  Verenigingen, 
WVV; Code des sociétés et des associations); including re veil piercing 
Breach of transparency obligations. 

(iv)  General tort law: Article 1382 Code Civil 1804 
Breach of statutory duty (not relevant for human rights of SCDD) or  of general duty of 
care (more promising). 

(v) 

Article 1384 Civil Code: vicarious liability for employees 

Little to no calling in the human rights and SCDD context. 

(vi)  2004 Belgian Act on private international law 
Scope of application limited due to Brussels Ia’s wide reach. 

4. 

Monitoring, sanction and enforcement 

All of the relevant Belgian anchor points for human rights due diligence discussed above 
are,  if  at  all,  in  the  main  monitored  by  private  individuals  and  NGOs.  It  is  their 
enforcement action which will lead to disciplining by the courts in ordinary. The Belgian 
ministry of economics has wide-ranging inspection and enforcement means with a view 
to upholding economic law as a whole, typically following competitors and /or consumers 
complaints,  including  for  commercial  practice  relevant  to  SCDD.  However  to  our 
knowledge there has not been a single enforcement action directly linked to such SCDD. 

5. 

Procedural Framework 

2009 Belgian Code on Corporate Governance 

(i) 
Not relevant – No such due diligence required. 

2013 Wetboek van Economisch Recht (WER) (Code de droit économique) 
(ii) 
When  a  commercial  practice  is  found  to  be  unfair,  a  prohibitory  injunction  (action  en 
cessation, vordering tot staking) can be claimed in court by any person with an interest 
(art.  XVII.7).  It  is  unlikely  that  a  consumer  will  make  the  effort  and  incur  expenses  to 
start  court  proceedings.80 However,  consumer  organisations,  the  relevant  minister  and 
other companies can also file a claim. The professional interest of other companies will, 
for instance, be at stake when they compete with the company alleged to apply an unfair 
commercial practice or when it is a company granting trust labels.81 

6. 

Available Remedies 

78 Cass. 29 June 2005, no. P.040482.F, www.juridat.be. 
79 For a more complete overview of the case, see Enneking et al. (2015), 164. 
80 Caucheteux and Roegiers (2015), 660. 
81 Caucheteux and Roegiers (2015), 661. 

18 

 
 
 
 
 
 
 
 
 
 
 
 
                                                        
Belgium’s National Contact Point under the OECD Guidelines has hitherto not dealt with 
human rights due diligence relevant claims.82 

7. 
Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
and  b)  to  companies,  either  individually  or  collectively)  (public  information, 
estimated opinion) 

Not  quite  relevant  given  the  absence  of  SCDD  content.  In  general,  it  is  impossible  to 
estimate due to lack of transparency in same. 

8. 

Impact of the Regulation 

2009 Belgian Code on Corporate Governance 
Clearly not much of an impact at all. 

III.  COMPARATIVE ANALYSIS 

An  area  which  is  not  included  in  the  template  provided,  is  general  contract  law. 
Provisions concerning human rights and SCDD obligations may be inserted into business 
contracts.  They  may  be  based  on  codes  of  conduct,  whether  international  and  general, 
particular  to  a  certain  sector  or  even  particular  to  an  enterprise.  Status,  and  especially 
the enforceability, of such provisions is unclear. 

Contracting  parties  can  include  a  wide  range  of  obligations,  such  as  a  declaration  (for 
instance the self-declaration regarding ISO 26000, see above Error! Reference source 
ot  found.), the application of the Corporate Governance Code, reporting on the human 
rights policy of the  company, and respecting certain norms in their supply chain. When 
the  enforceability  of  such  an  obligation  is  certain,  whether  because  it  is  clearly 
determined  by  the  parties,  or  whether  because  a  judge  has  later  confirmed  its 
enforceability,  the  question  arises  whether  a  particular  obligation  which  is  alleged  to 
have  been  breached,  actually  constitutes  a  ‘best  efforts  obligation’  (obligation  de 
moyens,  inspanningsverbintenis)  or  an  obligation  to  achieve  a  certain  result  (obligation 
de résultat, resultaatsverbintenis).83 The distinction is of major importance to the burden 
of  proof.  In  case  a  claimant  asserts  that  an  obligation  to  achieve  a  result  has  been 
breached, the only proof necessary is that the obligation is actually breached. It is then 
up to the debtor / defendant to prove that the breach was due to force majeure and that 
it  must  not  be  held  accountable  for  it.  In  case  a  ‘best  efforts  obligation’  would  be 
breached,  however,  it  is  up  to  the  claimant  to  prove  that  the  debtor  has  not  taken  all 
reasonable  efforts  to  perform  the  obligation.  It  is  usually  up  to  the  judge  to  determine 
whether  a  particular  obligation  was  one  of  best  efforts  or  one  to  achieve  a  result. 
Examples  allow  for  a  clarification  of  the  concept.  The  promise  to  insert  a  certain 
provision in a subsequent contract with another party, such as a supply chain enterprise, 
will  normally  be  an  obligation  to  achieve  a  result.  The  promise  to  assure  by  own 
investigations that no subcontractors allow child labour in their foreign factories, will on 
the other hand be a ‘best efforts obligation’. 

If  contracting  parties  want  to  ensure  the  enforceability  of  the  obligations  they  insert,  a 
variety of options are available, and most clauses can be combined all at once. 
  A  first  interesting  clause  is  a  damages  clause. 84  This  clause  allows  parties 
contractually to determine beforehand the damages to be paid in case of a breach of 
a  certain  contractual  provision.  The  real  damages  then  do  not  have  to  be  proven85 
and  it  does  not  matter  whether  they  would  approach  the  damages  foreseen  in  the 

82 Huyse and Verbrugge 2018. 
83 See Stijns (2005), 142, no. 196; Van Gerven and Van Oevelen (2015), 169; Van Ommeslaghe (2013a), 50, no. 15. 
84 Stijns (2005), 181, no. 253; Van Gerven and Van Oevelen (2015), 188. 
85 Cass. be. 3 February 1995, no. C.928358.N, Arr.Cass. 1995, 130, RW 1995-96, 226. 

19 

 
 
 
 
 
 
 
 
 
 
                                                        
contractual  provision.  The  predetermined  amount  must  be  paid,  while  the  damage 
that  actually  occurred  may  be  significantly  more  or  less.  Only  when  the 
predetermined damages are unreasonably high, can a judge mitigate them.86 When 
the  predetermined  damages  would  be  unreasonably  low,  the  provision  must  be 
recharacterised as a disclaimer.87 

  Secondly,  contracting  parties  can  grant  to  one  (or  both)  of  them  the  possibility  to 
dissolve  the  contract,  without  having  to  go  to  court, 88  contrary  to  article  1184 
Belgian  Civil  Code  (see  below).  Notice  upon  the  debtor  is  not  required  if  this  is 
explicitly  provided  in  the  contract.  The  debtor  can  still  go  to  court  and  uphold  that 
the dissolution was unjust, which will then be assessed by the judge. 

  Thirdly, the circle of claimants can be broadened by inserting provisions in favour of 
a  third  party.89 A  third  party,  such  as  employees  of  the  debtor,  can  be  given  the 
right to enforce a contractual provision concerning their labour conditions. This is a 
way  to  overcome  privity  of  contract  (art.  1165  Civil  Code)  and  to  grant  rights  to 
third  parties.  Very  concrete  elements  could  enhance  the  enforceability  of  such 
provisions,  such  as  advertising  the  rights  and  obligations  of  the  employees  in  plain 
language within the factory buildings.90 Hitherto  no SCDD relevant case-law on this 
issue exists. 

  Fourthly, in case there is a chain of contracts not all involving the first creditor who 
wishes to impose human rights or SCDD obligations, there is a possibility to insert a 
‘chain clause’ (kettingbeding).91 Such a clause obliges the contracting party to insert 
a certain obligation in a subsequent contract, coupled with the obligation to let any 
subsequent  contracting  party  insert  it  as  well.  Such  a  provision  could  for  instance 
oblige the whole chain of suppliers to ensure respect for human rights and to uphold 
humane labour conditions. The  enforceability of this clause can be strengthened by 
adding  a  provision  in  favour  of  a  third  party,  namely  the  first  creditor,  and  a 
damages  clause.  The  first  creditor  can  then  enforce  the  obligation  against  any  sub 
supplier who has accepted this provision. The latter, however, shows the weakness 
of this provision. The sub supplier will only be liable when the provision was actually 
inserted  into  his  contract.  When  this  did  not  happen,  no  action  can  normally  be 
undertaken against him based on that specific clause.92 

  Fifthly, the performance of human rights and SCDD obligations could be inserted as 
a  suspensive  condition  (condition  suspensive,  opschortende  voorwaarde)  or  as  a 
condition of avoidance  (condition résolutoire, ontbindende voorwaarde).93 This goes 
further  than  the  provisions  we  just  discussed,  because  the  creation  or  (further) 
existence of the contract depends on the fulfillment of the condition. Moreover, once 
a  condition  is  fulfilled,  the  contract  will  automatically  be  created  or  dissolved  and 
there will be no moment for negotiations, considerations or whatsoever. 

General contract law therefore provides for a variety of options which will be useful in a 
human rights and SCDD context. However, that is only so when the parties are clear on 

86 Art. 1231, §3 Belgian Civil Code. 
87 A disclaimer will in Belgian law be invalid when (i) it is contrary to mandatory law, (ii) it concerns an essential obligation of 
the contract, or (iii) it would exonerate the debtor for his own fraud. See Stijns (2005), 163, no. 231; Van Gerven and Van 
Oevelen (2015), 179. 
In the other cases, the recharacterised damages clause will be a valid disclaimer and must be upheld. 
88 Van Gerven and Van Oevelen (2015), 202. 
89 Art. 1121 Belgian Civil Code; Stijns (2005), 241, no. 336; Van Gerven and Van Oevelen (2015), 235; Van Ommeslaghe 
(2013a), 685, no. 442. 
See also van der Heijden (2011), 6. 
90 van der Heijden (2011), 8. 
91 Sagaert (2014), 29, no. 28; Stijns (2005), 239, no. 333; Van Gerven and Van Oevelen (2015), 233. 
See also van der Heijden (2011), 6. 
92 For more details on the functioning of a chain clause, its strengths and weaknesses, see Demeyere (2017a), no. 46 ff. 
93 Artt. 1181-1183 Belgian Civil Code; Stijns (2009), 3, no. 2; Van Gerven and Van Oevelen (2015), 537; Wéry (2016), 333, 
no. 339. 

20 

 
 
 
                                                        
the  enforceability  of  the  obligations  they  agreed  upon,  or  when  a  judge  has  decided  in 
favour of their enforceability. 

IV. 

REGULATORY FRAMEWORK 

This is covered in the Overview to the Report above. 

In  addition,  there  is  a  proposed  amendment  to  the  2009  Belgian  Code  on  Corporate 
Governance. The Code was meant to have been amended in 2019, however this is now 
likely to be extended to 2020. Neither human rights nor SCDD are at the forefront of the 
suggestions  for  review  however  there  is  no  particular  reason  why  they  could  not  or 
should not be. 

There  is  also  pressure  from  some  NGOs  to  include  mandatory  due  diligence  in  Belgium 
law to apply to Belgium companies, without hitherto any detail being given on how such 
a law should be construed94 

94 See https://bit.ly/2YgzpkX, last accessed 7 May 2019. 

21 

 
 
 
 
 
 
 
 
                                                        
DENMARK COUNTRY REPORT 

Lia Heasman95 

I.  OVERVIEW 

There are no mandatory legal requirements to conduct human rights due diligence, but 
there is currently a proposal related to mandatory human rights due diligence. According 
the National Action Plan, the Danish Government is committed to continuously improving 
and promoting guidance provided to companies on corporate social responsibility (CSR) 
and human rights in particular. The Financial Statements Act, which implemented the EU 
Accounting  Directive  2013/34,  requires  human  rights  reporting.  Denmark  was  the  first 
country in the EU to implement the requirement for human rights. Denmark has chosen 
to include a larger group of companies than the directive prescribes under its scope. 

In  January  2019  three  parliamentary  members  Rasmus  Nordqvist  (ALT),  Eva  Flyvholm 
(EL) and Lisbeth Bech Poulsen (SF) proposed a proposal for a parliamentary resolution to 
make it compulsory for companies to exercise  the necessary  care in the field of human 
rights and on the introduction of effective remedies.96 These Danish Parliament members 
asks  the  Government  to  present  a  bill  that  makes  it  compulsory  for  large  Danish 
companies  and  small  and  medium-sized  enterprises,  which  operate  in  particularly  risky 
sectors  or  who  have  trade  relations  with  high  risk  areas  such  as  conflict  zones,  to 
exercise due diligence in the human rights field. 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

1. Area of Regulatory Framework 

A.  Corporations law 

-  The Danish Financial Statements Act Section 992: 
Large  undertakings  must  supplement  the  Management's  Review  with  a  corporate  social 
responsibility  (CSR)  report,  cf.  (2)-(9).  Corporate  social  responsibility  entails  that 
undertakings  incorporate  considerations  for,  inter  alia,  human  rights,  social  conditions, 
environmental and climate issues, as well as anti-corruption measures, in their business 
strategy  and  business  activities.  (2)  As  a  minimum,  the  CSR  report  must  include  the 
following, cf. (3), (6) and (7), however: 
1) A brief description of the undertaking's business model. 
2) A description of the CSR policies pursued by the undertaking, including any standards, 
guidelines  or  CSR  principles  applied  by  the  undertaking.  As  a  minimum,  environmental 
policies, including measures to reduce the climate impacts of the undertaking's activities, 
must  be  disclosed,  as  well  as  social  conditions  and  employee  conditions,  respect  for 
human  rights,  and  measures  to  fight  bribery  and  corruption.  For  each  policy  area  it 
must  be  stated  whether  the  undertaking  has  a  policy  for  the  area  in  question,  and  the 
nature of the policy. 
3) For each policy area, cf. 2), it must be stated how the undertaking puts its CSR policy 
into practice, and any systems or procedures in this respect  must be described. Details 
must also be given of the due diligence processes applied, if the undertaking uses such 
processes. 

95 Lia Heasman LLD. 
96 Fremsat den 24. januar 2019 af Rasmus Nordqvist (ALT), Eva Flyvholm (EL) og Lisbeth Bech Poulsen (SF) Forslag til 
folketingsbeslutning om at gøre det lovpligtigt for virksomheder at udøve nødvendig omhu på menneskerettighedsområdet og 
om indførelse af effektive retsmidler, Beslutningsforslag nr. B 82 (January 24, 2019) 

22 

 
 
 
 
 
 
 
                                                        
4)  Details  must  be  given  of  the  principal  risks  related  to  the  undertaking's  business 
activities,  including,  where  relevant  and  proportionate,  in  relation  to  its  business 
relationships,  products  or  services  which  are  likely  to  entail  a  particular  risk  of  adverse 
impacts  in  the  areas  stated  in  2).  This  must  include  details  of  how  the  undertaking 
manages the risks in question. Information must be provided for each policy area. 
5) Details must be given of the undertaking's use of any non-financial key performance 
indicators relevant to the specific business activities. 
6) Details must be given of the undertaking’s assessment of the results it has achieved 
as a result of its CSR initiatives during the financial year, and any future expectations of 
these initiatives. Information must be provided for each policy area, cf. 2).  
(3)  Where 
the undertaking does not pursue CSR policies in the areas stated in (2) 2), this must be 
disclosed  in  the  Management's  Review,  including  the  grounds,  for  each  of  the  areas 
stated. (4) The report must be presented as part of the Management’s Review. 
Instead, however, the undertaking may present the report 1) in a supplementary report 
to  the  Annual  Report,  cf.  Section  14,  to  which  reference  is  made  in  the  Management's 
Review,  in  accordance  with  regulations  issued  pursuant  to  (8),  first  sentence;  or  2)  on 
the  undertaking's  website,  to  which  reference  is  made  in  the  Management's  Review,  in 
accordance with regulations issued pursuant to (8), second sentence. 
(5)  For  undertakings  that  present  consolidated  financial  statements  it  is  sufficient  to 
provide the information stated in (1)-(3) for the overall Group. 
(6) A subsidiary that is part of a Group may omit this information from its Management's 
Review if a parent undertaking fulfils the disclosure requirements in accordance with (1)-
(3). 
(7) An undertaking may refrain from preparing a CSR report in accordance with (2) if the 
undertaking  discloses  its  CSR  policies  in  accordance  with  international  guidelines  or 
standards that include the information stated in (2). Subsection 3 will apply in the same 
way if the information does not cover the policy areas stated in (2). 
(8)  The  Danish  Business  Authority  lays  down  more  detailed  regulations  concerning  the 
publication of the CSR report in a supplementary report to the Annual Report, as well as 
the  obligations  of auditors with regard to the information published therein,  cf. (4), 1). 
The  Danish  Business  Authority  lays  down  more  detailed  regulations  concerning  the 
publication  of  the  CSR  report  on  an  undertaking's  website,  including  regulations 
concerning  the  undertaking's  updating  of  the  information  on  the  website,  and  the 
obligations of auditors  with regard to the information published  on the website,  cf. (4), 
2). 
(9) The Danish Business Authority lays down more detailed regulations for the terms on 
which  an  undertaking  can  report  on  CSR  according  to  international  guidelines  or 
standards. 

-  Financial Statements Act Section 107 b 
An entity that has  securities admitted to trading on a  regulated market in an  EU /  EEA 
country  must  include  a  corporate  governance  statement  that  includes  the  following:  1) 
Indication  of  whether  the  entity  is  covered  by  a  corporate  governance  code,  citing  the 
code that the company may be subject to. 
2) Indication of where the code referred to in paragraph 1 is publicly available. 
3) Indication of which parts of the code referred to in paragraph 1 the company deviates 
from, and the reasons for doing so, if the company has decided to depart from parts of 
the code. 
4)  Indication  of  the  reasons  why  the  company  does  not  apply  the  code  referred  to  in 
paragraph 1 if it has decided not to apply the Code. 
5) Reference to any other  corporate governance  codes which the  company has decided 
to use in addition to or in place of the code referred to in paragraph 1, or to which the 
company applies voluntarily,  stating similar information to those in paragraphs 2 and 3 
stated. 
6)  Description  of  the  main  elements  of  the  company's  internal  control  and  risk 
management systems in connection with the financial reporting process. 

23 

 
 
 
7)  Description  of  the  composition  of  the  company's  management  bodies  and  their 
committees and their function. 

PCS. 2. An enterprise covered by subsection (1). 1, and which alone has securities other 
than  shares  admitted  to  trading  on  a  regulated  market  in  an  EU  /  EEA  country,  may 
refrain from giving the securities referred to in subsection (1). 1, items 1-5 and 7, unless 
the company in question has shares admitted to trading in a multilateral trading facility 
in an EU / EEA country. Item 1 does not apply to state-owned limited liability companies. 
PCS. 3. The statement  according to subsection (1). 1 must be given in connection with 
the information mentioned in section 107a in the management's review, cf. 4th 
PCS. 4. The Danish Business Authority may decide that the statement in accordance with 
subsection (1). 1 must not be included in the management's review if the management's 
review  contains  a  reference  to  the  company's  website,  where  the  statement  has  been 
published.  The  Danish  Business  Authority  sets  detailed  rules  on  this,  including  on  the 
company's updating 

the  bookkeeping  and  financial  reporting  procedures  are  satisfactory,  having  regard 

-  The Danish Companies Act Section 115 
In limited liability companies that have a board of directors, the board must, in addition 
to  performing  overall  management  duties  and  strategic  management  duties  and 
ensuring proper organisation of the company's business, ensure 
1. 
to the circumstances of the limited liability company; 
2.  adequate risk management and internal control procedures have been established; 
3. 
liability company's financial position; 
4. 
directors; and that 
5. 
the financial resources of the limited liability company are adequate at all times, and 
that the company has sufficient liquidity to meet its current and future liabilities as they 
fall  due.  The  limited  liability  company  is  therefore  required  to  continuously  assess  its 
financial position and ensure that the existing capital resources are adequate. 

the  executive  board  performs  its  duties  properly  and  as  directed  by  the  board  of 

the  board  of  directors  receives  ongoing  information  as  necessary  about  the  limited 

-  The Danish Companies Act Section 116 
In limited liability companies that have a supervisory board, the board must ensure that 
6.  1.  the  bookkeeping  and  financial  reporting  procedures  are  satisfactory,  having 
regard to the circumstances of the 
7. 
limited liability company; 
8.  2.  adequate  risk  management  and  internal  control  procedures  have  been 
established; 
9.  3.  the  supervisory  board  receives  ongoing  information  as  necessary  about  the 
limited liability company's financial position; 
10.  4. the executive board performs its duties properly; and 
11.  5. the financial resources of the limited liability company are adequate at all times, 
and that the company has sufficient 
12.  liquidity to meet its current and future liabilities as they fall due. The limited liability 
company is therefore required 
13.  to  continuously  assess  its  financial  position  and  ensure  that  the  existing  capital 
resources are adequate 

-  Committee  on  Corporate  Governance  Recommendations  for  corporate 

governance of 2017 Section 2 and 5 (annex) 

24 

 
 
 
 
 
 
 
 
B.  Health, safety and regulatory law 
-  Working Environment Act Section 15 
It  shall  be  the  duty  of  the  employer  to  ensure  safe  and  healthy  working  conditions. 
Special reference is made to: 

1.Part 5 on the performance of the work, 

2.Part 6 on the design and fitting out of the work site, 

3.Part 7 on technical equipment, etc., 

4.Part 8 on substances and materials. 

C.  Administrative law. 
-  Act  on  a  Mediation  and  Complaints-Handling  Institution  for  Responsible 

Business Conduct (annex) 

2. Scope 

a.  Rationale given by the State for the regulation (or lack of regulation) 

There are no mandatory legal requirements to conduct human rights due diligence, but 
there  is  currently  a  proposal  related  to  mandatory  human  rights  due  diligence.  The 
Financial  Statements  Act,  which  implemented  the  EU  Accounting  Directive  2013/34, 
requires human rights reporting. Denmark was the first country in the EU to implement 
this requirement. Denmark has chosen to include a larger group of companies than the 
directive prescribes under its scope. According to the National Action Plan, the purpose is 
to  further  strengthen  Danish  companies’  activities  in  relation  to  human  rights  and 
climate  change  which  will  be  beneficial  to  society  overall,  but  also  to  the  individual 
company.97 

According the National Action Plan, the Danish Government is committed to continuously 
improving  and  promoting  guidance  provided  to  companies  on  human  rights  and  on 
CSR. 98  Human  rights  are  integrated  into  Danish  law  and  there  exists  a  general 
expectation  that  companies  are  expected  to  comply  with  the  law  without  undergoing  a 
specific  licensing  process  in  advance.  It  is  apparent  the  Danish  government  has  been 
proactive  in  offering  information  related  to  human  rights.  The  Government  offers  the 
portal  "Responsible  Purchaser",  which  is  a  portal  with  guidance  on  CSR  for  public 
purchasers. The Government provides non-binding guidance for companies and has, for 
example, provided the CSR Compass, gives guidance on ways to solve company conflicts 
by  actively  engaging  in  a  dialogue  with  the  company’s  stakeholders,  and  the  Global 
Compact  Self-Assessment,  which  works  as  a  self-guidance  for  companies. 99 The  self-
assessment has integrated the  Guiding Principles  and includes a questionnaire covering 
aspects  of  human  rights,  worker’s  rights,  environment  and  anti-corruption.  When  the 
Action Plan for Corporate Social Responsibility 2012-2015 ended in 2015 and there is no 
information  whether  the  Danish  Government  will  evaluate  the  plan,  or  develop  a  new 
one. 

The Danish Business Authority under the Ministry of Business and Growth is responsible 
for coordinating the Danish efforts for business and human rights. This includes, among 
other  things,  the  overall  responsibility  for  the  Government's  Action  Plan  for  Corporate 
Social  Responsibility  2012-2015. 100  The  Dialogue  Forum 
for  Corporate  Social 
Responsibility  and  Growth  (Dialogforum  for  Samfundsansvar  og  Vækst),  which  was 

97 Danish  National Action Plan – implementation if the UN Guiding Principles on Business and Human Rights (March 2014)14 at 
https://www.ohchr.org/Documents/Issues/Business/NationalPlans/Denmark_NationalPlanBHR.pdf  
98 Danish  National Action Plan – implementation if the UN Guiding Principles on Business and Human Rights (March 2014) 9 at 
https://www.ohchr.org/Documents/Issues/Business/NationalPlans/Denmark_NationalPlanBHR.pdf.  
99 Ibid 13-14.  
100 Danish Institute of Human Rights, Erhverv og menneskerettigheder i en dansk kontekst (2016) 12 

25 

 
 
 
 
 
 
                                                        
founded  in  2016,  supports  Danish  companies  in  CSR  matters. 101  The  new  Dialogue 
Forum also helps social-economic companies create growth. Much like the former Council 
for  Social  Responsibility,  the  new  Dialogue  Forum  is  composed  of  14  members  across 
sectors.  The  Danish  government  set  up  the  former  Council  for  Corporate  Social 
Responsibility in 2016, which advised the government on  social responsibility, including 
the two action plans and the  establishment of  the Mediation and Complaints Institution 
for Responsible Business Behavior.102 

Size and type of business covered, including level of turnover, particular 
b. 
industry  sectors  and  type  of  supply  chain,  and  whether  public  procurement  is 
included 

The  Danish  reporting  requirements  on  human  rights  are  explicit  and  apply  to  all  a 
number  of  companies  in  Denmark,  which  includes  all  publicly  listed  companies,  state-
owned limited liability companies and institutional  investors who must report on human 
rights in their annual reports. The Financial Statements Act requirements apply to listed 
businesses  in  accounting  classes  C  and  D  with  some  companies  exempt,  because  they 
are subsidiaries to a parent that report the information for the group.103 Companies in D 
class  compose  of  listed  and  state  owned  companies.  Companies  in  class  C  with  two  of 
the  three  size  limits  in  the  last  two  consequent  years;  balance  sum  of  156  million  kr; 
revenustae of 313 million kr, and an average number of 250  employees, fall within the 
scope.  The  same  reporting  requirement  applies  to  institutional  investors,  mutual  funds 
and  other  listed  financial  enterprises,  such  as  banks  and  insurance  issued  by  an 
Executive  Order  issued  by  the  Danish  Financial  Supervisory  Authority  who  are  not 
covered by the Financial Statements Act. 

The jurisdictional scope of the Danish Working Environment Act is limited to work being 
performed in Denmark and thus the Act does not apply to employees abroad even if the 
employee is a Danish citizen working for a Danish employer. 

c. 
Extent  of  human  rights,  environmental,  climate  change,  sustainability 
and  governance  matters  covered,  and  whether  the  regulation  uses  the 
terminology of human rights (see above) 

The Financial Statements Act specifically uses human rights terminology.104 Similarly the 
wording of due diligence is noted in the section. 

3. Content of Regulation 

a.  Overview  and  description  of  the  required  measures  for  business  (such  as  
requirement to adopt human rights due diligence or a vigilance plan) 

Danish  regulation  does  not  explicitly  include  human  rights  due  diligence  requirements. 
Sustainability  related  efforts  focus  mainly  on  reporting,  but  reporting  related  to  due 
diligence  processes  applied  is  mandatory  in  accordance  with  the  Financial  Statements 
Act.105 

b. Key legal elements of the obligation 

Certain  duty  of  care  expectations  exists  in  the  Danish  Working  Environment  Act,  which 
notes  a  duty  of  care  related  to  employers  to  provide  their  employees  with  a  safe  and 
healthy working environment.106 

101 Danish Institute of Human Rights, Erhverv og menneskerettigheder i en dansk kontekst (2016) 14 
102 Ibid 13. 
103 Financial Statements Act (LBK nr 1580 af 10/12/2015) Section 99a.  
104 The Financial Statements Act (LBK nr 1580 af 10/12/2015) 99a.  
105 The Financial Statements Act (LBK nr 1580 af 10/12/2015) 99a. 
106 Working Environment Act (LBK nr 1072 af 7/9/2010) Chapter 4 Section 15. 

26 

 
 
 
 
 
 
                                                        
Even  though  the  section  115  and  116  of  the  Danish  Companies  Act  does  not 
automatically articulate a duty of care,107 but it does imply a duty of care by the board of 
directors  and  the  supervisory  board.  The  Recommendations  by  the  Committee  for 
Corporate  Governance  clearly  stipulate  the  obligation  to  act  diligently. 108  These 
recommendations  are  best  practice  guidelines  for  the  management  of  companies  that 
trade  on  a  regulated  market  and  not  mandatory.  The  updated  Recommendations  for 
Corporate  Governance  of  23  November  2017  entered  into  force  for  the  financial  years 
starting January 1, 2018 or later. The recommendations on corporate governance are a 
supplement  for  current  Danish  company  law  and  stock  exchange  regulation  as  well  as 
the  requirements  for  financial  reporting.  Companies  must  in  accordance  with  the 
Financial Statement Act report on governance. 

Danish  companies  must  expressively  state  in  their  reports  what  measures  they  are 
taking  to  respect  human  rights  and  to  reduce  their  impact  on  the  climate  from  2013 
onwards.  The  Financial  Statement  Act  requires  that  the  description  of  a  company’s 
policies  must  include  a  description  of  "due  diligence  processes  implemented"  and  the 
section  99a  specifically  uses  the  term  "due  diligence".109 The  current  Section  99a  does 
not  describe  directly  what  the  due  diligence  concept  entails.  However  the  Danish 
Business  Authority  and  the  Mediation  and  Complaints-Handling  Institution 
for 
Responsible  Business  Conduct  official  website  note  that  the  concept  of  due  diligence 
exists  in  the  international  guidelines  such  as  the  OECD  Guidelines  for  Multinational 
Enterprises and the UN Guiding Principles on Business and Human Rights.110 

Companies  must  also  report  on  their  standards  and  policies  if  the  company  has  a  CSR 
policy,  CSR  standards,  guidelines  or  principles  and  the  nature  of  that  policy. 111  This 
includes  disclosing  social  conditions  and  employee  conditions  and  respect  for  human 
rights. Companies must report how these policies materialize into action, which includes 
the systems or procedures used. Thirdly, the company must evaluate their achievements 
related  to  the  CSR  initiatives  during  the  financial  year.112 Importantly  companies  must 
also  report  if  the  company  does  not  have  any  social  responsibility  policies.  In  order  to 
fulfil their requirements companies need to be able to know and show how they respect 
human rights. 

Listed  companies  that  are  covered  by  section  107b  of  the  Danish  Financial  Statements 
Act  must  also  publish  the  statement  related  to  governance  in  the  company's 
management's  report  or  make  reference  in  the  management's  report  to  the  company's 
website,  where  the  statement  has  been  published.113 The  Danish  Financial  Statements 
Act notes that companies that have securities admitted to trading on a regulated market 
in an EU / EEA country must include a statement on corporate governance. The Board of 
Directors  of  listed  companies  are  responsible  for  preparing  the  report.  As  noted  earlier 
the  Corporate  Governance  Recommendations  for  corporate  governance  should  be 
included  in  this  reporting,  which  also  includes  the  recommendation  related  to  duty  of 
acting diligently, corporate social responsibility and whistleblowing channels.114 

c. Risk assessment requirements and risk mitigation measures 

107 Companies Act (LBK nr 1089 af 14/09/2015) 115-116.  
108 The Committee on Corporate Governance Recommendations for corporate governance of 2017 (November 2017) 10 at 
https://corporategovernance.dk/sites/default/files/181211_clean_recommendations_version071218_002.pdf 
109 Financial Statements Act (LBK nr 1580 af 10/12/2015) 99a.  
110 The Mediation and Complaints-Handling Institution for Responsible Business Conduct official website, what companies can 
do (visited on April 29, 2019) at  https://businessconduct.dk/due-diligence; Danish Business Authority, Implementation in 
Denmark of EU Directive 2014/95/EU on the disclosure of non-financial information, 9 at 
http://csrgov.dk/file/557863/implementation-of-eu-directive.pdf 
111 Financial Statements Act (LBK nr 1580 af 10/12/2015) 99a.  
112 Ibid.  
113 Financial Statements Act (LBK nr 1580 af 10/12/2015) 107b.  
114 The Committee on Corporate Governance Recommendations for corporate governance of 2017 (November 2017) 25-27 at 
https://corporategovernance.dk/sites/default/files/181211_clean_recommendations_version071218_002.pdf 

27 

 
 
 
 
                                                        
The statement related to the Danish Financial Statements Act must also state the most 
significant risks in relation to the company's business activities.115 This does not however 
denote an obligation to conduct risk assessments. 

Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 
d. 
supply chain, including the legal test and its factors used to ascribe liability to 
parent companies for the impacts of subsidiaries and suppliers (if any) 

Legal obligations for corporate action outside of Denmark does not exist. 

e. 
Requirements  for  an  external  control  or  evaluation  of  the  human  rights 
or environmental due diligence exercise, including key elements of  a grievance 
mechanism or whistle blower mechanism 

The  Danish  Financial  Statements  Act  operates  with  a  "follow-or-explain"  principle.  The 
principle means that the board of directors of the listed company itself decides whether 
to follow recommendations. The listed company must explain why and how it has chosen 
to do so when a recommendation is not followed. If the company does not conduct CSR 
and  human  rights  activities,  it  merely  has  to  state  this  in  relation  to  its  reporting 
requirements in the Financial Statements Act.116 An auditor must review corporate social 
responsibility  statement  and  give  an  opinion  on  whether  the  information  in  the 
management’s  review  is  in  accordance  with  annual  accounts  and  consolidated  financial 
statements. 

f. 

Transparency and disclosure requirements 

A  mandatory  legal  requirement  for  reporting  on  human  rights,  environmental  matters, 
corruption  and  bribery,  and  social  aspects  is  in  section  99a  of  the  Danish  Financial 
Statements  Act.  The  statement  must  contain  a  description  of  relevant  policies  and 
processes,  including  due  diligence  as  described  above.  The  statement  must  also  state 
the most significant risks in relation to the company's business activities as noted above. 

Implementation of internal processes by business, including operational-

g. 
level grievance mechanisms 

Danish law does not set requirements for grievance mechanisms related to human rights 
due diligence. 

4. Monitoring, sanction and enforcement 

a. Monitoring body 

Danish law does not indicate a monitoring body related to human rights or sustainability. 
Danish  courts  handle  violations  of  Danish  legislation.    In  relation  to  the  Financial 
Statements  Act  requirements,  the  reports    related  to  human  rights  form  part  of  the 
management  review  businesses  prepare  and  submit  to  the  Danish  Commerce  and 
Companies Agency each year together with their annual financial statements. 

b.  Form  of  sanction(s),  if  any  (In  particular,  whether  monetary  or  other 
sanctions) 

A  liability,  penalty  and  corporate  criminal  liability  exists  in  the  area  of  environmental 
pollution  in  accordance  with  the  Environment  Protect  Act  specifically  when  the  actions 
governed by the law.117 

115 Financial Statements Act (LBK nr 1580 af 10/12/2015) 99a.  
116 Danish Business Authority official website (visited April 28) at http://csrgov.dk/faq 

117 Environmental Protection Act (LBK nr 241 af 13/03/2019) Chapter 13 Section 1-4  

28 

 
 
 
 
 
 
 
 
                                                        
 
c.  Incentives  or  implications,  such  as  link  to  procurement,  licensing  or  export 
credit 

The  Public  Procurement  Act  governs  public  procurement  in  Denmark.  Social  and 
Environmental  factors  can  be  taken  into  account  in  public  procurement,  but  it  is  not 
mandatory  to  do  so. 118.  All  public  institutions  that  are  subject  to  the  EU  Procurement 
Directives  or  the  Offer  Act  can  subscribe  to  the  Government  and  Local  Government 
Purchasing Service (SKI) and thereby make use of SKI's framework agreements.119 The 
framework  agreements  also  include  requirements  to  the  suppliers  to  exhibit  due 
diligence  in  relation  to  child  labour,  forced  labour  freedom  of  association,  gender 
discrimination, migrant labour and other areas across different sectors and categories. In 
respect  to  this  requirement  suppliers  are  obligated  to  investigate  human  rights  risks  in 
connection  to  their  business  activities  in  relation  to  themselves  and  other  companies 
they  might  influence,  such  as  major  subcontractors.  Simultaneously  suppliers  are 
obligated  to  take  measures  to  prevent  the  risks.  The  purpose  of  the  provisions  is  for 
instance  to  ensure  decent  work  and  environmental  conditions  in  relation  to  the 
production  of  the  products,  which  are  purchased  by  the  public  institutions.  The 
agreements include requirements to the suppliers to demonstrate social responsibility by 
adhering to a set of requirements that are based on internationally recognized principles 
and  international  initiatives,  such  as  UN  Global  Compact,  UN  Guiding  Principles  on 
Business  and  Human  Rights,  and  OECD  Guidelines  for  Multinational  Enterprises. 
Denmark has ratified ILO convention94, which requires authorities to insert labor clauses 
in  all  public  contract,  but  applies  only  to  government  contracts,  whereas  it is  voluntary 
for municipalities and regions. 

The  Investment  Fund  for  Development  and  the  Danish  Export  Credit  Agency  both  have 
highlighted human rights. 120 Danish Export Credit Agency (EKF) has a number of policies 
that refer to human rights, such as a CSR policy, Environmental and social sustainability 
policy,  Business  and  ethics  policy,  and  a  procurement  policy.  The  CSR  policy  explicitly 
focuses on human rights and social responsibility and references the UN Guidelines, the 
OECD Guidelines for Multinational Enterprises, and the OECD's specific guidelines for the 
export  and  credit  institutions'  social  and  environmental  standards.  The  EKF  screens  all 
transactions  for  human  rights  impacts  and  acts  upon  findings.  Where  considered 
relevant,  the  EKF  performs  due  diligence  of  transactions.    The  Investment  Fund  for 
Developing Countries (IFU) has a process for screening and monitoring the investments, 
which  is  based  on  the  UN  Guidelines,  and  a  handbook,  which  guides  companies  to 
ensure respect for human rights.121 

d. Enforcement methods 

The  Danish  Financial  Statements  Act  operates  with  a  "follow-or-explain"  principle.  The 
principle means that the board of directors of the listed company itself decides whether 
to follow recommendations. The listed company must explain why and how it has chosen 
to do so when a recommendation is not followed. 

5. Procedural Framework 

a. 

Competent Court or other body 

In Denmark, there are several mechanisms, including Danish courts, the National Board 
of  Industrial  Injuries,  the  Equal  Treatment  Board,  and  The  Mediation  and  Complaints-

118 Public Procurement Act (LBK nr 1564 15/12/2015) Section 137. 
119 Danish Institute of Human Rights, Erhverv og menneskerettigheder i en dansk kontekst (2016) 25 at 
https://menneskeret.dk/sites/menneskeret.dk/files/media/dokumenter/udgivelser/erhverv_og_menneskerettigheder_i_en_dan
sk_kontekts.pdf.  
120 Ibid. 
121 Ibid. 

29 

 
 
 
 
 
                                                        
Handling  Institution  for  Responsible  Business  Conduct.  Danish  national  courts  are 
competent bodies in relation to Danish law. 

Jurisdictional  restrictions  (including  forum  non  conveniens,  place  of 

b. 
business incorporation) 

Danish  courts  may  adjudicate  disputes  in  all  legal  areas  such  as  civil,  labour, 
administrative,  and  constitutional  law  and  criminal  justice.  According  to  the  Criminal 
Code,  acts  committed  outside  the  Danish  territory  are  subject  to  Danish  criminal 
jurisdiction in certain specified cases. Criminal liability presupposes that the Danish penal 
provision  that  also  applies  to  acts  committed  abroad  that  cause  extraterritorial 
applicability with certain requirements. Danish law does not generally regulate it whether 
penalties  have  extraterritorial  applicability.  Instead,  the  question  depends  on 
interpretation in each case of the particular penal provision. 

6. Available Remedies 

a. Civil, criminal and administrative remedies 

Danish  authorities  can  only  prosecute  criminal  offenses,  which  are  committed  in  other 
countries,  if  the  act  is  committed  by  a  person  with  Danish  citizenship,  residence  or 
permanent  residence  in  Denmark,  and  only  if  the  act  is  also  punishable  by  law  at  the 
crime scene. 
b. Existence and use of judicial and non-judicial grievance mechanisms 

Other  non-judicial  institutions,  which  contribute  to  remedy  for  victims  of  business-
related human rights abuses, include Employment Tribunals, national Ombudsman, and 
Consumer  tribunal.  Denmark  offers  a  number  of  various  tribunals  whose  decisions  can 
be  tested  in  courts.  The  Investment  Fund  for  Developing  Countries  (IFU)  has  recently 
established  a  complaint  mechanism,  in  which  people  can  complain  about  negative 
influences  related  to  IFU's  investments.122 The  mechanism  called  Danida  Feedback    in 
relation  to  the  Danish  development  assistance  (Danida)  makes  it  possible  for  local 
people to make complaints about Danish development programs and activities.123 Danida 
also has a whistleblower function against corruption in Danida-supported projects.124 

The  Danish  Act  on  a  Mediation  and  Complaints-Handling  Institution  for  Responsible 
Business  Conduct  established  the  Danish  Mediation  and  Complaint  Handling  Institution. 
The  Danish  OECD  National  Contact  Point  model  differs  from  many  others  due  to  the 
legitimacy it receives by its founding and structure  stipulated by law. Anyone can file a 
complaint, but the complaint must concern non-compliance with the OECD Guideline for 
Multinational  Enterprises. 125  The  incident  must  not  have  taken  place  more  than  five 
years ago. The Institute can handle complaints not only related to multinationals but all 
Danish  public  and  private  companies  and  the  company’s  business  associates; 
governmental  authorities  such  municipalities  and  their  business  associates;  and  Danish 
private or public organisations and their business associates.126 The Institution works in 
accordance with the criteria for national contact points as stated in the OECD Guidelines 
for Multinational Enterprises. The older Danish NCP had discussed very few cases before 
the enactment of the Danish Act on a Mediation and Complaints-Handling Institution for 
Responsible Business Conduct. 

122 Investment Fund for Developing Countries IFU official website (visited on April 29, 2019) at  
http://www.ifu.dk/dk/vardier/baredygtige-investeringer/grievancemechanism 
123 Danida official website, Feedback (visited on April 29, 2019) at http://um.dk/en/danida-en/about-danida/danida-
transparency/feedback-to-danida/about-feedback/ 
124 Danida official website, anti-corruption (visited on April 29, 2019) at http://um.dk/en/danida-en/results/anti-corruption/   
125 The Mediation and Complaints-Handling Institution for Responsible Business Conduct official website, Complaints handling 
(Visited April 29, 2019) at https://businessconduct.dk/complaints_handling 
126 Ibid.  

30 

 
 
 
 
 
 
                                                        
The  Danish  Act  on  a  Mediation  and  Complaints-Handling  Institution  for  Responsible 
Business  Conduct  has  the  main  aim  is  to  allow  mediation  to  solve  complaints  both  on 
company level and if that is not possible, assisted by the mediation. If mediation is not 
possible,  the  institution  can  initiate  an  investigation  of  the  matter  and  based  on  the 
result, make a public statement. When a complaint is approved for further consideration, 
the  Mediation  and  Grievance  Mechanism  for  Responsible  Business  Conduct  encourages 
the  parties  to  resolve  the  matter  between  the  parties  with  dialogue.  Matters  resolved 
between  the  parties  are  not  subject  to  any  form  of  publication  by  the  Institution.  The 
Institution cannot order sanctions as such as it is not a judicial court, but it can publish 
public statements. 

7. Costs of enforcement of regulation of standards per annum (a) to State and 
b)  to  companies,  either  individually  or  collectively)  (public  information, 
estimated opinion) 

This is not applicable. 

8. Impact of the Regulation 

a.  Impact  of  the  national  regulation  on  behaviour/  policy  of  businesses  (both 
direct and indirect) 

The CSR reporting requirement is a statutory requirement, which impacts around 1,100 
largest  Danish  companies.  In  2013,  nearly  50%  of  the  companies  reported  on  CSR  for 
the first time in the first three years of the new reporting requirement.127 

b.  Impact  of  the  national  regulation  on  victims  and  potential  victims  (both 
direct and indirect) 

In  2015,  the  OECD  carried  out  a  review  of  the  Mediation  and  Complaints-Handling 
Institution  for  Responsible  Business  Conduct,  which  concluded  that  it  has  a  legal 
mandate and enjoys great legitimacy among stakeholders.128 The assessment concluded 
that the Mediation and Complaints-Handling Institution for Responsible Business Conduct 
can become even more active and targeted in its efforts to inform about itself.129 

c. Public responses of stakeholders to regulation 

The  Danish  Institute  for  Human  Rights  noted  in  2016  that  the  Danish  response  to 
implementing  the  UN  Guiding  Principles  on  Business  and  Human  Rights  has  been 
systematic,  but  Denmark  is  far  from  achieving  the  implementation  of  the  UN 
Guidelines.130 The previous Council for Social Responsibility had been a driving force and 
secured  broad  participation  and  support  and  there  had  been  clear  results  in  terms  of 
both legislation and public initiatives. With the expiry of the CSR action plan in 2015 and 
the creation of the new Dialogue Forum, DIHR raised fears that the process could end.131 

Current discussion related to possible regulation is considered below. 

d.  Degree  of  overcoming  of  obstacles  for  victims  to  bring  claims  in  Member 
State 

127 Danish Business Authority Corporate Social Responsibility and Reporting in Denmark: Impact of the third year subject to 
the legal requirements for reporting on CSR in the Danish Financial Statements Act (2013) 
https://samfundsansvar.dk/sites/default/files/csr_rapport_2013_eng.pdf 
128 Denmark National Contact Point Peer Review Report (2015) 8 at http://mneguidelines.oecd.org/Denmark-NCP-Peer-
Review-2015.pdf. 
129 Ibid 3. 
130 Danish Institute of Human Rights, Erhverv og menneskerettigheder i en dansk kontekst (2016) 14 
131 Ibid 15 

31 

 
 
 
 
 
 
                                                        
Danish  courts  can  handle  all  cases  related  to  violations  of  national  laws,  which  include 
human rights stands implemented to national regulation. Denmark offers remedies in the 
forms  of  courts  and  courts  can  adjudge  all  legal  areas  such  as  civil,  labour, 
administrative,  and  constitutional  law  and  criminal  justice.  However,  this  may  not  be 
sufficient  for  victims,  because  many  abuses  occur  abroad  and  national  law  does  not 
articulate human rights obligations for companies. Obstacles related to remedies are the 
extraterritorial application requirements and the lack of judicial organs related to human 
rights matters. 

e.  Change  in  industry  standards,  codes  of  conduct  and  other  business  sector 
activity 

The  Danish  government  has  publicly  promoted  and  published  number  of  codes  and 
standards  that  further  describe  the  expectations  and  obligations  related  to  corporate 
social responsibility. The key codes are noted above. 

The Danish government has multi-stakeholder initiatives with business associations and 
enterprises  such  as  the  new  Partnership  for  Responsible  Garments  Production  in 
Bangladesh in which they have agreed on a number of detailed commitments to improve 
conditions  within  their sphere  of  influence.132 The  partnership,  which  was  agreed  within 
the framework of the Danish Ethical Trading Initiative (DIEH), will has been implemented 
in close co-ordination with international partners as well and stakeholders in Bangladesh. 

The  Danish  government  provides  the  Danish  development  assistance  (Danida),  which 
generally  contributes  to  promotion  of  human  rights  and  sustainable  growth. 133 
Companies  involved  in  Danida  Business  Partnerships  must  integrate  human  rights  and 
demonstrate  due  diligence. 134  The  Danida  Business  Finance  instrument  requires  due 
diligence analysis and requirements to  comply  with fundamental principles of  ILO when 
providing interest-free  loans  to  public infrastructure  projects  in  developing  countries.135 
In co-operation with the Danish Business Authority, the Ministry of Foreign Affairs offers 
annual  CSR  workshops  for  Danish  companies  and  their  local  partners  at  Danish 
embassies.136 

III. COMPARATIVE ANALYSIS 

9. 

Comparisons between different regulations within the Member State 

a. 
Corporate  and  directors’  liability  regime  in  case  of  violations  or  damage 
caused  by  operators  in  the  EU  parent  company’s  supply  chain,  including 
relevant jurisprudence, even in the absence of legislation on due diligence 

According to the Act on a Mediation and Complaints-Handling Institution for Responsible 
Business  Conduct,  the  Institution  can  handle  complaints  related  to  business 
associates.137 Business  associates  in  this  case  means  business  partners,  entities  in  the 
supply  chain,  and  other  non-public  or  public  entities  that  can  be  related  directly  to  the 
business activities, products or services of the company, authority organisation. 

132 Dansk Initiativ for Etisk Handel official website, Spotlight on Responsible Garment and Textile Production in Bangladesh 
(visited on April 29 2019) at https://www.dieh.dk/publikationer/cases/case-spotlight-on-responsible-garment-and-textile-
production-in-bangladesh/ 
133 Ministry of Foreign Affairs Denmark official website (visited April 29, 2019) at http://um.dk/en/danida-en/ 
134 National Action Plan 12. 
135 Ibid.  
136 The Mediation and Complaints-Handling Institution for Responsible Business Conduct official website, Complaints handling 
(Visited April 29, 2019) at https://businessconduct.dk/complaints_handling 
137The Act on a Mediation and Complaints-Handling Institution for Responsible Business Conduct (nr 546 of 18/06/2012) 
Section 3. 

32 

 
 
 
 
 
 
 
                                                        
b. 
The level of “duty of care”/”due diligence” required of the business or its 
administrative organs, in order to fulfil their obligations, and the key elements 
of this legal “duty of care” 

Even  though  the  section  115  and  116  of  the  Danish  Companies  Act  does  not 
automatically articulate a duty of care, but it does  imply a duty of care by the board of 
directors.138 The  Recommendations  by  the  Committee  for  Corporate  Governance  clearly 
stipulate the obligation of management to act diligently.139 

c. 

How directors’ responsibility can be engaged 

The  Danish  Companies  Act  states  that  if  members  of  the  board  of  directors  or  the 
executive  board  of  a  company  cause  damage  to  the  company,  deliberately  or  through 
negligence,  they  are  liable  to  the  company  for  damages. 140  If  management  causes 
damage  to  the  company's  shareholders,  creditors  or  a  third  party,  deliberately  or 
through negligence, management is liable for damages.141 

d. 
How  parent  companies  can  be  held  liable  in  the  Member  States  for  the 
impacts of their subsidiaries, including non-EU based subsidiaries (including in 
comparative  areas  of  corporate  governance  such  as  anti-bribery  and 
corruption, anti-money laundering, taxation, competition, health and safety) 

According to the Act on a Mediation and Complaints-Handling Institution for Responsible 
Business  Conduct  Section  3  the  Institution,  can  handle  complaints  related  to  business 
associates.142 Business  associates  in  this  case  means  business  partners,  entities  in  the 
supply  chain,  and  other  non-public  or  public  entities  that  can  be  related  directly  to  the 
business activities, products or services of the company, authority organisation. 

e. 
How  companies  in  Member  State  can  be  held  liable  for  the  impacts  of 
their  supply  chain,  including  non-EU  based  suppliers,  and  including  suppliers 
beyond the first tier of the supply chain143 

According to the Act on a Mediation and Complaints-Handling Institution for Responsible 
Business  Conduct  Section  3  the  Institution,  can  handle  complaints  related  to  business 
associates144.  Business  associates  in  this  case  means  business  partners,  entities  in  the 
supply  chain,  and  other  non-public  or  public  entities  that  can  be  related  directly  to  the 
business activities, products or services of the company, authority organisation. 

IV. REGULATORY FRAMEWORK 

10.  Overall Review of Regulatory framework 

a. 
To  what  extent  the  regulations  are  effective  in  terms  of  a)  providing 
individuals  whose  rights  are  affected  access  remedy  and  b)  adherence  by 
Member States to their fundamental human rights obligations 

138 Companies Act (LBK nr 1089 af 14/09/2015)Section 115-117.  
139 The Committee on Corporate Governance Recommendations for corporate governance of 2017 (November 2017) 10 at 
https://corporategovernance.dk/sites/default/files/181211_clean_recommendations_version071218_002.pdf 
140 Companies Act (LBK nr 1089 af 14/09/2015) Section 361. 
141 Ibid. 
142 The Act on a Mediation and Complaints-Handling Institution for Responsible Business Conduct (nr 546 of 18/06/2012) 
Section 3 
143 First tier suppliers are understood as those suppliers with which the company does not have a direct contractual 
relationship. 
144 The Act on a Mediation and Complaints-Handling Institution for Responsible Business Conduct (nr 546 of 18/06/2012) 
Section 3 

33 

 
 
 
 
 
 
 
 
                                                        
The  possibility  to  hold  companies  accountable  for  violations  in  the  supply-chain  are 
extremely restricted. Denmark offers, through its court system, the possibility for judicial 
remedies  for  victims,  which  does  not  extend  extraterritorial  reach  for  most  Danish 
national laws. No law is in force that requires companies to conduct due diligence, assess 
their  impacts  or  risks  or  be  held  liable  for  violations  in  the  company’s  supply-chain. 
Currently the Danish model does not offer adequate judicial remedies for victims outside 
of Denmark in relation to human rights. 

Victims  can  contact  the  Danish  Mediation  and  Complaint  Handling  Institution,  but  this 
does not serve as a judicial remedy for victims. It does offer a more valid and legitimate 
process compared to other NCPs due to the legal formation of the Institute. 

Under  which  conditions  and  how  victims  can  hold  the  Member  State 
b. 
parent companies or their subsidiaries liable in case of human rights violations 
or other relevant damage caused within the supply chains 

The  possibilities  to  hold  companies  accountable  for  violations  in  the  supply-chain  are 
extremely  restricted.  The  only  possibility  for  judicial  remedies  is  in  the  court  system, 
which does not extend extraterritorial reach for most Danish national laws. No law is in 
force that requires companies to conduct due diligence, assess their impacts or risks or 
be held liable for violations in the company’s supply-chain. 

c. 

What are the main obstacles and difficulties 

The main obstacle is the lack of human rights due diligence requirements. Even though 
Danish  law  does  recognize  due  diligence  requirements,  none  of  them  can  be  widely 
extended to human rights due diligence. 

Which  regulatory  model 

d. 
implementation of adequate due diligence 

is  most  effective  in  achieving  corporate 

The main obstacle is the lack of human rights due diligence requirements. Even though 
Danish  law  does  recognize  due  diligence  requirements,  none  of  them  can  be  widely 
extended  to  human  rights  due  diligence.  It  is  apparent  that  even  the  existing  due 
diligence  requirements  can  be  difficult  to  translate  into  practical  steps  and  measures 
required. Denmark has introduced new initiatives and rules to ensure companies' respect 
for human rights, environment, climate and principles for responsible tax. These include 
action  plans  for  corporate  social  responsibility,  a  mediation  and  complaint  institution, 
and an action plan for the incorporation of the UNGPs. According to the below mentioned 
legal  proposal,  current  rules  in  the  Danish  Financial  Statements  Act  are  not  sufficient, 
because these only relate to reporting and do not contain any possibility that victims can 
raise  claims  against  companies  that  are  involved  in  serious  violations  of  human  rights. 
Similarly,  reporting  requirements  do  not  apply  to  small  and  medium-sized  enterprises, 
which may operate risky sectors, such as textile, shipping and food industries. 

An important aspect to note is the Danish Mediation and Complaint Handling Institution, 
which  notes  the  competence  of  the  Institute  to  consider  cases  concerning  non-
compliance  with  the  OECD’s  Guidelines  for  Multinational  Enterprises  based  on  a 
complaint  or  at  its  own  instigation,  brings  due  diligence  requirements  of  the  OECD 
Guidelines  into  a  judicial  context.  Even  though  the  OECD  Guidelines  are  not  legally 
mandatory per se, the Act the Institution was with the legal mandate. The Institute acts 
as the OECD NCP in Denmark. 

The  NCP  has  given  a  final  statement  in  relation  to  the  due  diligence  process  of  the 
Danish  Ministry  of  Defence  in  relation  to  the  contracting  and  building  of  the  inspection 

34 

 
 
 
 
 
 
vessel Lauge Koch.145  The inspection vessel was built at the Polish shipyard, Crist S. A., 
which  is  alleged  to  have  deployed  forced  labour  of  North  Korean  nationality.  The  NCP 
observed that the project carried out in 2013 the Ministry of Defence was required to act 
in  accordance  of  the  revised  OECD  Guidelines  from  2011.  The  Ministry  of  Defence  had 
not  documented  or  otherwise  made  probable  that  due  diligence  has  been  secured  in 
other ways. The NCP has made rejected complaints and general statements.146 

Which regulatory model is most effective in providing victims with access 

e. 
to remedy 

Currently the regulatory model does not offer effective remedies for victims. Victims may 
bring  forth  claims  in  Danish  courts  against  Danish  companies  for  violations  of  national 
laws, which include human rights standards. 
The Danish Mediation and Complaint Handling Institution offers a non-judicial remedy for 
victims. The Danish NCP does however offer a more valid and legitimate process due to 
the legal formation of the Institute. At least in theory at least this should provide a more 
beneficial  remedy  possibility  for  victims,  but  this  has  not  materialized  in  practice  to  a 
considerable rise in cases.147 

f. 
An overall assessment of the main strengths and weaknesses (risks and 
opportunities)  of  the  examined  legislative  regimes,  providing  a  detailed 
comparative analysis, including whether they are effective to address the most 
important potential harms and negative impact of companies in their operation 
and in their supply chain 

Denmark  has  introduced  new  initiatives  and  rules  to  ensure  companies'  respect  for 
human rights. The government has taken initiative by enforcing reporting requirements 
for  a  wider  scope  of  companies  than  other  countries  and  it  has  formed  the  NCP  of 
Denmark  with  a  law.  Denmark  has  clearly  taken  active  steps  to  enforce  proactively 
certain  obligations  on  companies.  The  Danish  government  has,  however,  not  been 
effective in developing mandatory due diligence requirements and has largely focused on 
further developing reporting requirements and  providing information to companies until 
recently. 
Danish  companies  have  actively  adopted  the  Danish  reporting  requirements.  The 
requirements  are  clear  for  companies  to  follow.  The  reporting  requirement  has  been 
extended  to  include  all  listed  Danish  companies  and  the  scope  of  the  requirement  is 
much wider than Finland and Sweden. Denmark has also chosen to include requirements 
to  describe  specifically  due  diligence  process  if  it  is  used.  This  allows  companies  to 
further  consider  the  actual  content  and  process  of  their  human  rights  risk  and  due 
diligence. However, this requirement could be extended to require companies to report if 
they do not use due diligence and to explain their decision. 

One key finding is that requirements related due diligence are not foreign in the Danish 
legal tradition. Therefore, companies  should not have difficulty in complying its general 
concept.  These  concepts  do  not  automatically  support  the  concept  human  rights  due 
diligence. It is also apparent that it is difficult to explain in a practical, distinct and clear 
manner what due diligence specifically requires. 

As  noted  earlier,  the  Act  on  a  Mediation  and  Complaints-Handling  Institution  for 
Responsible  Business  Conduct  brings  the  due  diligence  requirements  of  the  OECD 
Guidelines  into  a  judicial  context.  Even  though  the  OECD  Guidelines  are  not  legally 

145 Danish National Contact Point for the OECD, Specific instance on the Danish NCP’s own instigation: The due diligence 
process of the Danish Ministry of Defence in regard to the contracting and building of the inspection vessel Lauge Koch 
statement (September 6, 2018) 
https://businessconduct.dk/file/664546/final_statement_6_september_2018.pdf 
146 The Act on a Mediation and Complaints-Handling Institution for Responsible Business Conduct official website (visited April 
29, 2019) at https://businessconduct.dk/concluded-cases  
147 Ibid. 

35 

 
 
 
 
                                                        
mandatory  per  se,  but  through  the  Act  they  act  in  the  judicial  realm  through  the  legal 
mandate of the Institute. This indicates that Denmark has already accepted the concept 
of human rights due diligence in a legal context based on the adaptation of the Act on a 
Mediation and Complaints-Handling Institution for Responsible Business Conduct and the 
reporting  requirement  on  due  diligence.  Obviously,  this  does  not  include  an  actual 
obligation  to  conduct  due  diligence,  but  it  has  enforced  due  diligence  into  mainstream 
corporate  language  and  conversations  surrounding  compliance.  Therefore  the  jump  to 
enforcing and requiring human rights due diligence might not be such a far stretch. 

11.  Review of Proposals for Regulation 

How  would  new  or  planned  legislative  regimes  have  changed/would 

a. 
change this situation 

At a national level, the Danish Government has put together an inter-ministerial working 
group,  which  discusses  the  need  for  and  feasibility  of  legislation  with  extraterritorial 
effect  in  areas  of  particular  relevance. 148  The  group  considers  the  national  laws  and 
actions  of  other  countries.  The  group  will  examine  the  need  for  judicial  prosecution  of 
severe  human  rights  impacts  as  recommended  by  the  Danish  Council  for  CSR.  The 
working group was discontinued in 2015.149 

In  January  2019  three  parliamentary  members  Rasmus  Nordqvist  (ALT),  Eva  Flyvholm 
(EL) og Lisbeth Bech Poulsen (SF) proposed a proposal for a parliamentary resolution to 
make it compulsory for companies to exercise  the necessary  care in the field of human 
rights  and  on  the  introduction  of  effective  remedies. 150  These  Danish  Parliament 
members  asks  the  Government  to  present  a  bill  that  makes  it  compulsory  for  large 
Danish companies and small and medium-sized enterprises, which operate in particularly 
risky sectors or who have trade relations with high risk areas such as conflict zones, to 
exercise due diligence in the human rights field.151 Due diligence means in this case that 
companies must identify, prevent and mitigate potential and current negative impacts on 
human  rights  and  report  on  the  efforts  and  results  of  it. 152 The  proposal  should  also 
ensure  access  to  effective  remedies  for  victims  of  serious  human  rights  violations 
involving businesses. 

The law would adhere to recognized international standards, such as  the  UN Guidelines 
on  Human  Rights  and  Business  and  the  OECD  Guidelines  for  Multinational  Enterprises 
with accompanying guidance. 153 

What  proposals  have  been  created  and  what  the  critiques  of  them  have 

b. 
been 

In  January  2019,  three  parliamentary  members  Rasmus  Nordqvist  (ALT),  Eva  Flyvholm 
(EL) og Lisbeth Bech Poulsen (SF) proposed a proposal for a parliamentary resolution.154 
The  proposal  wishes  to  make  the  exercise  of  due  diligence  in  the  human  rights  field 
mandatory.  At  this  point,  the  proposal  does  not  include  any  distinct  requirements  or 
even  an  outline  of  the  requirements  related  to  due  diligence. 155  As  the  proposal 
references  the  UN  Guidelines  and  the  OECD  Guidelines,  we  can  draw  a  conclusion  that 
due  diligence  requirements  would  mirror  the  guidance  of  the  UN  Guiding  Principles  on 
Business and Human Rights and the OECD Guidelines. 

148 Danish Institute of Human Rights, Erhverv og menneskerettigheder i en dansk kontekst (2016) 21. 
149 Ibid 21. 
150 Fremsat den 24. januar 2019 af Rasmus Nordqvist (ALT), Eva Flyvholm (EL) og Lisbeth Bech Poulsen (SF) Forslag til 
folketingsbeslutning om at gøre det lovpligtigt for virksomheder at udøve nødvendig omhu på menneskerettighedsområdet og 
om indførelse af effektive retsmidler, Beslutningsforslag nr. B 82 (January 24, 2019) 
151 Ibid.  
152 Ibid.  
153 Ibid. 
154 Fremsat den 24. januar 2019 af Rasmus Nordqvist (ALT), Eva Flyvholm (EL) og Lisbeth Bech Poulsen (SF) Forslag til 
folketingsbeslutning om at gøre det lovpligtigt for virksomheder at udøve nødvendig omhu på menneskerettighedsområdet og 
om indførelse af effektive retsmidler, Beslutningsforslag nr. B 82 (January 24, 2019) 
155 Ibid.  

36 

 
 
 
                                                        
The  proposal  is  still  in  the  very  early  stages  of  a  legislative  process  and  it  has  not 
gathered much criticism or conversation around it.  

37 

 
 
FINLAND COUNTRY REPORT 

Lia Heasman156 

I.  OVERVIEW 

Finland  is  committed  to  promoting  the  UN  Guiding  Principles  on  Business  and  Human 
Rights and the National Action Plan for the Implementation of the UN Guiding Principles 
on Business and Human Rights was released in 2014. Separate  mandatory legal human 
rights  due  diligence  or  environmental  due  diligence  requirements  for  corporations  are 
not  currently  in  force.  There  are  some  other  due  diligence  and  duty  of  care  obligations 
but  they  have  not  been  made  specifically  with  human  rights,  environmental  matters  or 
other corporate responsibility matters in mind. National law already dictates the respect 
for  human  rights  in  appropriate  legal  texts  whilst  a  duty  of  care  for  company 
management  is  stipulated  in  corporate  law.  The  non-financial  information  requirement 
requires  disclosure  of  human  rights,  environmental,  social  and  employee-related 
matters, anti-corruption and bribery matters in accordance with the Accounting Act. This 
requirement  applies  to  public-interest  companies  with  over  500  employees  and  thus 
privately  owned  companies  are  not  in  its  scope.  Certain  requirements  exist  for 
considering social and environmental in public procurement. It is important to note that 
the  Act  on  Public  Procurement  and  Concession  Contracts  does  not  demand  that  social 
factors should be included. 

The  current  campaign  Ykkösketju  by  Finnish  NGOs,  companies  and  other  stakeholders, 
lobbying  for  mandatory  human  rights  due  diligence  began  in  the  autumn  2018.    The 
campaign has over 100 companies, NGOs and other members publicly supporting it and 
advocating for it. 

In  June  2019,  the  new  Finnish  Government  has  pledged  to  adopt  mandatory  human 
rights due diligence legislation in the Government's programme. Firstly, the government 
will  conduct  a  study  with  the  goal  of  adopting  a  HRDD  law  related  to  national  and 
international  corporate  activity  and  secondly   the  new  government  will  explore  the 
possibility  of  an  EU-wide  HRDD  law,  which  would  take  into  account  the  variety  of 
company sizes and global value chains.157 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

1.  Area of Regulatory Framework 

A.  Corporations law 
-  Limited Liability Companies Act, Chapter 1 Section 8 
The  management  of  the  company  shall  act  with  due  care  and  promote  the  interests  of 
the company. 

-  Limited Liability Companies Act, Chapter 6 Section 1 

Chapter 1, section 7, contains a prohibition of decisions contrary to the principle of equal 
treatment,  chapter  1,  section  8,  on  the  duty  of  care,  and  chapter  22  on  liability  in 
damages. 

- Limited Liability Companies Act, Chapter 22 Section 1 

156 Lia Heasman LLD. 
157  Finnish Government, Agreement on the Government Programme, Osallistava ja Osaava Suomi - sosiaalisesti, taloudellisesti 
ja ekologisesti kestävä yhteiskunta (June 3, 2019) p. 62, 71 and 108. 

38 

 
 
 
 
 
 
                                                        
A  Member  of  the  Board  of  Directors,  a  Member  of  the  Supervisory  Board  and  the 
Managing Director shall be liable in damages for the loss that he  or she, in  violation of 
the  duty  of  care  referred  to  in  chapter  1,  section  8,  has  in  office  deliberately  or 
negligently caused to the company. 

B.  Health, safety and regulatory law 
-  Consumer Safety Act Section 5 
Duty of care 

The  operator  must  ensure  that  the  consumer  product  or  consumer  service  does  not 
endanger  the  health  or  property  of  any  person,  as  required  by  the  care  and 
professionalism  required  by  the  circumstances.  The  operator  must  have  sufficient  and 
correct information on consumer goods and consumer services and must assess the risks 
involved. 

-  Food  Act  Section  16  –  General  requirements  concerning  the  responsibility  of  a  food 

business operator 

(1)  Food  business  operators  must  take  sufficient  care  in  all  their  operations  so  as  to 
ensure that food, food premises, places of primary production and conditions for storing, 
transporting and handling food meet the requirements under this Act. Provisions on the 
responsibility  of  food  business  operators  concerning  food  safety  and  withdrawing  from 
the market any food that is not in compliance with the food regulations and ensuring the 
recall  of  food  supplied  to  consumers  are  laid  down  in  Articles  17(1)  and  19  of  the 
General Food Regulation. 

-Food  Act Section 19 – Own-checks and the keeping of records concerning own-checks 

of primary production 

(1) Food business operators must possess sufficient and accurate information about the 
food they produce, process and distribute. Food business operators must be aware of the 
health  hazards  concerning  food  and  the  handling  of  food,  and  of  the  critical  points  in 
their operations in terms of food safety and other requirements under Chapter 2 of this 
Act. 

(2)  At  the  place  of  primary  production,  records  must  be  kept  of  the  implementation  of 
own  checks  referred  to  in  this  section.  Provisions  on  the  keeping  of  records  on  own-
checks by other food business operators are laid down in section 20. 

(3)  Further  provisions  on  the  keeping  of  records  on  own-checks  by  places  of  primary 
production are issued by Decree of the Ministry of Agriculture and Forestry. 

- Food Act Section 20 – Own-check plan 

(1)  Food  business  operators  must  prepare  a  written  plan  on  own-checks  (own-check 
plan)  and  comply  with  it,  as  well  as  keep  a  record  of  its  implementation.  The  critical 
points  referred  to  in  section  19  and  the  related  risk  management  must  be  described  in 
the own-check plan. Places of primary production are not, however, required to prepare 
an own-check plan. 

(2)  Where  necessary,  a  sampling  and  testing  plan  and  information  on  the  laboratories 
where samples taken in own-check are to be tested must be attached to the own-check 
plan. 

(3) Food business operators must keep the own-check plan up to date. 

(4) Further provisions on the own-check plans of food business operators and the related 
keeping of records are issued by Decree of the Ministry of Agriculture and Forestry. 

- Sea Act Section 26 

The carrier is not liable if he proves that the damage is due to: (1) an error or omission 
committed by the master, a crew member, a pilot or any other person working on behalf 
of the ship during navigation or handling; or 

39 

 
 
2) a fire which has not been caused by his own fault or neglect. 

However,  the  carrier  is  liable  for  any  damage  caused  by  the  fact  that  he  or  someone 
acting under his responsibility has failed to exercise due diligence to ensure that the ship 
is  seaworthy  prior  to  the  commencement  of  the  voyage.  The  carrier  has  to  show  that 
such diligence has been respected in order to free himself from liability. 

-  Sea Act Section 14 
Obligation of the carrier to control the interests of the cargo owner 

The carrier must carry out the carriage with due diligence and promptness, take care of 
the  goods  and  otherwise  control  the  interests  of  the  cargo  owner  upon  receipt  of  the 
goods until delivery. 

The carrier shall ensure that the vessel used for the carriage is seaworthy and shall also 
ensure that the ship is properly manned and equipped and that the cargo compartments, 
refrigeration and freezing rooms and other spaces of the vessel to which the goods are 
loaded are in good condition for receiving, transporting the goods and for preservation. 

-  Work Safety Act Section 8 
The  employer  must  take  the  necessary  measures  to  ensure  the  safety  and  health  of 
workers  at  work.  For  this  purpose,  the  employer  must  take  into  account  the  issues 
related  to  work,  working  conditions  and  other  working  environment  as  well  as  the 
personal conditions of the employee. 

The  factors  limiting  the  scope  of  the  duty  of  care  are  the  unusual  and  unforeseeable 
circumstances  beyond  the  control  of  the  employer  and  the  extraordinary  events  the 
consequences of which could not have been avoided despite all appropriate precautions. 

The  employer  must  design,  select,  dimension  and  take  the  necessary  measures  to 
improve working conditions. In this case, the following principles should be observed as 
far as possible: 

(1) prevent the occurrence of hazards and nuisances; 

(2) the hazard and nuisance factors are  removed or, if this is not possible,  replaced by 
less dangerous or less harmful; 

3)  generally  effective  occupational  health  and  safety  measures  are  taken  before  the 
individual; and 

(4) take into account the development of technology and other available means. 

The  employer  must  constantly  monitor  the  working  environment,  the  working 
environment  and  the  safety  of  the  working  methods.  The  employer  must  also  monitor 
the impact of the measures taken on work safety and health. 

The employer must ensure that safety and health measures are taken into account in the 
work of all parts of the employer's organization. 

C.  Environmental law (including on climate change) 
-  Act on Compensation for Environmental Damage, Section 7 
Persons liable for compensation- Even when the loss has not been caused deliberately or 
negligently, liability for compensation shall lie with a person 

1) whose activity has caused the environmental damage; 

2)  who  is  comparable  to  the  person  carrying  out  the  activity,  as  referred  to  in 
subparagraph 1; and 

3) to whom the activity which caused the  environmental damage has  been assigned, if 
the assignee knew or should have known, at the time of the assignment, about the loss 
or the nuisance referred to in section 1 or the threat of the same. 

40 

 
 
In the assessment of the comparability referred to in paragraph 1, subparagraph 2, due 
consideration  shall  be  given  to  the  competence  of  the  person  concerned,  his  financial 
relationship  with  the  person  carrying  out  the  activity  and  the  profit  he  seeks  from  the 
activity. 

Environmental Protection Act, Section 6 

- 
Knowledge requirement 

Operators  shall  have  knowledge  of  the  environmental  impacts  and  risks  of  their 
operations,  and  of  the  management  of  these  impacts  and  risks  and  ways  to  reduce 
adverse impacts (knowledge requirement). 

-   Environmental Protection Act, Section 7 

Obligation to prevent and limit environmental pollution 

Operators shall organise their operations in such a way that environmental pollution can 
be prevented in advance. Where pollution cannot be fully prevented, it shall be limited to 
the  lowest  level  possible.  Operators  shall  limit  the  emissions  from  their  operations  into 
the environment and into the sewerage system to the lowest level possible. 

Activities  that  pose  a  risk  of  environmental  pollution  shall  comply  with  the  general 
obligations and principles laid down in chapter 2 of the Waste Act (646/2011), and with 
the general principles regarding the safe use of chemicals and the obligations to prevent 
environmental pollution and the risk of it, as provided in the Chemicals Act (599/2013) 
and European Union chemicals legislation. 

-   Environmental Protection Act, Section 20 

General principles for activities that pose a risk of environmental pollution. The principles 
for activities that pose a risk of environmental pollution are: 

1) proper care and caution shall be taken to prevent environmental pollution as entailed 
by  the  nature  of  the  activity,  and  the  probability  of  pollution,  risk  of  accident  and 
opportunities  to  prevent  accidents  and  limit  their  impacts  shall  be  taken  into  account 
(principle of caution and care) ; 

2)  a  combination  of  various  measures  shall  be  used  in  providing  appropriate  and  cost-
effective means to prevent pollution (principle of best environmental practice) . 

D.  Administrative law 
-    Public Procurement Act (29.12.2016/1397) Chapter 1 Section 2 

2) Contracting entities shall endeavour to arrange  their procurement operations so that 
procurements can be implemented with optimal economy, quality and orderliness, taking 
advantage  of  existing  competitive  conditions  and  allowing  for  environmental  and  social 
aspects.  To  reduce  the  administrative  functions  involved  in  procurement,  contracting 
entities  may  use  framework  agreements  and  make  joint  procurements  or  benefit  from 
other opportunities for co-operation in competitive tendering for public procurement. 

-    Public Procurement Act (29.12.2016/1397) Section 81 

The contracting entity may decide to exclude from competitive tendering a candidate or 
tenderer: 

5)  that  has  infringed  the  environmental,  social  and  labour  law  obligations  Finnish  or 
European  Union  legislation,  collective  agreements,  or  the  international  treaties  listed  in 
Annex C, where the contracting entity can prove the infringement 

-   Public Procurement Act (29.12.2016/1397) Section 93 

The  contracting  entity  may  impose  price-quality  ratio  comparison  criteria  related  to 
qualitative, societal, environmental or social considerations or innovative characteristics. 
Qualitative criteria may include technical merits, aesthetic and functional characteristics, 
accessibility,  a  design  that  meets  the  requirements  of  all  users,  operating  costs,  cost-

41 

 
 
effectiveness,  after-sales  service  and  technical  support,  servicing  and  delivery  date,  or 
delivery  or  implementation  period  and  other  terms  and  conditions  of  delivery.  The 
contracting  entity  may  also  consider  the  qualifications  and  experience  of  staff  assigned 
to implement the procurement agreement and  the organisation  of  staff if the quality of 
assigned staff may significantly affect implementation of the procurement agreement. 

E.  Stock exchange listing and related regulations 
-  Accounting Act Chapter 3a Section 1 
Scope of application 

A  public-interest  entity  referred  to  in  section  9  of  chapter  1  that  is  a  large  undertaking 
whose average number of employees during the financial year has exceeded 500, has to 
include in its management report a statement of non-financial information. 

-  Accounting Act Chapter 3a Section 2 
The  statement  shall  include,  as  a  minimum,  information  regarding  how  the  reporting 
entity handles: 

1) environmental matters 

2) social and employee-related matters 

3) respect for human rights, 

4) anti-corruption and bribery matters. 

The information shall be disclosed to the extent necessary to understand the implications 
of the reporting entity’s activities. 

The statement shall include: 

1) a brief description of the reporting entity’s business model; 

2) a description of the policies pursued by the reporting entity in relation to the matters 
referred to in subsection 1, including due diligence processes implemented; 

3) the outcome of policies referred to in paragraph 2 of this subsection; 

4) a description of the principal risks related to the matters referred to in subsection 1, 
taking  into  consideration  the  reporting  entity’s  business  relationships,  products  or 
services and otherwise the nature and extent of its activities, the realization of which is 
likely to cause adverse impacts on its activities, and an explanation of how the reporting 
entity manages those risks; 

5) non-financial key performance indicators relevant to the reporting entity’s business. 

Where  the  reporting  entity  does  not  comply  with  the  policies  referred  to  section  3 
paragraph 2 in  relation to one  or more of those matters, the statement shall provide a 
clear and reasoned explanation for not doing so. 

Where  necessary,  the  statement  shall  include  references  to,  or  additional  explanations 
of, amounts reported in the financial statements. 

When preparing the statement, the reporting entity may rely on national, Union-based or 
international  frameworks.  If  it  does  so,  it  shall  specify  which  frameworks  it  has  relied 
upon. 

-    Accounting Act Chapter 3 Section 3 

Information  relating  to  negotiations  or  developments  or  matters  in  the  course  of 
negotiations may be omitted where, in the duly justified opinion of the reporting entity, 
the  disclosure  of  such  information  would  be  seriously  prejudicial  to  the  commercial 
position  of  the  reporting  entity.  It  is,  however,  required  that  such  omission  does  not 
prevent  a  fair  and  balanced  understanding  of  the  impact  of  the  reporting  entity’s 
development, performance and financial position. 

F.  Tort law 

42 

 
 
-    Criminal Code of Finland Chapter 9 Section 2 

Prerequisites  for  liability  (61/2003)  (1)  A  corporation  may  be  sentenced  to  a  corporate 
fine if a person who is part of its statutory organ or other management or who exercises 
actual  decision-making  authority  therein  has  been  an  accomplice  in  an  offence  or 
allowed  the  commission  of  the  offence  or  if  the  care  and  diligence  necessary  for  the 
prevention of the offence have not been observed in the operations of the corporation. 

-  Tort Liability Act Chapter 5 Section 6 
Right to Compensation for Damage of Injury whose personal integrity has been seriously 
infringed  intentionally  or  through  gross  negligence;  deliberately  or  through  gross 
negligence, been seriously violated in a manner comparable to other offenses referred to 
in paragraphs 1 to 3. 

2.  Scope 
a. 

Rationale given by the State for the regulation (or lack of regulation) 

The  general  judicial  principle  in  Finland  is  that  all  Finnish  legislation  ensures  human 
rights  and  fundamental  rights.  In  Finland,  the  Constitution  provides  protection  for  the 
realisation  of  human  rights,  but  it  does  not  stipulate  any  obligations  for  companies. 158 
Finland  is  committed  to  promoting  the  UN  Guiding  Principles  on  Business  and  Human 
Rights and the National Action Plan for the Implementation of the UN Guiding Principles 
on  Business  and  Human  Rights  was  released  in  2014. 159  The  current  campaign 
Ykkösketju by Finnish NGOs, companies and other stakeholders, lobbying for mandatory 
human rights due diligence began in the autumn 2018. 

Separate  mandatory  legal  human  rights  due  diligence  or  environmental  due  diligence 
requirements for corporate are not currently in force. There is however growing interest 
and  support  for  a  mandatory  corporate  responsibility  law  regulating  human  rights  due 
diligence. However according to the National Action Plan on the  implementation of the 
UN  Guiding  Principles  on  Business  and  Human  Rights  from  2014,  the  administrative 
burden of companies will not be increased and in order to  ensure a balanced result, all 
further  actions  are  prepared  in  extensive  cooperation  with  various  stakeholders160.  The 
working group behind the Action Plan emphasized the need to identify best practices and 
the  concept  of  more  functional  international  specifications.  Similarly  the  Action  Plan 
noted that it is difficult to consider that human rights due diligence would be made into a 
legal  obligation. 161  This  outlook  was  commonly  the  general  opinion  of  various 
governmental  and  non-governmental  parties  before  the  start  of  the  current  lobbying 
campaign. According to the Action Plan, the problem with a legal obligation would be to 
attempt  to  define  the  actual  obligation  of  due  diligence. 162 National  law  in  this  sense 
already dictates the respect for human rights in appropriate legal texts whilst a duty of 
care  for  companies’  management  is  stipulated  in  corporate  law.  However,  according  to 
the Action Plan, extending national legislation to apply to international operations is even 
more  challenging  and  current  existing  regulation  does  not  extend  to  international 
actions. 163 

in  public 
Certain  requirements  exist 
procurement.  The  Act  on  Public  Procurement  and  Concession  Contracts  allows  the 

for  considering  social  and  environmental 

158 The Constitution of Finland 11 June 1999 (731/1999), Chapter 1 Section 1  
159 National Action Plan for the Implementation of the UN Guiding Principles on Business and Human Rights (Publications of the 
Ministry of Employment and the Economy 46/2014) 
https://tem.fi/documents/1410877/3084000/National+action+plan+for+the+implementation+of+the+UN+guiding+pronciples
+on+business+and+human+rights/1bc35feb-d35a-438f-af56-
aec16adfcbae/National+action+plan+for+the+implementation+of+the+UN+guiding+pronciples+on+business+and+human+ri
ghts.pdf  
160 National Action Plan, Government covering note on the UN Guiding Principles on Business and Human Rights National Action 
Plan. 
161 National Action Plan, 25.  
162 Ibid.  
163 Ibis.  

43 

 
 
 
                                                        
inclusion  of  social  factors  in  procurement  practices. 164 In  the  Resolution  on  Corporate 
Social Responsibility165, which is not binding, the Finnish Government encourages public 
procurers to consider social aspects in procurement and the Ministry of Employment and 
Economy  has  published  a  Guide  to  Socially  Responsible  Procurement  and  has  a  CSR-
compass  website. 166 The  guide  mentions  that  the  inclusion  of  social  factors  in  public 
procurement is one way for the government to execute the UN Guiding Principles. 

It  is  important  to  note  that  the  Act  on  Public  Procurement  and  Concession  Contracts 
does not demand that social factors should be included. The Act on Public Contracts is a 
procurement law, which does not enforce which factors decide the procurement, but sets 
the  outlines  for  the  process  to  be  transparent,  non-discriminatory  and  equal.  Social 
factors  can  be  included  and  must  be  in  accordance  with  the  general  principles  of 
transparency,  relative,  equality,  reciprocity,  non-discrimination  and  EU  legal  principles. 
Human rights or environmental matters therefore do not have to be a deciding factor in 
public  procurement.  Procurement  divisions  should  have  a  strategy  in  place  on  how  to 
social  factors  are  considered  in  procurement,  which  includes  the  inclusion  of  human 
rights  risk  assessments  for  certain  procurements. 167  Risk  assessments  should  be 
included  in  the  planning  stage  to  consider  which  type  of  social  matters  may  arise. 168 
Procurement  contracts,  according  to  the  guide,  should  determine  that  employment 
standards  must  follow  Finnish  law,  but  can  contain  standards  in  relation  to  ILO  core 
conventions and UN Convention on the Rights of the Child169. Similarly monitoring can be 
done  by  for  example  third  party  auditors.170 These  audits  could  be  BSCI  audits  or  SA 
8000 certified audits.171 

b. 
Size and type of business covered, including level of turnover, particular 
industry  sectors  and  type  of  supply  chain,  and  whether  public  procurement  is 
included 

The  Limited  Liabilities  Company  Act  applies  to  registered  companies,  which  can  be 
private  (private  company)  or  public  (public  company).  The  non-financial  information 
regulation of the Accounting Act applies to publicly listed companies with more than 500 
employees.172 

The Act on  Public Procurement and Concession Contracts applies to public procurement 
when  the  financial  value  of  the  procurement  exceeds  certain  threshold  sizes  in 
accordance  with  the  Act.173 Separate  procedural  obligations  are  set  depending  whether 
the  financial  value  exceeds  an  EU  threshold  in  which  case  all  procedural  rules  are  or 
whether  the  financial  value  exceeds  a  national  threshold  in  which  case  only  certain 
procedural  rules  are  followed.174 The  Act  does  not  apply  if  the  value  does  not  exceed 
either  thresholds,  but  the  procurement  must  occur  in  accordance  the  principles  of 
transparency and non-discrimination. 

c. 
Extent  of  human  rights,  environmental,  climate  change,  sustainability 
and  governance  matters  covered,  and  whether  the  regulation  uses  the 
terminology of human rights 

164 The Act on Public Procurement and Concession Contracts (29.12.2016/1397) Chapter 1 Section 2. 
165 Valtioneuvoston periaatepäätös yhteiskunta- ja yritysvastuusta (2012) 6 at 
https://valtioneuvosto.fi/documents/10184/1210166/yhteiskuntajayritysvastuu140411.pdf/f963e159-3ef5-4e0f-a7ad-
e93de1f954ce/yhteiskuntajayritysvastuu140411.pdf.pdf 
166 Guide to socially responsible public procurement (December 2017) at http://urn.fi/URN:ISBN:978-952-327-285-9 
167 Ibid, 9.  
168 ibid, 15.  
169 Ibis, 35.  
170 Ibid 32. 
171 Ibid, 43.  
172 Accounting Act (1336/1997) Chapter 3a Section 1.  
173 The Act on Public Procurement and Concession Contracts Chapter 4 Section 25-31.  
174 Public Procurement official website, threshold (visited on April 29, 2019) at https://www.hankinnat.fi/mika-julkinen-
hankinta/kynnysarvot 

44 

 
 
                                                        
Effective regulation does not currently specifically mention human rights, environmental, 
climate change or sustainability matters in relation to human rights. The duty of care in 
the Limited Liabilities Act does specifically concern governance matters. 

Certain soft law guidance by the government, such as the Human rights impacts of own 
operations:  Insights  for  due  diligence 175  and  the  Guide  to  Socially  Responsible 
Procurement, detail examples of specific human rights, but these are given as examples.  
The  Guide  to  Socially  Responsible  Procurement  notes  as  examples  of  contractual  terms 
rights  such  as  freedom  of  organisation  and  right  to  collective  bargaining,  non-
discrimination  and  equality,  and  abolition  of  child  labour  and  forced  labour. 176  For 
example, the Guide illustrates the requirements set by all tenderers seeking contracts to 
supply goods for the company by Hansel Ltd..177  Similarly, the Guide gives an example 
of how Alko has incorporated a section on ethics in its procurement contract term.178 The 
Guide also has an example how the Finnish Defence Forces has set out requirements for 
tenderers in its textile supply contracts exceeding the European Union threshold value179. 
The Insights for due diligence references The Universal Declaration on Human Rights the 
International  Covenant  on  Civil  and  Political  Right,  and  the  International  Covenant  on 
Economic,  Social  and  Cultural  Rights.180 The  Insight  offers  guidance  in  mitigating  risks 
related to occupational health and safety, discrimination, forced labour, adequate wage, 
excessive work hours, land rights and freedom of association.181 

d. 
Jurisdictional  extent  of  business  covered,  including  whether  it  includes 
activity by subsidiaries or business relations of corporate nationals located in a 
different State and operating outside the State of the regulation 

Legal obligations for corporate action outside of Finland does not exist. 

e. 

Civil, criminal and administrative scope 

Companies can have criminal liability in accordance the Criminal Code of Finland. A legal 
person  whose activities are  subject to a  criminal offense can be convicted  of a criminal 
offense, if it is a criminal offense under the Criminal Code.182 A legal person is convicted 
of  a  corporate  fine  if  its  statutory  body,  executive,  or  a  person  exercising  effective 
decision-making power in a legal person, has been involved in a crime, allowed a crime 
to  occur,  or  if  the  conduct  in  question  has  not  been  exercised  with  duty  of  care  and 
caution to prevent crime.183 

3. 

Content of Regulation 

Overview and description of the required measures for business (such as  

a. 
requirement to adopt human rights due diligence or a vigilance plan) 

Companies are required to ensure that the products they sell are safe for consumers and 
users.  This  includes  an  obligation  to  conduct  duty  of  care  on  whether  the  products  can 
cause danger to health or property of the consumer and in an extent that is reasonable 
in  relation  to  the  circumstances  and  professional  ability.184 Due  diligence  in  the  broad 
sense  includes  that  the  operator  must  provide  adequate  information  to  consumers  in 
their  marketing  so  that  consumers  can  evaluate  the  associated  hazards  of  consumer 

175 Publications of the Ministry of Economic Affairs and Employment, Human rights impacts of own operations:  Insights for due 
diligence (2018) at 
http://julkaisut.valtioneuvosto.fi/bitstream/handle/10024/160573/TEMrap_4_2018_Human_rights.pdf?sequence=1&isAllowed
=y 
176 Guide to Socially Responsible Procurement (December 2017) 40 at http://urn.fi/URN:ISBN:978-952-327-285-9.  
177 Guide to Socially Responsible Procurement (December 2017) 36 at http://urn.fi/URN:ISBN:978-952-327-285-9.  
178 Ibid 37. 
179 Ibid 38. 
180 Human rights impacts of own operations: Insights for due diligence, 11. 
181 Ibid, 17-35. 
182 Criminal Code (19.12.1889/39) Chapter 9 Section 1. 
183 Ibid Chapter 9 Section 2. 
184 Consumer Safety Act (2011/920) Section 5. 

45 

 
 
 
                                                        
goods and consumer services. The Supervisory Authority, Finnish Safety and Chemicals 
Agency,  can  require  operators  to  give  consumers  information  in  a  suitable  way  on  the 
prevention  or  prevention  of  the  risks  associated  with  the  use  or  operating  instructions 
necessary. 

Companies  operating in  the  food  industry  are  mainly  responsible  for  the  safety  of  their 
products in accordance with the Food Act. Companies must act with an adequate level of 
duty  of  care. 185  This  specifically  applies  to  ensuring  that  food  products  comply  with 
applicable laws and regulation. This also requires companies to have a level of sufficient 
and  truthful information  of  all products  and  production.186 Each  company  must  have  an 
own check plan, which describes the risks associated with its operations and the process 
to manage those risks.187 This includes risks related to hygiene, safety, environment and 
work safety. Government officials verify the own check plan with site visits. 

The  knowledge  requirement  of  the  Environmental  Protection  Act  requires  knowledge  of 
environmental impacts and environmental risks of each company’s operations and all the 
possibilities to reduce such impacts according to government proposal on the Act.188 The 
knowledge requirements is part of the overall principle of caution and care in relation to 
environmental  matters.    In  legal  praxis  in  Supreme  Court  ruling  KKO  2016:58,  this 
requirement  was  connected  to  the  Act’s  Chapter  4  environmental  permit  requirement. 
However,  the  knowledge  requirement  is  in  this  case  attached  solely  to  the  information 
required  for  environmental  permits  and  thus  does  not  go  further  than  information 
detailed  to  attain  a  permit  and  the  information  required  to  be  monitored  during  the 
possession of such a permit.189 

The  Finnish  Ministry  of  Employment  and  the  Economy  organized  with  the  Ministry  of 
Foreign  Affairs  the  Grocery  trade’s  round  table,  which  discussed  the  respect  of  human 
rights  in  purchasing.  It  released  a  common  view  by  specific  Finnish  grocery  retailers, 
NGOs and authorities,  which sets out the common understanding on how to implement 
the UN Guiding Principles on Business and Human Rights across the purchasing chains of 
the  grocery  trade  and  specifically  in  relation  to  human  rights  due  diligence. 190  The 
common view is not mandatory, but both major Finnish grocery retailers Kesko and SOK 
publicly  advocate  it. 191  The  due  diligence  process  takes  into  account  some  special 
characteristics  of  the  grocery  retailers,  but  in  general  it  details  the  process  of  human 
rights  due  diligence  in  accordance  with  the  UN  Guiding  Principles  on  Business  and 
Human  Rights.  It  does  note  specific  cases  and  examples  of  human  rights  related 
problems.  The  Ministry  of  Economic  Affairs  and  Employment  organized  a  similar  round 
table  for  other  companies  from  various  sectors,  but  the  participants  did  not  reach  or 
release a common view. 

b. 

Risk assessment requirements and risk mitigation measures 

The  Consumer  Safety  Act  specifically  requires  operators  to  assess  risks  related  to  their 
products and their use. Any actual assessment related to this is not specifically required, 
but  companies  are  required  to  assess  risk  in  a manner  that  is  reasonable in  relation  to 
the  circumstances  of  each  case. 192Therefore  products  that  maybe  more  dangerous  for 
consumers or their health require that risks are detailed more in detail. 

The  Common  View  of  grocery  retailers  (referred  to  above)  details  that  specifically 
adequate  risk  assessments,  monitoring  assessments  and  reacting  to  risk  is  central. 193 
According  to  the  Common  View  active  actions  can  ensure  that  grocery  retailers  can 

185 Food Act (2006/23) Chapter 3 Section 16.  
186 Food Act, Chapter 3 Section 17.  
187 Food Act, Chapter 3 Section 20.  
188 Environmental Protection Act (2014/572) Chapter 2 Section 6; HE 214/2013 
189 Supreme Court of Finland (KKO 2016:58) 
190 A Shared Vision for Respecting the UN Guiding Principles on Business and Human Rights in Grocery Trade Supply Chains 
(20 August 2015, Update 4 April 2017) at https://tem.fi/documents/1410877/3084000/UNGP+grocery+trade_en/54a9d248-
7467-4903-8f2a-99a975445b27/UNGP+grocery+trade_en.pdf 
191 Ibid, 15.  
192 Consumer Safety Act (2011/920) Section 5.  
193 A Shared Vision for Respecting the UN Guiding Principles on Business and Human Rights in Grocery Trade Supply Chains 11. 

46 

 
 
                                                        
eliminate their participation in contributing to negative impacts. The Common View also 
notes third-party audits in accordance with international standards such as ISO 17065 as 
important factors in human rights due diligence.194 

According  to  the  National  Action  Plan  Finland  will  support  the  strengthening  of  human 
rights  assessments  in  third  countries  during  EU  trade  or  investment  agreement 
negotiations and when monitoring their implementation.195 Finland shall make use of the 
human  rights  impact  assessments  in  forming  its  own  opinions  related  to  trade  policy 
positions. 

c. 
Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 
supply chain, including the legal test and its factors used to ascribe liability to 
parent companies for the impacts of subsidiaries and suppliers 

Finnish  law  does  not  specifically  discuss  supply-chain  matters.  However  from  the  Food 
Act and Consumer Safety Act due diligence requirements can be extended to the supply-
chain. 

The  non-mandatory  Common  View  of  grocery  detailers  only  applies  to  supply-chains 
abroad and does not focus on human rights impacts in Finland.196 

d. 
Requirements  for  an  external  control  or  evaluation  of  the  human  rights 
or environmental due diligence exercise, including key elements of  a grievance 
mechanism or whistle blower mechanism 

No such requirement is in force. 

e. 

Transparency and disclosure requirements 

The  non-financial  information  requirement  requires  disclosure  of  human  rights, 
environmental, social and employee-related matters, anti-corruption and bribery matters 
in  accordance  with  the  Accounting  Act. 197  The  requirement  applies  to  public-interest 
companies with over 500 employees and thus privately owned companies are not in its 
scope.198 

Non-financial information statements are part of auditing and the auditor’s accountability 
in  accordance  with  the  Accounting  Act.199 Therefore,  the  information  must  be  true  and 
fair  in  accordance  with  the  Accounting  Act.    If  the  report  is  presented  as  a  separate 
report from the annual report, the auditor shall state in its audit report if the information 
in the financial statements and the separate report is not consistent. 

Implementation of internal processes by business, including operational-

f. 
level grievance mechanisms 

Finnish  law  does  not  set  requirements  for  grievance  mechanisms  related  to  human 
rights. 

The  Common View does not set  out any expectation for  offering remedies  or grievance 
mechanisms, but encourages companies, NGOs, unions and governmental authorities to 
develop  new  grievance  mechanisms  that  specific  factories  and  clients  could  better  use 
them.200 

4. 

Monitoring, sanction and enforcement 

194 Ibid 5-17. 
195 National Action Plan for the Implementation of the UN Guiding Principles on Business and Human Rights (Publications of the 
Ministry of Employment and the Economy 46/2014) 18.  
196 A Shared Vision for Respecting the UN Guiding Principles on Business and Human Rights in Grocery Trade Supply Chains 6.  
197 The Accounting Act Chapter 3a Section 2.  
198 Ibid Chapter 3a Section 1.  
199 Ibid Chapter 3a Section 6.  
200 A Shared Vision for Respecting the UN Guiding Principles on Business and Human Rights in Grocery Trade Supply Chains 15. 

47 

 
 
 
                                                        
a. 

Monitoring body 

Specific monitoring bodies exist in relation to  due diligence  requirements  set in specific 
national laws, but not for human rights due diligence. 

Parliamentary  Ombudsman  has  the  task  of  ensuring  that  all  government  departments 
and officials follow the law and can handle complaints in relation to public authority or an 
official has not observed the law or fulfilled a duty, or if fundamental and human rights 
have  not  been  appropriately  implemented. 201  The  Ombudsman  can  investigate 
complaints  if  it  gives  ground  for  the  suspicion  that  an  authority  or  official  has  acted 
unlawful. 

Form  of  sanction(s),  if  any  (In  particular,  whether  monetary  or  other 

b. 
sanctions) 

Liability for violations by the management of duty of care is noted in the Limited Liability 
Companies  Act,  but  this  liability  exists  solely  towards  the  company  itself.202 When  this 
liability is towards others than the company in question, the management has also had 
to violate another section of law or the company’s articles of association.203 

The  Consumer  Safety  Act  is  a  general  law  and  it  does  not  apply  when  there  exists 
separate  laws  related  to  product  safety  elsewhere.  Liability  for  violations  of  Consumer 
Product Safety is in the Criminal Code of Finland, which requires that liability may arise 
from  gross  negligence  or  deliberately. 204  Those  liable  for  damages  may  include  the 
manufacturer or importer of the product and the person who has marketed the product. 
It  is  a  condition  of  liability  that  the  product  in  question  has  not  been  as  safe  as  it  was 
supposed  to  be.  In  this  case,  the  safety  of  the  product  has  been  inadequate  and 
consequently  damage  has  been  caused.  Damage  by  the  product  and  specifically 
defective product safety as well as the causal relationship between the products must be 
demonstrated to obtain compensation. 

In  the  Act  on  Compensation  for  Environmental  Damage,  the  strict  liability  ensures  that 
companies  can  always  be  liable  of  environmental  damage  regardless  of  negligence  or 
deliberation.  The  liability  is  towards  people  who  are  outside  of  the  company  or  with 
whom the company does not have a contractual obligation. This is because the liability is 
linked  to  existence  and  cause  of  environmental  damage.  It  is  possible  to  connect  this 
liability  to  the  sections  of  Limited  Liabilities  Act  on  the  duty  of  care  and  liability  of 
management if the management has not acted with duty of care.205 As long as the cause 
and effect are likely, liability can arise.206 

Incentives  or  implications,  such  as  link  to  procurement,  licensing  or 

c. 
export credit 

Public procurement is described above. 

Finland’s  official  export  guarantee  company,  Finnvera,  updated  its  policy  in  2016  for 
evaluating the environmental and social impacts of projects. Finnvera takes into account 
the principle of sustainable development and environmental and social impacts as part of 
the project’s overall risk assessment when Finnvera grants export credit guarantees and 
conforming  export  credit  guarantee  conditions.  207  Finnvera  adheres 
the 
Recommendation of the Council on Common Approaches for Officially Supported  Export 
Credits  and  Environmental  and  Social  Due  Diligence  adopted  by  the  Organisation  for 
Economic  Co-operation  and  Development  (OECD),  which  are  also  grounded  the  UN 
Guiding  Principles  on  Business  and  Human  Rights;  the  ILO  Declaration  on  Fundamental 

to 

201 Parliamentary Ombudsman of Finland official website (April 29, 2019) at https://www.oikeusasiamies.fi/en/eoa 
202 Limited Liabilities Act (624/2006) Chapter 22 Section 1.  
203 Ibid.  
204 Criminal Code (19.12.1889/39) Chapter 44 Section 1.  
205 Supreme Court of Finland (KKO 2016:58) 
206 Act on Compensation for Environmental Damage (737/1994) Section 3.  
207 Finnvera official website (visited on April 28, 2019) at https://www.finnvera.fi/eng/export/export-credit-guarantee-
operations/export-credit-guarantee-operations 

48 

 
 
                                                        
Principles  and  Rights  at  Work;  the  UN  Framework  Convention  on  Climate  Change;  and 
the OECD Guidelines for Multinational Enterprises.208 

Finnvera uses screening, classification and review of projects. Social and environmental 
impacts are identified during the screening and classification of projects. The purpose of 
the screening is to identify the applications covered by Finnvera's project evaluation. The 
screening  and  classification  of  projects  indicates  the  level  of  potential  negative 
environmental  and  social  impacts  that  will  determine  the  appropriate  scope  of  impact 
evaluation.  The  classification  classifies  projects  into  three  categories  based  on  the 
significance of plausible adverse environmental and/or social impacts. Screening is made 
by  information  provided  on  application  forms.  For  applications  where  Finnvera’s  risk 
exceeds 10 million euros and applications, irrespective of the size of the risk, where the 
associated  project  is  located  in  a  sensitive  area  or  can  have  an  adverse  impact  on  a 
sensitive area or involves the likelihood of severe project-related human rights impacts, 
the  application  and  other  information  are  used  to  determine  whether  the  application  is 
associated  with  a  project  that  requires  classification.  Finnvera’s  project  review 
encompasses the whole project even when export financing is granted only for a part of 
the  project  or  for  an  individual  delivery  of  equipment  that  is  associated  with  a  project. 
The  project  category  given  by  Finnvera  determines  the  level  of  the  background  studies 
required  by  the  project.  These  stage  may  include  environmental  and  social  impact 
assessments. The owner of the project company and/or the main supplier for the project 
and/or  the  project  sponsor  and/or  the  exporter  is  responsible  for  ensuring  that  the 
background  studies  required  by  the  project  category  are  made  or  commissioned.  The 
applicant for export financing is responsible for supplying the information to Finnvera. 

Finnvera  website  notes  that  social  impacts  may  be  associated  with  factors  such  as: 
labour  rights  and  working  conditions;  community  health  and  safety  and  security;  land 
acquisition  and  involuntary  resettlement;  the  rights  of  indigenous  peoples;  cultural 
heritage;  and  project-specific  human  rights  factors,  such  as  forced  labour,  child  labour 
and  occupational  health  and  safety  situations  posing  a  threat  to  human  life.  Finnvera 
employs  a  human  rights  analyst  and  trains  its  personnel  to  identify  environmental  and 
social aspects and to assess the related risks. 

d. 

Enforcement methods 

No enforcement methods related to human rights or environmental matters in place. 

5. 

Procedural Framework 

Finnish courts can process claims in accordance with Finnish law. 

6. 

a. 

Available Remedies 

Civil, criminal and administrative remedies 

Finnish courts offer legal remedies in relation to violations of Finnish law, which includes 
Companies Act and other laws detailing duty of care obligations. The General Courts are 
District  Courts,  Court  of  Appeal  and  Supreme  Court.  District  courts  deal  with  litigation 
and  criminal  matters.  Administrative  courts  are  administrative  courts  and  the  Supreme 
Administrative  Court  with  administrative  courts  generally  deal  with  complaints  made  of 
decisions by government authorities. 

The  Ministry  of  Employment  and  Economy  together  with  the  Committee  on  Corporate 
Social Responsibility act as the National Contact for the OECD. 

b. 

Existence and use of judicial and non-judicial grievance mechanisms 

208 Ibid.  

49 

 
 
 
 
                                                        
The  Ministry  of  Employment  and  Economy  together  with  the  Committee  on  Corporate 
Social  Responsibility  act  as  the  National  Contact  for  the  OECD.  The  Finnish  NCP  has 
handled  two  different  instances.209 According  to  the  Government  Decree  (591/2008)  at 
the request of the Ministry, the Committee can express its view on whether enterprises 
have acted in accordance with the Guidelines. The first instance was regarding Pöyry Plc 
and the Xayabury hydropower project. Pöyry had claimed not to have complied with the 
OECD  Guidelines’  recommendation  on  sustainable  development  and  several  other 
environmental recommendations and demonstrated a lack of due diligence as referred to 
in the chapters on environmental impacts and human rights impacts in the guidelines. In 
the final statement, the NCP concluded that Pöyry had not violated the OECD guidelines, 
but  it  was  justified  to  expect  Pöyry  to  more  aware  of  its  overall  role  in  relation  to  the 
project.210 The  second  instance  has  been  related  to  the  closure  process  of  Stora  Enso’s 
Corbehem  factory.  The  NCP  viewed  that  Stora  Enso  had  notified  in  advance  and  good 
time  workers  and  authorities  required  by  French  legislation.  The  complainant  did  not 
respond to repeated requests by the Finnish and French NCPs and thus the NCP did not 
consider it appropriate to continue with a detailed assessment of the case, because the 
complainant had not exercised its opportunity to respond to Stora Enso Oyj.211 

7. 
Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
and  b)  to  companies,  either  individually  or  collectively)  (public  information, 
estimated opinion) 

This  is  not  applicable  as  no  human  rights  due  diligence  requirements  or  environmental 
due diligence requirements exist. 

8. 

Impact of the Regulation 

Finland  reports  the  UN  Committee  on  the  Rights  of  the  Child  on  the  Implementation  of 
the recommendation by the Committee on Business.212 

III. COMPARATIVE ANALYSIS 

9. 

Comparisons between different regulations within the Member State 

a. 
Corporate  and  directors’  liability  regime  in  case  of  violations  or  damage 
caused  by  operators  in  the  EU  parent  company’s  supply  chain,  including 
relevant jurisprudence, even in the absence of legislation on due diligence 

The duty of care according to the Limited Liability Companies Act requires the company’s 
management  to  act  with  duty  of  care  and  to  make  decisions  based  on  efficient 
information.213 The Act does not define the actual content of duty of care, but a general 
business  judgment  rule  is  applied  when  its  limits  are  considered.  The  duty  of  care 
requires  that  management  base  their  decisions  on  adequate  information,  make  logical 
decisions  and  their  actions  are  not  influenced  by  conflicts  of  interests.  Legal  praxis  has 

209 Ministry of Economic Affairs and Employment official website, Handling Specific Instances of the OECD Guidelines for 
Multinational Enterprises (visited on April 28, 2019), at https://tem.fi/en/handling-specific-instances-of-the-oecd-guidelines-
for-multinational-enterprises 
210 Ministry of Employment and the Economy, Pöyry Plc and the Xayaburi hydropower project in the Lao PDR; OECD's 
guidelines for multinational enterprises; Statement of the national contact point, Unofficial translation (June 10, 2013) 12 at: 
https://tem.fi/documents/1410877/3104828/P%C3%B6yry+NCP+Final+Statement+EN.pdf/974194d1-3fbd-440d-8c8a-
e08e440941e7/P%C3%B6yry+NCP+Final+Statement+EN.pdf.pdf 
211 The Ministry of Economic Affairs and Employment Finland, OECD National Contact Point’s Final Statement regarding 
following OECD Guidelines in the closure process of Stora Enso’s Corbehem factory in France, Statement (March 29, 2017) at 
https://tem.fi/documents/1410877/3104828/OECD+Final+Statement+regarding+Stora+Enso.pdf/b0390e4b-c953-412e-90dd-
623032aba4ec/OECD+Final+Statement+regarding+Stora+Enso.pdf.pdf 
212 Ombudsman for Children Finland, Report to the UN Committee  on the Rights of the Child (2011) at http://lapsiasia.fi/wp-
content/uploads/2015/04/report_to_UN_committee.pdf 
213 Limited Liability Companies Act (624/2006) Chapter 1 Section 8 

50 

 
 
 
 
 
 
                                                        
concluded  that  the  duty  of  care  can  be  extended  to  include  of  human  rights  and 
environmental  matters. 214 However  it  is  important  to  note  the  duty  of  care  is  solely 
towards  the  company  and  its  shareholders  and  thus  not  towards  other  stakeholder 
groups. The duty of care in the  requirement specifically requires management to act in 
the best interest of the company in question and thus liability only applies in the scope 
of the company in question. 

In  the  Supreme  Court  Decision  KKO  2016:58  the  liability  of  the  members  of  the 
management  of  a  limited  liability  company  for  the  environmental  damage  was  in 
question.215 The case does hold precedence as there has been very few such court cases 
in Finland. At the center of the case was whether corporate management could be held 
liable  and  guilty  of  environmental  degradation  by  neglecting  their  obligations  as 
members of the board of directors.216 The Supreme Court held that the negligence of two 
members of a three member Board of Directors was gross considering that they had not 
familiarized themselves with the content of the environmental permit. Similarly the court 
ruled  that  they  had  deliberately  neglected  their  duty  to  arrange  and  supervise  matters 
related to the permit. 

b. 
The level of “duty of care”/”due diligence” required of the business or its 
administrative organs, in order to fulfil their obligations, and the key elements 
of this legal “duty of care” 

Duty  of  care  according  to  the  Limited  Liability  Companies  Act  requires  the  company’s 
management  to  act  with  duty  of  care  and  to  make  decisions  based  on  efficient 
information.217  A certain level of risk and risk approach is always attached to corporate 
decisions and thus the level of risk appetite must be appropriately attached to the level 
of adequate information and knowledge that the decision is based on. The provisions on 
liability  of  management  are  not  intended  to  prevent  business  risks  being  taken  as  long 
as  the  decision-making  process  is  consistent  and  based  among  other  things  on  up-to-
date and reasonably available information. The more significant the action of society and 
the company is, the more they should act with care. 

c. 

How directors’ responsibility can be engaged 

The  Limited  Liabilities  Act  provides  that  companies  may  have  a  Board  of  Directors,  a 
Managing  Director  and  a  Supervisory  Board.218 The  Board  of  Directors  shall  see  to  the 
administration  of  the  company  and  the  appropriate  organisation  of  its  operation  whilst 
the  Managing  Director  shall  see  to  the  executive  management  of  the  company  in 
accordance  with  the  instructions  and  orders  given  by  the  Board  of  Directors. 219 
Therefore,  operational  daily  activities  belong  to  the  activities  of  Managing  Director. 
However, the Managing Director may undertake measures that are unusual or extensive 
in view of the scope and nature of the activities of the company only if so authorised by 
the  Board  of  Directors.  It  is  not  defined  whether  matters  related  to  human  rights  due 
diligence  or  environmental  due  diligence  are  under  the  supervision  of  the  Managing 
Director  or  Board  of  Directors.  Based  on  the  Act,  however,  the  Board  of  Directors  can 
transfer  and  delegate  certain  aspects  to  the  Managing  Director.  It  may  be  difficult  to 
determine  which  of  the  two  -  the  management  or  the  CEO  -  is  responsible  for  the  act 
that caused the damage. The premise is that the more significant the action is, the more 
likely  it  belongs  to  the  board’s  competence.  In  the  discussed  case  (KKO  2016:  58)  the 
CEO had not informed the Board of the company's environmental activities.220 The Board 

214 Supreme Court of Finland (KKO 2016:58) 
215 Ibid.  
216 Ibid.  
217 Limited Liability Companies Act (624/2006) Chapter 1 Section 8 
218 Limited Liability Companies Act (624/2006) Chapter 6 Section 1 
219 Ibid Chapter 6 Section 2.  
220 Supreme Court of Finland (KKO 2016:58) 

51 

 
 
 
 
                                                        
had  confidence  that  the  CEO  was  responsible  for  the  appropriateness  of  the 
environmental actions, because of the agreed upon work division that was established in 
practice. It is important that the Board of Directors should on its own initiative  consider 
the  appropriateness  of  environmental  activities.  The  Supreme  Court  held  that  the 
negligence of two members of a three member Board of Directors was gross considering 
that they had not familiarized themselves with the content of the environmental permit. 
Similarly the court ruled that they had deliberately neglected their duty to arrange and 
supervise matters related to the permit. 

Chapter 22 Section 1 of the Limited Liability Companies Act provides for the liability of a 
senior  manager  of  the  company. 221 A  senior  executive  is  a  member  of  the  Board  of 
Directors, the Board of  Directors and the CEO.  According to the section, the company's 
manager must compensate the company for any damage that he or she has deliberately 
or negligently caused to the company in violation of the duty of care. 

Environmental obligations are primarily binding on the company222, but due to the other 
responsibilities  of  the  management,  management  should  ensure  that  environmental 
legislative  provisions  are  properly  implemented.  According  to  the  provisions  of  the 
Limited  Liabilities  Act,  the  management  of  the  company  is  responsible  for  decision-
making  concerning  the  company,  proper  organization  of  operations  and  supervision  of 
the implementation of operations.223 The pursuit of the company's interests could involve 
environmental  obligations  of  the  company,  as  well  as  the  implementation  of 
environmental  responsibility  that  is  independently  implemented.  Management  should 
ensure  that  the  company  complies  with  all  legal  obligations  related  to  environmental 
matters and management does have a duty of care towards these decisions. 

Management  may  avoid  liability  towards  their  companies  if  they  acted  with  a  duty  of 
care.224 It is possible for management to avoid its obligation to pay compensation by the 
fact  that  the  decision  was  made  on  appropriate  information 225 .  As  management's 
diligence  is  always  assessed  afterwards,  management  should  pay  attention  to  the  fact 
that  sufficient  documentation  has  been  made  for  all  their  actions.  However,  the  strict 
liability  of  environmental  damages  requires  companies  outside  of  their  company  to  be 
liable  regardless  of  due  diligence.226 For  management  this  requires  a  level  of  cause  for 
the  damage.  According  to  the  presumption  of  negligence,  a  member  of  the  Board  of 
Directors is deemed to have caused the damage by negligence, unless he or she proves 
to  have  acted  diligently. 227  The  circumstances  of  the  case  determine  what  kind  of 
diligence the management should exercise at any given time. 

How  companies  in  Member  State  can  be  held  liable  for  the  impacts  of 
d. 
their  supply  chain,  including  non-EU  based  suppliers,  and  including  suppliers 
beyond the first tier of the supply chain228 

Liability  in  contractual  relationship  are  in  various  national  laws,  such  as  the  Sale  of 
Goods  Act.  The  general  provisions  on  non-contractual  liability  are  in  the  Damages  Act. 
According  to  it,  persons  who  deliberately  or  negligently  cause  damage  to  another  are 
liable  to  compensate  the  damage. 229 In  Finland,  parties  are  only  liable  for  their  own 
actions.  An  exception  is  that  employers  have  a  responsibility  for  damage  caused  to  a 
third party by negligence on the part of his employee.230 

221 Limited Liability Companies Act (624/2006) Chapter 22 Section 1 
222 In relation Environmental Protection Act (2014/572) and the Act on Compensation for Environmental Damage (737/1994) 
223 Limited Liability Companies Act (624/2006) Chapter 6 Section 2 
224 Limited Liability Companies Act (624/2006) Chapter 22 Section 1 
225 Compared to Limited Liability Companies Act (624/2006) Chapter 1 Section 8 
226 Act on Compensation for Environmental Damage (737/1994) Section 7    
227 Supreme Court of Finland (KKO 2016:58) 
228 First tier suppliers are understood as those suppliers with which the company does not have a direct contractual 
relationship. 
229 Damages Act (412/1974) Chapter 2 Section 1.  
230 Damages Act (412/1974) Chapter 3 Section 1. 

52 

 
 
 
                                                        
e. 
The  burden  of  proof  to  hold  a  business  or  its  board/director  liable  for 
human  rights  or  other  impacts,  including  which  regulations  are  the  most 
efficient for victims in this respect 

As  a  rule,  the  burden  of  proof  lies  with  the  person  claiming  to  be  entitled  to  damages. 
Thus, if a manager is alleged to have acted, for example, negligently in the performance 
of  his  duties  and  the  resulting  damage,  then  he  must  be  able  to  prove  that  he  was 
negligent and the associated damage. 

If a person of management who is claimed to have violated the Limited Liabilities Act or 
the  Articles  of  Association,  which  results  in  damage,  the  manager  must  prove 
themselves to have acted careful to avoid.231 The reversed burden of proof also applies if 
the damage is caused by a legal action in favor of a related party. 

IV. REGULATORY FRAMEWORK 

10.  Overall Review of Regulatory Framework 

According  to  the  National  Action  Plan  Finland  offers  sufficient  judicial  remedies  through 
its  court  system.  The  possibilities  to  hold  companies  accountable  for  violations  in  the 
supply-chain are extremely restricted. The only possibility for judicial remedies is in the 
court system, which does not extend extraterritorial reach for Finnish national laws. 

No law is in force that requires companies to conduct due diligence, assess their impacts 
or risks, or be held liable for violations in the company’s supply-chain. 
The current duty of care obligations of the Limited Liabilities Act set a balance between 
obligation for a level of care and the practical realities of corporate operations. With an 
extremely  high-level  of  legal  obligations,  it  may  be  impossible  to  get  people  to  join  as 
executives in companies. 

The  Limited  Liabilities  Companies  Act  does  not  specifically  detail  human  rights  or 
environmental  matters.  Even  though  legal  praxis  has  extended  the  duty  of  care  to 
include knowledge of environmental impacts. However as no human rights due diligence 
requirements  exist  it  is  difficult  to  extend  duty  of  care  to  include  human  rights. 
Therefore,  at  least  some  level  of  human  rights  due  diligence  requirements  would  allow 
the possible extension of the duty of care also to human rights matters. 

Finland offers through its court system the possibility for judicial remedies for victims in 
Finland.  Currently  the  Finnish  model  does  not  offer  adequate  judicial  remedies  for 
victims  outside  of  Finland.  Victims  can  contact  OECD  national  contact  point  of  Finland, 
but this does not serve as a judicial remedy for victims. 

It  is  clear  that  Finland  does  not  require  companies  to  conduct  human  rights  due 
diligence. There are some other due diligence and duty of care obligations, but they have 
not been made specifically with human rights, environmental matters or other corporate 
responsibility  matters  in  mind.  Non-financial information  requirements  focus  on  naming 
risks and the manners in which such risk is monitored. The inclusion of NFI to auditing 
requirements does give the statements credibility, but it is important to remember that 
only roughly 150 companies are in its scope. 

Currently the Finnish law does not specifically attach environmental or human rights due 
diligence  as  an  obligation  for  companies.  The  duty  of  care  has  been  to  some  extent 
applied  to  an  expectation  to  make  business  decisions  based  on  proper  environmental 

231 Limited Liability Companies Act (624/2006) Chapter 22 Section 1 

53 

 
 
 
 
 
 
 
                                                        
information  in  legal  praxis  and  to  have  a  level  of  duty  of  care  towards  environmental 
risks.  This  application  has  not  been  common,  but  certain  legal  praxis  (KKO  2016:58) 
does exist. 

The  current  duty  of  care  of  company  management  could  be  more  widely  interpreted  to 
include  environmental and  human  rights  matters.  This  has  however  not  been  the  case. 
The legal praxis of Finland has considered environmental matters at least in some extent 
to  be  included  in  the  duty  of  care  of  management.  This  however  does  not  extend  this 
requirement  to  all  environmental  impacts  or  environmental  matters.  Even  with  this 
limitation,  it  does  require  management  to  have  a  level  of  understanding  towards  their 
company’s  environmental  impacts.  Something  similar  might  be  required  for  human 
rights, which would require clear and defined requirements  for companies in relation to 
human  rights.    If  human  rights  matters  or  environmental  actions  can  be  considered 
significant  both  for  the  company  and  for  society,  the  involvement  it  could  be  expected 
that the board would pay particular attention to the appropriateness of actions related to 
these matters. 

The problem with even the current duty of care and due diligence requirements is their 
unclear  content.  The  due  diligence  requirement  in  the  Consumer  Safety  Act  already 
existed in the previous Product Safety Act, but the due diligence requirements had been 
considered  by  operators  to  be  unclear.  The  government  had  released  guidance  on  the 
issue but operators had still struggled to define the required level of risk due diligence. 

11. Proposals for Regulation 
In  September  2018  a  Finnish  #Ykkösketjuun-campaign  was  published,  which  attempts 
to promote and lobby for a mandatory law regulating human rights due diligence.232 The 
aim is to lobby for the  new law during the parliamentary election in the spring of 2019 
and  to  have  the  new  Finnish  government  to  write  a  clear  and  distinct  objective  for  the 
law in the new government’s government programme. 

The campaign has over 100 companies, NGOs and other members publicly supporting it 
and  advocating  for  it.  Central  NGOs  such  as  Finnwatch,  Amnesty  International,  Plan 
International,  Save  the  Children,  UNICEF  Finland  and  World  Vision  are  part  of  the 
campaign.  Similarly  employee  unions  such  as  Central  Organisation  of  Finnish  Trade 
Unions,  the  Trade  Union  Solidarity  Centre  of  Finland  SASK,  Industrial  Union  at  the 
Confederation  of  Unions  for  Professional  and  Managerial  Staff  in  Finland.  Major  Finnish 
companies,  such  as  SOK,  Kesko,  Paulig  and  Fazer  publicly  advocate  and  support  the 
campaign.233 There  not  members  to  the  campaign,  but  have  endorsed  it.  These  include 
Finnish retailers such as Stockmann and Tokmanni.234 

From  the  beginning  the  campaign  has  not  detailed  any  plan  or  details  for  the  law,  but 
only had a general mutual objective of promoting a legal obligation for human rights due 
diligence.  Even  after  the  election  on  April  14th  2019,  the  campaign  does  not  publicly 
support  any  detailed  view  or  text.  This  allowed  for  large  corporations  and  for  example 
Finnwatch to support the same campaign. However, it has given the possibility for every 
member  of  the  campaign  to  lobby  their  own  view  and  for  the  conversation  around  the 
campaign maybe take a turn that not all parties any more support. 

As  the  campaign  has  never  specified  detailed  plans  for  the  regulation,  there  exists  a 
number  of  differing  views  on  the  subject  even  within  the  campaign.  One  of  the  key 
organizers, Finnwatch, has promoted a more an all-inclusive human rights due diligence 
law  based  on  the  UN  Guiding  Principles  on  Business  and  Human  Rights,  which  would 
specifically  require  the  actions  of  human  rights  due  diligence.235 The  Finnish  law  would 
thus differ from other national laws by not requiring reporting, but actually attempting to 

232 Ykkösketjuun official website https://ykkosketjuun.fi/en/  
233 Ykkösketjuun official website, tietoa meistä (visited on April 29) at https://ykkosketjuun.fi/tietoa-meista/ 
234 Ibid.  
235 Ykkösketjuun official website, tietoa meistä (visited on April 29) at https://ykkosketjuun.fi/tietoa-meista/ 

54 

 
 
 
                                                        
define  specific  and  actual  due  diligence  requirements  for  companies  across  all  sectors. 
This  regulation  would  apply  to  all  companies  operating  in  Finland  regardless  of  their 
revenue,  size  or  financial  structure.  They  have  publicly  advocated  that  certain  sectors, 
such as textile, must be included even if certain thresholds may exist regardless of size. 
Similarly,  Finnwatch  has  specified  they  wish  to  have  the  law  have  sanctions  and  a 
remedy body in the form of the Finnish court system or a separate judicial committee to 
consider claims in a remedy role. A number  of parliamentary  candidates has  supported 
this view. 

Not all companies support the details of this view. The possibility of court remedies or a 
specific  judicial  committee  has  similarly  been  widely  criticized  by  a  number  of  Finnish 
companies.    Finnish  companies  that  did  not  join  the  campaign  have  expressed  of  its 
possible content and limitations. 

It is important to note that the parties that will form the government will not only dictate 
its  details  and  scope. 
whether  such  a 

force,  but  also 

law  will  come 

into 

55 

 
 
FRANCE COUNTRY REPORT 

Elsa Savourey236 

I. OVERVIEW237 

1. Overview of the main features of the French Law of the Corporate Duty of 

Vigilance 

France has been at the forefront of legislative approaches incorporating into domestic 
hard  law  human  rights  and  environmental  due  diligence.  This  results  from  the 
enactment  of  the  Law  No  2017-399  of  27  March  2017  on  the  corporate  duty  of 
vigilance for parent and instructing companies (the "Vigilance Law") [Loi No 2017-399 
du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises 
donneuses d'ordre]. 

Companies that enter into the scope of the Vigilance Law have to prepare a vigilance 
plan. The plan must contain reasonable vigilance measures adequate to identify risks 
and  to  prevent  severe  impacts  on  human  rights  and  fundamental  freedoms,  on  the 
health and safety of persons and on the environment. These measures must cover the 
activities  of  these  aforementioned  companies  and  of  the  companies  they  control  as 
well as certain entities with whom they have business relationships. 

As will be discussed in this report, the Vigilance Law only  applies to a limited number 
of  companies  (between  150  and  300  according  to  various  estimates).  Nevertheless, 
the  number  of  companies  that  fall into  the  ambit  of  a  company's  vigilance  plan  (and 
are therefore concerned by the reasonable vigilance measures) is larger. 

The  obligations  set  out  in  the  Vigilance  Law  (the  "Vigilance  Obligations")  are  three-
fold.  They  go  beyond  simple  reporting  and  require  companies  to:  1)  establish  a 
vigilance plan; 2) effectively implement it; and 3) make the plan and the report on its 
effective  implementation  public  as  well  as  include  both  of  them  in  the  company’s 
annual  management  report.  As  this  report  will  explain,  the  vigilance  plan  is  the 
cornerstone of the Vigilance Law. 

In the  event of a breach of the Vigilance Obligations, three  sanctions are provided in 
the Vigilance Law: 1) an injunction (with a possible periodic penalty payment); 2) civil 
liability; and 3) the potential publication of the court decision on civil liability. 

There are several features that set the Vigilance Law apart from legislation such as the 
United  Kingdom  Modern  Slavery  Act  and  the  Australia  Modern  Slavery  Act.  These 
include the breadth of topics covered by the Vigilance Law (human rights, health and 
safety  of persons and the environment), the requirement  of  effective implementation 
of the vigilance plan, and the Vigilance Law’s sanction regime. 

The  Vigilance  Obligations  share  commonalities  with  the  human  rights  due  diligence 
process  provided  by  the  United  Nations  Guiding  Principles  on  Business  and  Human 
Rights  (the  "UNGPs")  and  associated  standards.  Yet,  these  Vigilance  Obligations  also 

236 Elsa Savourey (LL.M. (Harvard); Masters (Sciences Po Law School and Pantheon-Sorbonne), attorney-at-law [avocate] 
at the Paris Bar and firm-wide coordinator of the Global Business and Human Rights Practice at Herbert Smith Freehills. I 
would like to thank Stéphane Brabant for his comments on an earlier version on this report. The contents of this report, 
current at the date of 06 May 2019, are for reference purposes only. They do not constitute legal advice and should not be 
relied upon as such. The opinions expressed and arguments employed are those of the author. 
237 Translations of French legislation and French articles are provided by the author of this report. Translations of 
international sources are, where possible, based on official translations from international organisations (UN, OECD, 
EU).There is no official English translation of the French law on the corporate duty of vigilance available at this time. This 
country report relies on a translation prepared by the author of this report. For the other laws mentioned in this report, 
translations are also provided by the author. As requested by the British Institute of International and Comparative Law, 
this country report mainly focuses on the French law on the corporate duty of vigilance. It only touches upon a limited 
number of other legislation relevant to due diligence without going into as much detail. 

56 

 
 
 
 
                                                        
have  significant  singularities.  It  is  for  this  reason  that  this  report  privileges  the  term 
"vigilance" over "due diligence" in its overview of the Vigilance Law. 

Similarly, the term "vigilance" is also preferred to "duty of care". Earlier translations of 
the Vigilance Law have used the term "duty of care". However, there is now a relative 
consensus  in  France  among  stakeholders  on  the  use  of  the  term  "vigilance".  This 
choice  also  avoids  possible  semantic  confusions  across  jurisdictions  of  different  legal 
traditions.  Actually,  the  notion  of  "duty  of  care"  is  well  known  among  lawyers  in 
common law jurisdictions. Using this same term in association with the Vigilance Law 
may lead to the  misconception that the Vigilance Law is merely an application of the 
common law "duty of care" in France. France is a civil law jurisdiction, and the notion 
of "duty of care" does not exist as such. 

2.  Overview of other due diligence/vigilance provisions applicable in France 

The Vigilance Law sets out what could be considered as a relatively general regime of 
vigilance  in  relation  to  human  rights,  the  health  and  safety  of  persons  and  the 
environment.  There  are  other  laws,  which  are  sector-specific  or  are  only  directed  to 
certain stakeholders, and require due diligence measures more or less directly related 
to  human  rights  and  the  environment.  Although  the  focus  of  this  country  report  is 
mainly on the Vigilance Law, some of these other laws will be briefly discussed. Some 
of them result from the transposition into French law of European directives. 

For a more detailed list of these norms and their brief analysis, please refer to a report 
dated December 2016  and led by Sherpa (only available in French)  entitled "Societal 
Vigilance  Under  French  Law"  [La  vigilance  sociétale  en  droit  français].238 This  report 
lists and analyses a specific set of provisions from selected legislation and regulations 
in  order  to  identify  obligations  that  could  be  considered  as  due  diligence/vigilance 
obligations. The report details these obligations according to stakeholders and sectors. 
It aims to identify a definition of the "devoir de vigilance sociétale" in a context where 
most of these legislations and regulations do not provide for such a definition. As the 
report indicates, there was no general obligation requiring businesses to prevent social 
and environmental risks related to their activities in 2016. The obligations to prevent 
those  risks  that  were  then  in  existence  were  spread  across  various  texts,  involved 
different  scopes  of  application,  persons  and  sectors,  and  were  limited  to  specific 
issues. This 2016 report and most of the obligations identified are still relevant today 
even  with  the  Vigilance  Law  in  place.  Therefore,  for  more  information  on  the 
legislation adopted prior to 2017 and discussed below, please refer to the 2016 report. 

For  an  additional  source  presenting  the  national  legislative  framework  relating  to 
corporate  social  responsibility,  and  in  particular  human  rights  and  human  rights  due 
diligence, see the French National Action Plan.239 

II. 

GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS 
DUE DILIGENCE  AND ENVIRONMENTAL DUE DILIGENCE  IN THE SUPPLY 
CHAIN 

1.  Area of Regulatory Framework 

This is a non-exhaustive list of relevant existing legislation. 

  Labour  Code  [Code  du  travail]:  several  provisions  impose  on  employers, 
instructing  parties  and  project  owners  [donneurs  d’ordre  et  maîtres  d’ouvrage] 
relevant  obligations.  They  include,  for  instance,  actions  in  relation  to  the  fight 

238 Sherpa, Communauté des sites de ressources documentaires pour une démocratie mondiale (Coredem) & Ritimo, La 
vigilance sociétale en droit français, Collection Passerelle, Dec. 2016, available at 
https://www.coredem.info/IMG/pdf/pass_16_web.pdf%20. 
239 French Ministry of Foreign Affairs and International Development, Plan national d’action pour la mise en œuvre des 
principes directeurs des Nations unies relatifs aux droits de l’Homme et aux entreprises, April 2017, sections 9-10, available 
at https://www.diplomatie.gouv.fr/IMG/pdf/3_-_pnadh_fr_version_finale_bandeau_cle0be656.pdf.   

57 

 
 
 
                                                        
against  conditions  of  collective  accommodation  incompatible  with  human  dignity, 
payment  of  wages,  violation  of  fundamental  rights  of  workers,  physical  and 
mental health of workers, etc. 

  EU  Regulation  No  995/2010  of  20  October  2010  lays  down  the  obligations  of 
operators  who  place  timber  and  timber  products  on  the  market.  Member  States 
are  responsible  for  laying  down  effective,  proportionate  and  dissuasive  penalties 
and for enforcing the Regulation. In France, article 76 of the Law No 2014-1170 of 
13 October 2014 for the future of agriculture, food, and the forest [Loi No 2014-
1170  du  13  octobre  2014  d'avenir  pour  l'agriculture,  l'alimentation  et  la  forêt] 
provides a national sanction regime for breaches of the obligations provided in the 
aforementioned EU Regulation. These sanctions include imprisonment and fines. 

  Law No 2014-773 of 7 July 2014 on the orientation and the programming related 
to  the  policy  on  development  and  international  solidarity  [Loi  No  2014-773  du  7 
juillet  2014  d'orientation  et  de  programmation  relative  à  la  politique  de 
development  et  de  solidarité  internationale].  This  law  defines  the  objectives  of 
State  action.  Article  8  of  the  law  provides  that  "the  policy  on  development  and 
international solidarity takes into account the requirement [l'exigence] for societal 
responsibility  of  public  and  private  actors  […]  In  the  context  of  this  requirement 
for  societal  responsibility,  companies  implement  risk  management  procedures 
aimed  at  identifying,  preventing  or  mitigating  social,  sanitary  and  environmental 
harms as well as impacts on human rights which may result from their activities in 
partner countries". Further, article 8 provides that France "encourages" companies 
headquartered in France and operating abroad to implement the OECD Guidelines 
for Multinational Enterprises as well as the UNGPs. 

  Consumer Code [Code  de la consommation] (as amended by  order  No 2016-301 
of 14 March 2016). It includes measures related to health and safety and human 
rights in supply chains (see e.g. article L. 113-1 of the Consumer Code). 

  Law No 2017-399 of 27 March 2017 on the corporate duty of vigilance for parent 
and  instructing  companies  (the  "Vigilance  Law")  [Loi  No  2017-399  du  27  mars 
2017  relative  au  devoir  de  vigilance  des  sociétés  mères  et  des  entreprises 
donneuses d'ordre]. 

  Directive  2014/95/EU  of  22  October  2014  amending  directive  2013/34/EU  as 
regards  disclosure  of  non-financial  and  diversity  information  by  certain  large 
undertakings and groups. Texts transposing the directive into French law are: 

o  Order No 2017-1180 of 19 July 2017 on the publication of non-financial 
information  by  certain  large  undertakings  and  groups  of  companies 
[Ordonnance  No  2017-1180  du  19  juillet  2017  relative  à  la  publication 
d'informations  non  financières  par  certaines  grandes  entreprises  et 
certains groupes d'entreprises]; and 

o  Decree No 2017-1265 of 9 August 2017 for the application of Order No 
2017-1180  of  19  July  2017  on  the  publication  of  non-financial 
information  by  certain  large  undertakings  and  groups  of  companies 
[Décret  No  2017-1265  du  9  août  2017  pris  pour  l'application  de 
l'ordonnance  No  2017-1180  du  19  juillet  2017  relative  à  la  publication 
d'informations  non  financières  par  certaines  grandes  entreprises  et 
certains groupes d'entreprises]. 

Other selected legislation that may be relevant for comparison purpose but that does 
not provide for human rights and environmental due diligence 

  Law  No  2016-1691  of  9  December  2016  on  Transparency,  Anti-corruption  and 
Modernisation  of  Economic  Life  ("Sapin  II  Law")  [Loi  No  2016-1691  du  9 
décembre  2016  relative  à  la  transparence,  à  la  lutte  contre  la  corruption  et  à  la 

58 

 
 
 
modernisation de la vie économique]. The Sapin II Law was debated in Parliament 
at about the same time as the Vigilance Law. In several respects, article 17 of the 
Sapin  II  Law  and  the  Vigilance  Law  have  a  similar  structure.  However,  the 
processes  to  be  implemented  such  as  "risk  mapping"  or  "alert  mechanisms"  are 
not  the  same.  These  two  laws  do  not  have  the  same  objectives;  they  do  not 
address the same risks (the risks to the company itself for the Sapin II Law, and 
the  risks  to  rights-holders  for  the  Vigilance  Law).  In  addition,  other  differences 
relate to the sanction regime and the scope of both laws. 

  Law related to  the growth and  transformation  of  businesses  [Loi  relative  à  la 
croissance  et  la  transformation  des  entreprises also known as  "Loi  PACTE"]. This 
law was initially introduced as a draft law by the Government. Article 169 of this 
Law  (initially  introduced  as  article  61)  is  worth  mentioning.  This  highly  debated 
article  amends  the  Civil  Code  [Code  civil]  and  the  Commercial  Code  [Code  de 
commerce]  and  provides  that  a  company  is  managed  in  its  corporate  interest 
while taking  into  consideration  the  social  and  environmental  stakes  of  its 
activities ["[…] en prenant en considération les enjeux sociaux et environnement
aux de son activité."](emphasis added).240 

Note: The remaining parts of Section II will only focus on the Vigilance Law.241 

2.  Scope 

a.  Rationale given by the State for the regulation (or lack of regulation) 

The draft law on the corporate duty of vigilance for  parent and instructing companies 
was introduced by members of Parliament. Specifically, it was introduced by deputies 
[deputés] at the National Assembly. It is thus called a "proposition de loi" (as opposed 
to  a  "projet  de  loi"  which  designates  a  draft  law  introduced  by  the  Government). 
Dominique  Potier  was  one  of  the  leading  deputies  that  introduced  this  draft  law.  In 
March 2015, he was nominated "Rapporteur" for this draft law by the Commission on 
Legal Affairs [Commission des lois] of the National Assembly. He remained in this role 
during the entire adoption process.242 

Although  the  draft  law  was  introduced  by  deputies,  Michel  Sapin,  then  Minister  of 
Economy  and  Finances,  expressed  its  support  during  the  later  phase  of  the  adoption 
process.243 For instance, on 29 November 2016, he explained that the objective of the 
draft  law  was  "fully  shared  by  the  Government".  He  noted  that  the  adoption  of  the 
draft  law  will  make  France  a  model  and  will  prove  the  Government's  commitment  to 
the moralisation and the transparency  of  economic life undertaken since 2012. Sapin 
further  indicated  that  the  law  "will  be  a  significant  and  ambitious  breakthrough  for 
France  toward  reinforcing  the  social  responsibility  of  companies,  and  more  generally 
the respect of human rights and fundamental freedoms". He continued by noting that 
"[t]his text may also serve as useful support for the progression of such cause within 

240 LOI n° 2019-486 du 22 mai 2019 relative à la croissance et la transformation des entreprises, available at: 
https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000038496102&dateTexte=&categorieLien=id%20) (last 
accessed 24 October 2019). 
241 Some of the following Sections rely on articles containing in-depth analyses of the Vigilance Law in English and French, 
including some co-authored by the author of this Report. 
242 For a summary description of the French legislative process in English and the role of Rapporteur, see the English 
website of the French National Assembly, page on the role and powers of the National Assembly, available at 
http://www2.assemblee-nationale.fr/langues/welcome-to-the-english-website-of-the-french-national-assembly" \l 
"node_9511 (last accessed 17 March 2019). 
243 For an account of the legislative process from the civil society organisations' standpoint, their involvement in this 
process and the support of the Government in the later phase of the process, see Amnesty International France, Il était une 
loi, 20 Sept. 2017, available at https://www.amnesty.fr/responsabilite-des-entreprises/actualites/entreprises-il-etait-une-
fois-une-loi (last accessed 30 April 2019). Regarding the position of one of the main business association in France 
(MEDEF), it had initially expressed opposition to the draft bill and then to the Vigilance Law (one of the arguments 
expressed by the MEDEF was that a legislative initiative had to be coordinated at the international level), see e.g. MEDEF, 
Devoir de vigilance: une loi inefficace qui menace notre économie, Dec. 2018, available at 
https://www.medef.com/fr/communique-de-presse/article/devoir-de-vigilance-une-loi-inefficace-qui-menace-notre-
economie (last accessed 6 May 2019). 

59 

 
 
                                                        
the discussions held at  the  European and international levels".244 Another  example of 
the  Government's  support  can  be  found  in  the  Government’s  letter  of  observations 
about the law. This letter was written at the time the law was referred to the French 
Constitutional Court [Conseil constitutionnel].245 

The  explanatory  memorandum  of  the  draft  law  [exposé  des  motifs]  expands  on  the 
prevention and remediation objectives of the draft law. In particular, it indicates that 
the  draft  law's  aim  was  to  "establish  a  vigilance  obligation  for  parent  companies  and 
instructing  companies  vis  à  vis  their  subsidiaries,  subcontractors  and  suppliers".  A 
clear reference was made to the fact this objective was in line with the UNGPs and the 
OECD  Guidelines  for  Multinational  Enterprises.  The  overall  idea  was  to  "encourage 
multinational companies to act responsibly with the aim of preventing tragic events" in 
France or abroad that would violate human rights and harm the environment, and to 
"obtain  remediation  for  the  victims"  where  damage  is  sustained. 246 The  explanatory 
memorandum  further  details  the  context  in  which  the  proposal  was  made,  e.g.  the 
collapse of the Rana Plaza, the legal concept of the corporate veil, the difficult access 
to  remedy  in  the  event  of  adverse  human  rights  impacts  or  environmental  damage, 
the international normative context with the UNGPs, the OECD Guidelines, ISO 26000, 
the EU directive on non-financial reporting, the French case law in relation to the Erika 
oil  spill, 247  the  existing  and  potential  legislation  in  countries  such  as  the  United 
Kingdom, Switzerland, Italy, Spain, Canada, and the United States. 

Several  arguments  were  put  forward  to  reinforce  the  responsibility  of  multinational 
companies.  They  included  "valuing  good  practices  already  implemented  by  a  number 
of  companies, improving the integration of risk within our economy, and contributing 
to the non-price competitiveness of [France]".248 

b.  Size  and  type  of  business  covered,  including  level  of  turnover,  particular 
industry sectors and type of supply chain, and whether public procurement is 
included 

It is important to differentiate between: 

  The  companies  entering  into  the  scope  of  the  Vigilance  Law  and  which  are 

therefore subject to the Vigilance Obligations; and 

  The  companies  entering  into  the  ambit  rationae  personae  (sometime  also  called 
the "perimeter") of the vigilance plan to be prepared by companies that enter into 
the scope of the Vigilance Law. 

Companies entering into the scope of the Vigilance Law 

"Any  company  that  employs,  by  the  end  of  two  consecutive  financial  years  [deux 
exercices  consécutifs],  at  least  five  thousand  employees  [salariés]  itself  and  in  its 

244 Michel Sapin, Declaration of the Minister of Economy and Finances on the duty of vigilance of large companies at the 
National Assembly, 29 Nov. 2016, available at http://discours.vie-publique.fr/notices/163003497.html (last accessed 17 
March 2019) ("Ce sera une avancée significative et ambitieuse pour la France sur le chemin d'un renforcement de la 
responsabilité sociale des entreprises et plus largement du respect des droits de l'Homme et des libertés fondamentales. Ce 
texte pourra également être un appui utile pour faire progresser cette cause dans les discussions européennes et 
internationales.").  
245 See Observations of the Government on the law on the duty of vigilance of parent companies and instructing companies, 
published on 28 March 2017, available at 
https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000034290672&categorieLien=id  
246 National Assembly, draft law No 2578, 11 Feb. 2015, available at http://www.assemblee-
nationale.fr/14/propositions/pion2578.asp ("Conformément aux principes directeurs des Nations unies relatifs aux 
entreprises et aux droits de l’homme adoptés à l’unanimité par le Conseil des droits de l’homme des Nations unies en juin 
2011, et conformément aux principes directeurs de l’OCDE, l’objectif de cette proposition de loi est d’instaurer une 
obligation de vigilance des sociétés mères et des entreprises donneuses d’ordre à l’égard de leurs filiales, sous-traitants et 
fournisseurs. Il s’agit de responsabiliser ainsi les sociétés transnationales afin d’empêcher la survenance de drames en 
France et à l’étranger et d’obtenir des réparations pour les victimes en cas de dommages portant atteinte aux droits 
humains et à l’environnement."). 
247 Cour de cassation, Chambre criminelle, arrêt No 3439, 25 Sept. 2012, pourvoi No 10-82.938. 
248 National Assembly, draft law No 2578, 11 Feb. 2015, available at http://www.assemblee-
nationale.fr/14/propositions/pion2578.asp ("Loin d’être un frein économique, cette proposition de loi aura donc comme 
effet de valoriser les bonnes pratiques mises en œuvre par de nombreuses entreprises, d’améliorer la prise en compte du 
risque dans notre économie, et de contribuer à la compétitivité hors coût de notre pays."). 

60 

 
 
                                                        
direct  or  indirect  subsidiaries  whose  registered  office  [siège  social]  is  located  within 
the  French  territory,  or  at  least  ten  thousand  employees  itself  and  in  its  direct  or 
indirect  subsidiaries  whose  registered  office  is  located  within  the  French  territory  or 
abroad, shall establish and effectively implement a vigilance plan." (Commercial Code, 
article L. 225-102-4.-I. as introduced by the Vigilance Law) 

This  article,  which  defines  the  companies  that  enter  into  the  scope  of  the  Vigilance 
Law, has been the subject of several discussions. In particular, these discussions have 
focused on the corporate forms of these companies and the location of their registered 
office.249 These questions have been discussed and also clarified notably by the French 
Constitutional Court [Conseil constitutionnel] in its decision of 23 March 2017. 

To enter into the scope of the Vigilance Law, a company has to fulfil three criteria: 

  Have its registered office [siège social] in France; 

  Be  registered  under  a  certain  corporate  form  (i.e.  SA  [Sociétés  Anonyme],  SCA 
[Société  en  Commandite  par  Actions],  SE  [Société  Européenne].  The  question  of 
whether SAS [Société par Actions Simplifiées] is a corporate form included in the 
scope  of  the  Vigilance  Law 
interpretations.  Most 
commentators consider such a corporate form to be included); and 

is  subject  to  several 

  Employ,  at  the  end  of  two  consecutive  years,  at  least  five  thousand  employees 
[salariés]  itself  and in its  direct  or  indirect  subsidiaries  whose  registered  office  is 
located within French territory, or at least ten thousand employees itself and in its 
direct  or  indirect  subsidiaries  whose  registered  office  is  located  within  French 
territory or abroad. 

Thus, the scope of the Vigilance Law is not determined based on a turnover threshold. 

introduced  an  exemption  mechanism.  Accordingly, 
The  Vigilance  Law  also 
"[s]ubsidiaries  or  controlled  companies  that  exceed  the  thresholds  referred  to  in  the 
first paragraph shall be deemed to satisfy the obligations provided in this article, if the 
company  that  controls  them,  within  the  meaning  of  article  L.  233-3  [of  the  French 
Commercial Code], establishes and implements a vigilance plan covering the activities 
of the company and of all the subsidiaries or companies it controls."250 

Other discussions not covered in this report have touched upon the calculation of the 
number  of  employees,  the  identification  of  direct  and  indirect  subsidiaries,  and  the 
question of the inclusion of the SAS [Sociétés  par Actions Simplifiées] into the scope 
of the Vigilance Law.251 

Companies entering into the ambit rationae personae of the vigilance plans to 
be prepared by companies that enter into the scope of the Vigilance Law 

"The  plan  shall  contain  reasonable  vigilance  measures  [mesures  de  vigilance 
raisonnable]  adequate  to  identify  risks  and  to  prevent  severe  impacts  [atteintes 
graves]  on  human  rights  and  fundamental  freedoms,  on  the  health  and  safety  of 

249 For an account of these discussions and relevant references to existing literature, see Stéphane Brabant & Elsa 
Savourey, Scope of the Corporate Duty of Vigilance Law: Companies Subject to the Vigilance Obligations, International 
Review of Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], Dec. 2017. 
Original version published in French, translation into English available at https://www.business-
humanrights.org/sites/default/files/documents/Scope%20of%20the%20Corporate%20Duty%20of%20Vigilance%20Law%2
0-%20Companies%20Subject%20to%20the%20Vigilance%20Obligations%20-
%20Int%27l%20Rev.Compl_.%20%26%20Bus.%20Ethics.pdf.  
250 French version: Commercial Code, art. L. 225-102-4.-I. para. 2 ("Les filiales ou sociétés contrôlées qui dépassent les 
seuils mentionnés au premier alinéa sont réputées satisfaire aux obligations prévues au présent article dès lors que la 
société qui les contrôle, au sens de l'article L. 233-3, établit et met en œuvre un plan de vigilance relatif à l'activité de la 
société et de l'ensemble des filiales ou sociétés qu'elle contrôle."). On questions raised by the exemption mechanism, see 
Stéphane Brabant, Elsa Savourey & Charlotte Michon, The Vigilance Plan: Cornerstone of the Corporate Duty of Vigilance 
Law, International Review of Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des 
Affaires], Dec. 2017, p.7-8. Original version published in French, translation into English available at https://www.business-
humanrights.org/sites/default/files/documents/Law%20on%20the%20Corporate%20Duty%20of%20Vigilance%20-
%20Vigilance%20Plan%20-%20Intl%20Rev.Compl_.%20%26%20Bus.%20Ethics.pdf.  
251 On these topics, see Stéphane Brabant & Elsa Savourey, Scope of the Corporate Duty of Vigilance Law: Companies 
Subject to the Vigilance Obligations, International Review of Compliance and Business Ethics [Revue Internationale de la 
Compliance et de l'Ethique des Affaires], Dec. 2017. 

61 

 
 
                                                        
persons and on the  environment, resulting from the activities of the  company and of 
those  companies  it  controls  within  the  meaning  of  II  of  article  L.  233-16,  directly  or 
indirectly,  as  well  as  the  activities  of  subcontractors  or  suppliers  [sous-traitants  ou 
fournisseurs] with whom there is an established commercial relationship, when these 
activities  are  related  to  this  relationship."  (Commercial  Code,  article  L.  225-102-4.-I 
para. 3 as introduced by the Vigilance Law) 

The vigilance plan must cover: 

  The  activities  of  the  company  entering  into  the  scope  of  the  Vigilance  Law  and 

thus responsible for the preparation of the vigilance plan; 

  The  activities  of  the  companies  that  the  company  entering  into  the  scope  of  the 
Vigilance  Law  controls  within  the  meaning  of  article  L.  233-16-II  of  the 
Commercial Code directly or indirectly; and 

  The  activities  of  subcontractors  or  suppliers  with  whom  there  is  an  established 
commercial relationship, when these activities are related to this relationship. 

Other  discussions  not  covered  in  this  report  have  touched  upon  how  to  interpret  the 
concepts  of  "controlled  companies",  "subcontractors  and  suppliers",  and  "established 
commercial relationship".252 

c. 

Extent  of  human  rights,  environmental,  climate  change,  sustainability 
and  governance  matters  covered,  and  whether  the  regulation  uses  the 
terminology of human rights 

"The  plan  shall  contain  reasonable  vigilance  measures  adequate  to  identify  risks  and 
to prevent severe impacts on human rights and fundamental freedoms, on the health 
and safety of persons and on the environment […]" (Commercial Code, article L. 225-
102-4.-I para. 3 as introduced by the Vigilance Law) 

The  vigilance  plan  should  cover  risks  and  prevent  severe  impacts  on  three  main 
themes.  These  themes  constitute  what  can  be  considered  as  the  ambit  rationae 
materia of the vigilance plan: 

  Human rights and fundamental freedoms; 

  Health and safety of persons [in French, "personnes" – also understood in English 

as "individuals"]; and 

  The environment. 

Note that the Vigilance Law uses the expression "droits humains". This expression can 
be  translated  as  "human  rights".  The  expression  used  in  earlier  versions  of  the  draft 
law  was  "droits  de  l'homme".  The  expression  "droits  humains"  is  considered  more 
gender-neutral  in  French.  However,  both  expressions  are  commonly  used.  By  way  of 
comparison, the official translation of the UNGPs in French uses "droits de l'homme". 

The  Vigilance  Law  covers  "the  health  and  safety  of  persons".  The  ambit  rationae 
materiae of the vigilance plan therefore relates to a large pool of stakeholders, such as 
workers but also local communities. 

The  Vigilance  Law  does  not  provide  a  definition  of  any  of  the  terms  mentioned  at 
article L. 225-102-4.-I para. 3 (such as "human rights and fundamental freedoms" and 
"environment").  It  also  does  not  specify  any  norms  of  reference  that  would  assist  in 
delineating  these  concepts.  As  a  result  of  parliamentary  debates,  it  was  decided  that 
there  was  no  need  for  further  clarification.  The  reason  put  forward  was  the 
"sufficiently  precise  and  comprehensive"  nature  of  the  international  commitments 

252 For more details on this ambit rationae personae, see II.3.4.; see also Stéphane Brabant, Elsa Savourey & Charlotte 
Michon, The Vigilance Plan: Cornerstone of the Corporate Duty of Vigilance Law, International Review of Compliance and 
Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], Dec. 2017.  

62 

 
 
                                                        
undertaken  by  France. 253 The  Government,  in  support  of  this  position,  emphasised 
that  the  vigilance  plan  "does  not  target  a  corpus  of  pre-established  norms  to  be 
imposed  on  the  companies  in  question  [but  rather]  identifies  the  nature  of  the  risks 
which will be included in the vigilance plan".254 

d.  Jurisdictional  extent  of  business  covered,  including  whether  it  includes 
activity by subsidiaries or business relations of corporate nationals located 
in a different State and operating outside the State of the regulation 

It  is  important  here  again  to  differentiate  between  the  companies  entering  into  the 
scope of the Vigilance Law, and those entering within the ambit  rationae personae of 
the vigilance plan. 

Companies entering into the scope of the Vigilance Law 

The  companies  subject  to  the  Vigilance  Obligations  (and  who  must  establish  a 
vigilance plan) are French registered companies. 

Note  that  French  companies  entering  into  the  scope  of  the  Vigilance  Law  can  be 
subsidiaries  of  foreign  companies.  There  has  been  a  common  misunderstanding  that 
within corporate groups, only companies whose parent company have their registered 
office  in  France  would  enter  into  the  scope  of  the  Vigilance  Law.  This  interpretation 
would  have  resulted  in  excluding  from  the  scope  of  the  Vigilance  Law  France-
registered  subsidiaries  of  a  parent  company  having  its  registered  office  outside  of 
France.  This  situation  has  been  clarified  following  the  analysis  of  parliamentary 
debates,  the  wording  of  the  Vigilance  Law,  and  reformulation  by  the  French 
Constitutional  Court  [Conseil  constitutionnel].  Thus,  the  Vigilance  Law  should  be 
interpreted  as  covering  any  company  which  has  its  registered  office  in  France 
(whether  or  not  it  is  a  subsidiary  of  a  parent  company  with  its  registered  office 
abroad), providing that it fulfils the criteria related to the corporate form and number 
of employees. 

Companies entering into the ambit rationae personae of the vigilance plan 

A  company  entering  into  the  scope  of  the  Vigilance  Law  is  required  to  establish  a 
vigilance plan covering its activities, the activities of "companies it controls within the 
meaning  of  II  of  article  L.  233-16,  directly  or  indirectly,  as  well  as  the  activities  of 
subcontractors or suppliers with whom there is an established commercial relationship, 
when these activities are related to this relationship." 

The Vigilance Law does not specify the countries where these entities are registered or 
where  their  activity  is  taking  place.  Actually,  and  as  with  any  other  company, 
providing  that  they  fulfil  the  criteria  to  enter  into  the  ambit  rationae  personae  of  the 
vigilance plan of a given company, foreign companies will be included in such ambit. 

e.  Civil, criminal and administrative scope 

The  Vigilance  Law  provisions  were  inserted  in  two  new  articles  of  the  French 
Commercial Code [Code de commerce] (article L. 225-102-4 and L. 225-102-5). 

Note  that  article  L.  225-102-5  of  the  Commercial  Code  provides  for  a  civil  liability 
action in the event of a breach of the Vigilance Obligations. Such action is subject to 
the  general  conditions  for  civil  liability  provided  for  in  articles  1240  and  1241  of  the 
Civil Code [Code civil] (see II.4.-II.6).255 

253 See National Assembly, Report No 4242, 23 Nov. 2016, p.11, available at http://www.assemblee-
nationale.fr/14/pdf/rapports/r4242.pdf.  
254 See Observations of the Government on the law on the duty of vigilance of parent companies and instructing companies, 
published on 28 March 2017. 
255 Commercial Code, art. L. 225-102-5 ("Dans les conditions prévues aux articles 1240 et 1241 du code civil, le 
manquement aux obligations définies à l'article L. 225-102-4 du présent code engage la responsabilité de son auteur et 
l'oblige à réparer le préjudice que l'exécution de ces obligations aurait permis d'éviter.").  

63 

 
 
 
                                                        
3.  Content of Regulation 

a.  Overview and description of the required measures for business (such as 

requirement to adopt human rights due diligence or a vigilance plan) 

The Vigilance Obligations 

"Any  company  that  employs,  by  the  end  of  two  consecutive  financial  years  [deux 
exercices  consécutifs],  at  least  five  thousand  employees  [salariés]  itself  and  in  its 
direct  or  indirect  subsidiaries  whose  registered  office  [siège  social]  is  located  within 
the  French  territory,  or  at  least  ten  thousand  employees  itself  and  in  its  direct  or 
indirect  subsidiaries  whose  registered  office  is  located  within  the  French  territory  or 
abroad,  shall  establish  and  effectively  implement  a  vigilance  plan.  […]  The 
vigilance  plan  and  the  report  concerning  its  effective  implementation  shall  be  made 
public  [sont  rendus  publics]  and  included  in  the  report  mentioned  in  article  L.  225-
102."  (Commercial  Code,  article  L.  225-102-4.-I  as  introduced  by  the  Vigilance  Law, 
emphasis added) 

The duty of vigilance comprises three obligations (the "Vigilance Obligations"): 

  Companies  must  establish  a  vigilance  plan.  The  plan  shall  contain  reasonable 
vigilance  measures  [mesures  de  vigilance  raisonnable]  adequate  to  identify  risks 
and  to  prevent  severe  impacts  [atteintes  graves]  on  human  rights  and 
fundamental  freedoms,  on  the  health  and  safety  of  persons  and  on  the 
environment, resulting from the activities of the company and of those companies 
it  controls  within  the  meaning  of  II  of  article  L.  233-16,  directly  or  indirectly,  as 
well  as  the  activities  of  subcontractors  or  suppliers  [sous-traitants  ou 
fournisseurs]  with  whom  there  is  an  established  commercial  relationship,  when 
these activities are related to this relationship." (Commercial Code, article L. 225-
102-4.-I as introduced by the Vigilance Law) 

  Companies must effectively implement their vigilance plan; and 

  Companies  must  make  the  plan  and  the  report  on  its  effective  implementation 
public and include them in the company’s annual management report (Commercial 
Code, article L. 225-102-4.-I). Note that according to the wording of the Vigilance 
Law,  it  is  recommended  to  consider  that  the  plan  and  report  on  its  effective 
implementation should be  made public (in the sense of being made accessible to 
the public) AND included in the company's annual management report.256 

The  content  of  the  vigilance  plan  (i.e.  ambit  rationae  materiae  of  the 
vigilance plan) 

"The plan shall contain reasonable vigilance measures [mesures de vigilance 
raisonnable]  adequate  to  identify  risks  and  to  prevent  severe  impacts 
[atteintes graves] on human rights and fundamental freedoms, on the health 
and safety of persons and on the environment, resulting from the activities of the 
company and of those companies it controls within the meaning of II of article L. 233-
16, directly or indirectly, as well as the activities of subcontractors or suppliers [sous-
traitants ou fournisseurs] with whom there is an established commercial relationship, 
when these activities are related to this relationship. 

The plan is meant  to  be  drawn  up  in  conjunction  with  the  stakeholders  of  the 
company,  where  appropriate  as  part  of  multi-stakeholder  initiatives  within 
sectors or at territorial level. It contains the following measures: 

1° A risk mapping meant for their identification, analysis and prioritisation; 

256 In that sense, see also Sherpa, Vigilance Plans Reference Guidance, Feb. 2019, p.23, available at https://www.asso-
sherpa.org/wp-content/uploads/2019/02/Sherpa_VPRG_EN_WEB-ilovepdf-compressed.pdf.  

64 

 
 
                                                        
2°  Regular  evaluation  processes  regarding  the  situation  of  subsidiaries, 
subcontractors  or  suppliers  with  whom  there  is  an  established  commercial 
relationship, in line with the risk mapping; 

3° Adapted actions to mitigate risks or prevent severe impacts; 

4°  An  alert  and  complaint  mechanism relating to the existence or realisation of 
risks,  established  in  consultation  with  the  representative  trade  union  organisations 
within the company; 

5°  A  system  monitoring  implementation  measures  and  evaluating  their 
effectiveness. 

The  vigilance  plan  and  the  report  concerning  its  effective  implementation  shall  be 
made public and included in the report mentioned in article L. 225-102. 

A decree issued by the Conseil d'Etat may expand on the vigilance measures provided 
for  in  points  1  to  5  of  this  article.  It  may  detail  the  methods  for  establishing  and 
implementing the vigilance plan, where appropriate in the context of multi-stakeholder 
initiatives within sectors or at territorial level." 

(Commercial  Code,  article  L.  225-102-4.-I  as  introduced  by  the  Vigilance  Law, 
emphasis added) 

Note  that  the  vigilance  plan's  ambit  rationae  materia  includes  human  rights  and 
fundamental freedoms, the health and safety of persons and the environment. This is 
a  wide  ambit  compared  to  Modern  Slavery  Acts  adopted  in  the  United  Kingdom  or 
Australia for example. The ambit rationae materia is then narrowed down to the ideas 
of "risks" and "severe impacts". 

The decree that is mentioned in the Vigilance Law is optional. No such degree or any 
other legal text clarifying the Vigilance Law has been issued to date. 

Notions  that  relate  to  the  vigilance  plan  such  as  "reasonable  vigilance  measures"  or 
"severe  impacts"  are  not  defined  in  the  Vigilance  Law.  For  this  reason,  they  are  also 
likely  to  be  clarified  by  legal  practice  and  by  the  courts  in  the  event  that  a  dispute 
arises under the Vigilance Law. 

Regarding the interpretation of such notions, it is clear, reading the Vigilance Law and 
the  mandated  content  of  the  vigilance  plan  that  the  UNGPs  and  OECD  Guidelines  for 
Multinational Enterprises were a  source of inspiration. This inspiration is evidenced in 
the  explanatory  memorandum  of  the  draft  law  and  subsequent  parliamentary 
debates. 257  The  author,  together  with  Stéphane  Brabant,  were  among  the  first 
commentators of the Vigilance Law to have expressed the opinion that the UNGPs and 
OECD Guidelines for Multinational Enterprises should therefore serve as inspiration to 
interpret the Vigilance Law. This is a position that is shared by several experts.258 

b.  Key legal elements of the obligation 

See answer to question II.3.a. 

c.  Risk assessment requirements and risk mitigation measures 

Risk assessment and risk mitigation are central to the five measures contained in the 
vigilance plan. These measures are the following: 

"1° A risk mapping meant for identification, analysis and prioritisation of risks; 

257 See e.g. National Assembly, No 3582, 16 March 2016, p.11, available at http://www.assemblee-
nationale.fr/14/pdf/rapports/r3582.pdf ("les principes directeurs de l’Organisation de coopération et de développement 
économiques (OCDE) et de l’Organisation des Nations unies (ONU) fournissent une base idéale et internationalement 
reconnue pour construire un plan de vigilance"). 
258 Among the first developments on this idea, see Stéphane Brabant, Elsa Savourey & Charlotte Michon, The Vigilance 
Plan: Cornerstone of the Corporate Duty of Vigilance Law, International Review of Compliance and Business Ethics [Revue 
Internationale de la Compliance et de l'Ethique des Affaires], Dec. 2017, p.4. 

65 

 
 
                                                        
2°  Regular  evaluation  processes 
the  situation  of  subsidiaries, 
subcontractors  or  suppliers  with  whom  there  is  an  established  commercial 
relationship, in line with the risk mapping; 

regarding 

3° Adapted actions to mitigate risks or prevent severe impacts; 

4° An alert and complaint mechanism relating to the existence or realisation of risks, 
established  in  consultation  with  the  representative  trade  union  organisations  within 
the company; 

5°  A  system  monitoring 
effectiveness." 

implementation  measures  and  evaluating 

their 

(Commercial Code, article L. 225-102-4.-I. as introduced by the Vigilance Law) 

These  five  items  operate  in  combination  to  contribute  to  risk  assessment  on  the  one 
hand and to risk mitigation on the other hand. 

Note  that  risk  mapping  (item  1)  should  not  only  aim  at  identifying  risks  but  also 
prioritising  them  with  the  view  of  preventing  severe  impacts.  The  Vigilance  Law 
therefore  acknowledges  that  companies  can  (and  should)  prioritise  their  responses. 
The  appreciation  of  the  "severity"  of  the  impacts  on  human  rights  and  fundamental 
freedoms,  on  the  health  and  safety  of  persons  and  on  the  environment  should  also 
help prioritise risks. 

Further, the risks mentioned in the Vigilance Law are risks for  rights-holders and the 
environment  and  not  for  the  business  itself.  This  last  aspect  is  not  necessarily  well 
understood by businesses. Actually several vigilance plans established by companies in 
2018  were  partly  focused  on  the  identification  of  risks  not  for  rights-holders  but  for 
the companies themselves. 

Adopting a stricto sensu reading of the Vigilance Law, it is also worth noting that the 
Vigilance  plan  "does  not  have  to  include  remedies  to  be  put  into  action  once  human 
rights  abuses  have  already  occurred".259 Indeed,  none  of  the  items  of  the  vigilance 
plan refer to actions to be implemented when the risks have materialised. Even item 4 
which  requires  an  "alert  and  complaint  mechanism  relating  to  the  existence  or 
realisation  of  risks"  does  not  refer  to  remediation  actions.  However,  the  setting  in 
place  of  such  remedies  could  be  accounted  for  in  the  report  showing  the  effective 
implementation  of  the  vigilance  plan.  In  addition,  regarding  item  4  of  the  vigilance 
plan, Sherpa, a leading NGO, including on issues related to the Vigilance Law, argues 
that such item also includes remediation measures.260 

d.  Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 
supply chain, including the legal test and its factors used to ascribe liability 
to parent companies for the impacts of subsidiaries and suppliers (if any) 

Subsidiaries and business relationships targeted by the Vigilance Law 

The  Vigilance  Obligations  only  apply  to  the  companies  entering  into  the  scope  of  the 
Vigilance  Law.  These  companies  can  be  parent  companies  or  instructing  companies. 
Note that, as explained in II.2.d., these companies can themselves be subsidiaries of 
companies registered in France or abroad. 

These companies have to establish a vigilance plan: "The plan shall contain reasonable 
vigilance measures [mesures de vigilance  raisonnable] adequate to identify risks and 
to  prevent  severe  impacts  [atteintes  graves]  on  human  rights  and  fundamental 
freedoms,  on  the  health  and  safety  of  persons  and  on  the  environment,  resulting 

259 Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, International Review of 
Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], June 2017, Comm 44, 
available at https://www.business-
humanrights.org/sites/default/files/documents/French%20Corporate%20Duty%20of%20Vigilance%20Law%20-
%20Penalties%20-%20Int%2527l%20Rev.Compl_.%20%26%20Bus.%20Ethics_.pdf. 
260 See also Sherpa, Vigilance Plans Reference Guidance, Feb. 2019, p.18 (considering that the mitigation and prevention 
measures include "preventive, mitigation and remediation measures"). 

66 

 
 
                                                        
from the activities of the company and of those companies it controls within 
the  meaning  of  II  of  article  L.  233-16,  directly  or  indirectly,  as  well  as  the 
activities of subcontractors or suppliers [sous-traitants ou fournisseurs] with 
whom there is an established commercial  relationship,  when these activities 
are  related  to  this  relationship."  (Commercial  Code,  article  L.  225-102-4.-I  as 
introduced by the Vigilance Law, emphasis added) 

As  has  already  been  discussed,  the  vigilance  plan  must  cover  the  activities  of  the 
company  entering  into  the  scope  of  the  Vigilance  Law  and  of  certain  other  entities. 
Such  entities  are  therefore  indirectly  concerned  by  the  Vigilance  Obligations.  These 
entities are: 

  Companies  directly  or  indirectly  controlled  within  the  meaning  of  II  of  article  L. 
233-16 [of the Commercial Code] by the company entering into the scope of the 
Vigilance  Law.  Article  L.  233-16.-II  uses  a  threefold  definition  of  the  concept  of 
control  (legal,  de  facto,  or  contractual).  This  concept  is  generally  used  by 
commercial  companies  for  book-keeping  purposes  in  the  context  of  the 
preparation  of  consolidated  accounts  [comptes  consolidés]  and  their  group 
management report;261 and 

 

"[T]he  […]  subcontractors  or  suppliers  with  whom  there  is  an  established 
commercial relationship, when these activities are related to this relationship." As 
a result of such conditions only a certain number of subcontractors and suppliers 
and  only  some  of  their  activities  are  to  be  included  into  the  ambit  rationae 
personae of the vigilance plan. 

Note that the Vigilance Law does not refer to the rank of subcontractors and suppliers 
within  the  supply  chain.  It  is  the  established  commercial  relationship  which  is  the 
criteria  for  determining  the  entities  falling  within  the  ambit  rationae  personae  of  the 
vigilance plan.262 

The identification of such subcontractors and suppliers nevertheless poses a number of 
questions that are yet to be answered, including: 

  Whether  the  "established  commercial  relationship"  should  be  determined  with 
regard to the companies entering into the scope of the Vigilance Law or also with 
regard  to  BOTH  the  companies  entering  into  the  scope  of  the  Vigilance  Law  and 
the  companies  that  the  former  controls?  The  answer  to  this  question  will 
determine  whether  the  controlled  companies'  suppliers  and  subcontractors  would 
be included in the ambit rationae personae of the vigilance plan. 

  How  should  an  "established  commercial  relationship"  be  defined?  This  concept 
refers  to  former  article  L.  442-6.-I  of  the  Commercial  Code.263 It  was  considered 
sufficiently  precise  during  parliamentary  debates  because  it  had  already  been 
subject  to  abundant  case  law.  However,  several  commentators  wonder  whether 
this case law is relevant in the context of the Vigilance Law. This case law applies 
to the sudden/abrupt termination of established commercial relationships and the 
protection  of  suppliers  and  subcontractors.  The  Vigilance  Law,  however,  has  a 
different  subject-matter  and  objective. 264 Courts  are  likely  to  provide  clarity  on 
this issue when the first actions are brought before them. 

261 For more information, see, Stéphane Brabant, Elsa Savourey & Charlotte Michon, The Vigilance Plan: Cornerstone of the 
Corporate Duty of Vigilance Law, International Review of Compliance and Business Ethics [Revue Internationale de la 
Compliance et de l'Ethique des Affaires], Dec. 2017, p.2. 
262 For further comments on this aspect and comparison with the UNGPs, see Stéphane Brabant, Elsa Savourey & Charlotte 
Michon, The Vigilance Plan: Cornerstone of the Corporate Duty of Vigilance Law, International Review of Compliance and 
Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], Dec. 2017, p.4. 
263 Note that following Order No 2019-359 of 24 April 2019, the concept of "established commercial relationship" can now 
be found at art. L. 442-1.-II of the Commercial Code. 
264 See, Sherpa, Vigilance Plans Reference Guidance, Feb. 2019 p.32-33 (discussing how to define the extra-group scope of 
the Vigilance Law as addressing the question of the definition of an "established commercial relationship".); see also 
Charley Hannoun, Le devoir de vigilance des sociétés mères et entreprises donneuses d’ordre après la loi du 27 mars 2017, 
Dalloz, Droit Social, 2017, p.806; Stéphane Brabant, Elsa Savourey & Charlotte Michon, The Vigilance Plan: Cornerstone of 

67 

 
 
                                                        
Liability  of  parent/instructing  companies  for  the  adverse  impacts  caused  by 
entities entering into the ambit rationae personae of the vigilance plan 

The  Law provides that  companies failing to comply with the Vigilance Obligations will 
have  to  remedy  the  damage  that  "the  execution  of  these  obligations  could  have 
prevented".265 

The  Vigilance  Law's  civil  liability  regime  is  based  on  the  parent  or  instructing 
company's  own  fault  (i.e.  a  breach  of  the  Vigilance  Obligations).  The  Vigilance  Law 
does not create a civil liability regime for the parent or instructing company based on 
the fault of other entities in their supply chains. This has been specifically noted by the 
French  Constitutional  Court  [Conseil  constitutionnel] 266  and  is  also  clear  from  the 
reading  of  the  Vigilance  Law.  Indeed,  the  Vigilance  Law  explicitly  refers  to  articles 
1240  and  1241  of  the  Civil  Code  which  set  the  conditions  for  civil  liability  under  the 
general law of torts.267 

It  is  important  to  understand  that  the  vigilance  plan  serves  to  connect  the 
subsidiaries, subcontractors and suppliers entering into the ambit rationae personae of 
the vigilance plan with their parent or instructing company that has to establish such a 
plan  and  effectively  implement  it.  In  the  event  of  damage  caused  by  these  entities, 
any party with standing could try to prove that there was no vigilance plan or that the 
plan  was  not  effectively  implemented.  As  a  result,  such  a  party  could  try  to  bring  a 
civil liability action against a company entering into the scope of the Vigilance Law and 
ask  for  remediation  of  the  damage  that  "the  execution  of  these  obligations  [i.e.  the 
Vigilance Obligations] could have prevented".268 

Test  used  to  ascribe  liability  to  parent  companies  for  the  adverse  human 
rights impacts caused by their subsidiaries and suppliers 

The three conditions for civil liability applicable under the general law of tort (articles 
1240  and  1241  of  the  Civil  Code  [Code  civil])  also  apply.  These  conditions  are  the 
existence of: 

  A damage; 

  A breach of/failure to comply with an obligation (in the case of the Vigilance Law, 

a breach of one or several of the Vigilance Obligations); and 

  A causal link between the damage and the breach. 

As explained earlier, when assessing civil liability, the company entering into the scope 
of  the  Vigilance  Law  would  not  be  exposed  to  liability  as  a  result  of  the  fault  of  the 
subsidiary, supplier or subcontractor which led to the damage. The company would be 
exposed  to  liability  for  its  own  fault  in  the  sense  that  it  did  not  comply  with  its 
Vigilance  Obligations,  and  this  non-compliance  led  to  damage  that  "the  execution  of 
these obligations [i.e. the Vigilance Obligations] could have prevented". 

The  claimant  bringing  the  civil  liability  action  bears  the  burden  of  proof  and  has  to 
prove  that  the  case  satisfies  all  three  conditions  that  establish  civil  liability.  This 
obligation  applies  regardless  of  whether  the  damage  occurred  at  the  level  of  the 
company  entering  into  the  scope  of  the  Vigilance  law  (i.e.  the  parent  or  instructing 
company) or at the level of the subsidiaries, suppliers or subcontractors entering into 
the ambit of the vigilance plan. 

the Corporate Duty of Vigilance Law, International Review of Compliance and Business Ethics [Revue Internationale de la 
Compliance et de l'Ethique des Affaires], Dec. 2017 p.2 (on the concept of subcontrators and suppliers). 
265 Commercial Code, art. 225-102-5. ("Dans les conditions prévues aux articles 1240 et 1241 du code civil, le manquement 
aux obligations définies à l'article L. 225-102-4 du présent code engage la responsabilité de son auteur et l'oblige à réparer 
le préjudice que l'exécution de ces obligations aurait permis d'éviter.") 
266 French Constitutional Court, Decision No 2017-750 DC, para. 27. 
267 Commercial Code, art. 225-102-5. Note that under the French law of tort, an individual is liable for his/her own fault 
[responsabilité du fait personnel] except in certain circumstances, where an individual can be liable for the acts of someone 
else [responsabilité du fait d’autrui] or of things [responsabilité du fait des choses]. 
268 Commercial Code, art. 225-102-5, as introduced by the Vigilance Law. 

68 

 
 
                                                                                                                                                                        
For several reasons, breach and causal link are likely to be the most difficult elements 
for a claimant (who bears the burden of proof) to establish under the Vigilance Law.269 
The  more  remote  in  the  supply  chain  the  damage,  the  harder  it  may  be  for  the 
claimant  to  prove  that  the  damage  has  occurred  as  a  result  of  a  breach  of  the 
Vigilance  Obligations  and  that  there  is  causal  link  between  such  a  breach  and  the 
resulting damage. 

It is also to be expected that the claimant would have to prove that the Vigilance Law 
is applicable to her/his situation. This includes proving that the defendant enters into 
the  scope  of  the  Vigilance  Law  and  that  the  damage  occurred  within  the  ambit 
rationae personae of the vigilance plan. 

Note,  moreover,  that  the  obligation  to  effectively  implement  a  vigilance  plan  was 
specifically  introduced  by  the  Vigilance  Law  as  an  obligation  that  companies  take  all 
steps  in  their  power  to  reach  a  certain  result  [obligation  de  moyens]  rather  than  to 
guarantee  the  actual  attainment  of  that  result  [obligation  de  résultat].  As  a  result,  a 
breach of that obligation cannot be inferred merely because there is damage.270 

e.  Requirements for an external control or evaluation of the human rights or 
environmental due diligence exercise, including key elements of a grievance 
mechanism or whistle blower mechanism 

Several  provisions  of  the  Vigilance  Law  relate  to  external  control.  Such  control  can 
take place either prior  or after the  establishment of a vigilance plan. See also  II.3.g. 
for more developments in relation to the Vigilance Law and operational-level grievance 
mechanism. 

  Stakeholders consultations: the consultations of various stakeholders in the phase 
of  establishment  of  the  vigilance  plan  are  opportunities  for  collaboration  and  can 
help external control. 

First,  the  vigilance  plan  is  "meant  to  be  drawn  up  in  conjunction  with  the 
stakeholders  [parties  prenantes]  of  the  company,  where  appropriate  as  part  of 
multi-stakeholder initiatives [initiatives pluripartites] within sectors or at territorial 
level."  (Commercial  Code,  art.  L.  225-102-4.-I  para.  4  as  introduced  by  the 
Vigilance Law) 

Second,  the  "alert  and  complaint  mechanism  relating  to  the  existence  or 
realisation  of  risks"  shall  be  (and  this  is  mandatory)  "established  in  consultation 
with  the  representative  trade  union  organisations  within  the  company". 
(Commercial Code, article L. 225-102-4.-I as introduced by the Vigilance Law) 

  Alert  and  complaint  mechanism:  the  vigilance  plan  includes  an  "alert  and 
complaint mechanism relating to the existence or realisation of risks,  established 
in  consultation  with  the  representative  trade  union  organisations  within  the 
company".  There  is  no  information  in  the  Vigilance  Law  on  whether  this  alert 
mechanism  should  be  directed  only  towards  internal  stakeholders  (e.g.  workers) 
or  whether  it  should  also  cover  external  stakeholders  (e.g.  including  local 
communities). There is, however, little doubt that this mechanism applies to both 
internal  and  external  stakeholders,  and  it  is  actually  considered  as  such  by  most 
commentators of the Vigilance Law.271 

269 Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, International Review of 
Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], June 2017, Comm 44, 
p.2. 
270 National Assembly, report No 2628, 11 March 2015, available at http://www.assemblee-
nationale.fr/14/pdf/rapports/r2628.pdf p.31, 55 and 59; National Assembly, No 3582, 16 March 2016, p.14, available at 
http://www.assemblee-nationale.fr/14/pdf/rapports/r3582.pdf.  
271 Stéphane Brabant, Elsa Savourey & Charlotte Michon, The Vigilance Plan: Cornerstone of the Corporate Duty of Vigilance 
Law, International Review of Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des 
Affaires], Dec. 2017 p.12 ("With reference to the final objective of the Law which is the protection of individuals and the 
environment, and to the Guiding Principles, it is very likely that this mechanism would firstly be intended for individuals 
potentially affected by the activities of the company and who wish to alert and question the company on its activities. It 
should therefore be open to any individuals, internal and external."); see also Sherpa, Vigilance Plans Reference Guidance, 

69 

 
 
                                                        
  Evaluation  processes:  the  vigilance  plan  also  includes  "regular  evaluation 
processes regarding the situation of subsidiaries, subcontractors or suppliers with 
whom  there  is  an  established  commercial  relationship,  in  line  with  the  risk 
mapping". There is no information on whether the evaluation should be led by the 
company establishing the vigilance plan or by external parties, but a mix of both 
is recommended by NGOs.272 

 

Injunction with potential periodic penalty payment: the injunction that could lead 
to a periodic penalty payment can also be viewed as a tool for external control. An 
injunction can be brought by any party with standing. If a company has failed to 
comply  with  its  Vigilance  Obligations,  first,  it  is  given  a  three  months’  official 
notice [mise en demeure] to comply. Then this party can ask the competent court 
to  order  the  company  to  comply,  including  under  periodic  penalty  payment 
(Commercial  Code,  article  L.  225-102-4.-II).  The  parties  that  should  be  able  to 
prove standing include NGOs, trade unions, individuals, etc. This procedure could 
be considered "a privileged tool for members of civil society to check whether the 
Vigilance  Obligations  are  being  observed,  irrespective  of  whether  any  actual 
damage has been sustained".273 

  Civil  liability  action:  in  the  event  of  a  civil  liability  action,  both  the  parties  and 
competent  court  will  also  have  to  assess  the  vigilance  plans  and  how  effectively 
they have been implemented. 

f. Transparency and disclosure requirements 

Transparency and disclosure are at the core of the Vigilance Law. Three examples can 
be mentioned: 

  The Vigilance Obligations are closely connected to transparency and disclosure. In 
particular, this is demonstrated by 1) the inclusion in the vigilance plan of the five 
reasonable  vigilance  measures;  and  2)  the  publication  of  the  vigilance  plan  and 
report concerning its effective implementation. 

To  comply  with  their  Vigilance  Obligations,  companies  must  first  establish  a 
vigilance  plan  containing  five  reasonable  vigilance  measures.  They  then  have  to 
effectively  implement  the  plan.  Finally,  companies  must  make  the  plan  and  the 
report  on  its  effective  implementation  public  and  include  them  in  the  company’s 
annual management report (Commercial Code, article L. 225-102-4.-I). Note that 
according to the wording of the Vigilance Law, it is recommended to consider that 
the plan and report on its effective implementation should be made public (in the 
sense  of  being  made  accessible  to  the  public)  AND  included  in  the  company's 
annual management report.274 

  The  injunction  could  also  lead  a  company  to  publish  information  to  demonstrate 

its respect of the Vigilance Obligations. 

  The court can also order its decision (or part of it) on civil liability to be published, 
disseminated  or  displayed  liability  (Commercial  Code,  article  L.  225-102-5,  para. 
3).  This  decision  is  not  systematic  and  is  left  to  the  appreciation  of  the  court.  It 
could be considered a "name and shame" process. 

Also note that the Vigilance Law goes beyond transparency and disclosure by requiring 
the effective implementation of vigilance plans. 

Feb. 2019 p.68-69 (discussing whether the alert mechanism should be open to third parties, which ones, and also 
discussing the protection of whistle-blowers). 
272 See also Sherpa, Vigilance Plans Reference Guidance, Feb. 2019, p.57. 
273 For more developments, see Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, 
International Review of Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des 
Affaires], June 2017, Comm 44, p.4. 
274 In that sense, see also Sherpa, Vigilance Plans Reference Guidance, Feb. 2019, p.23. 

70 

 
 
                                                                                                                                                                        
g.  Implementation of internal processes by business, including operational-

level grievance mechanisms 

A  couple  of  general  comments  on  the  implementation  of  internal  processes  by 
businesses: 

  The implementation of the vigilance plan is at the core  of the Vigilance Law, and 

should be "effective", as required by one of the three Vigilance Obligations. 

  The Vigilance Law does not specify to which extend the company entering into its 
scope should be involved in the development of the five items of the vigilance plan 
(as  opposed  to  possible  outsourcing).  But,  in  all  likelihood,  the  company  would 
need  to  be  closely  involved  in  collaborating  with  various  stakeholders  as 
suggested by the Vigilance Law. 

  Concerning  the  "alert  and  complaint  mechanism  relating  to  the  existence  or 
realisation of risks", it must be established in consultation with the representative 
trade  union  organisations  within  the  company"  (see  II.3.e.  on  stakeholders 
contributions). 

As  to  operational-level  grievance  mechanisms,  the  OHCHR  defines  them  as  "[…] 
formalized  means  through  which  individuals  or  groups  can  raise  concerns  about  the 
impact  an  enterprise  has  on  them—including,  but  not  exclusively,  on  their  human 
rights—and can seek remedy".275 

The  mechanism  existing  in  the  Vigilance  Law  does  not  seem  to  match  perfectly  this 
definition stricto sensu as it does not address remediation. The vigilance plan includes 
an alert and complaint mechanism relating to the existence or realisation of  risks. As 
it has been already commented, the vigilance plan "does not have to include remedies 
to  be  put  into  action  once  human  rights  abuses  have  already  occurred."276 However, 
the setting in place of such remedies could be accounted for in the report showing the 
effective  implementation  of  the  vigilance  plan.  In  addition,  regarding  item  4  of  the 
vigilance  plan,  Sherpa,  a  leading  NGO,  including  on  issues  related  to  the  Vigilance 
Law, argues that such item also includes remediation measures.277 

As  for  the  injunction  and  civil  liability  action,  they  can  be  viewed  as  State-based 
judicial  mechanisms.  Concerns  related  to  the  vigilance  plan  and  its  implementation 
can  be  raised  using  such  actions  and  remedies  can  be  sought  using  the  civil  liability 
action (see next section for details on the sanction regime set in the Vigilance Law). 

4.  Monitoring, sanction and enforcement 

a.  Monitoring body 

The  Vigilance  Law  does  not  provide  for  a  body  in  charge  of  monitoring  the 
implementation of the Vigilance Law. 

A  possible  parliamentary  evaluation  mission  may  be  set  in  the  next  few  years  to 
evaluate the implementation of the Vigilance Law.278 

At  present  several  NGOs  are  pro-actively  monitoring  how  the  Vigilance  Law  is  being 
implemented.  The  Vigilance  Law  opens  a  possibility  for  them,  as  for  any  party  with 
standing,  to  file  an  injunction  (with  potential  periodic  penalty  payment)  when  a 

275 OHCHR, The Corporate Responsibility to Respect Human Rights: An Interpretive Guide, 2012, question 70, available at 
https://www.ohchr.org/Documents/Issues/Business/RtRInterpretativeGuide.pdf. 
276 Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, International Review of 
Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], June 2017, Comm 44. 
277 See also Sherpa, Vigilance Plans Reference Guidance, Feb. 2019, p.18 (considering that the mitigation and prevention 
measures include "preventive, mitigation and remediation measures"). 
278 This possibility has been mentioned by Dominique Potier, as reported, for instance in Stéphane Bechaux, Vigilance : 
comment les entreprises essaient de ne pas faire leur devoir, Alternatives Economiques, 12 Dec. 2018, available at 
https://www.alternatives-economiques.fr/vigilance-entreprises-essaient-de-ne-faire-devoir/00087474 (last accessed 30 
April 2019). 

71 

 
 
                                                        
company  entering  into  the  scope  of  the  Vigilance  Law  does  not  comply  with  its 
Vigilance Obligations. 

b.  Form  of  monitoring/evaluation,  timelines  for  investigating  complaints, 

procedures for review 

There is no information provided in the Vigilance Law in relation to the timeline for the 
competent  courts  to  decide  on  applications  for  an  injunction  (with  potential  periodic 
penalty payment) and civil liability action. 

Note, however, that the filing of an injunction is subject to giving the company a three 
months’ prior notice [mise en demeure] to comply. 

Besides,  the  injunction  (and  potential  periodic  penalty  payment)  can  be  deferred  to 
the president of the competent court in the context of interim/emergency proceedings 
[statuant en référé].279 

c. 

Form of sanctions 

Note  that  the  civil  fine  provided  for  in  the  final  draft  of  the  law  as  adopted  by 
Parliament  was  found  unconstitutional  by  the  French  Constitutional  Court  [Conseil 
constitutionnel].280 This  civil  fine  could  have  gone  up  to  a  maximum  of  10  million  of 
euros for failure to comply with the Vigilance Obligations. Moreover, in the event of a 
damage  resulting  from  the  failure  to  comply  with  the  Vigilance  Obligations,  the  civil 
fine could have reached 30 million of euros. The rationale behind the Court’s decision 
was that this civil fine was equivalent to a criminal penalty. In that situation, the Court 
further considered that the breach of the Vigilance Obligations sanctioned by this civil 
fine  was  defined  in  an  "insufficiently  clear  and  precise"  manner  with  respect  to  the 
constitutional  requirement  that  criminal  offences  and  penalties  be  defined  by  law 
[légalité des délits et des peines/nullum crimen nullapoena sine lege].281 Note however 
that  although  this  definition  of  the  breach  was  deemed  unconstitutional  from  the 
perspective  of  criminal  law,  it  remains  a  condition  for  any  finding  of  civil  liability, 
despite being "insufficiently clear and precise".282 

The sanctions provided in the Vigilance Law are the following:283 

  Periodic  penalty  payment  [astreinte] 

following  an 

to  comply 
(Commercial Code, article L. 225-102-4.-II). Should a company fail to comply with 
its  Vigilance  Obligations,  and  after  having  been  given  a  three  months’  official 
notice  [mise  en  demeure]  to  comply,  any  person  with  standing  can  ask  the 
competent  court  to  order  the  company  to  comply,  including  under  a  periodic 
penalty payment [astreinte]. The case may also be referred for the same purpose 
to  the  president  of  the  court  in  the  context  of  interim/emergency  proceedings 
[statuant en référé]. 

injunction 

Note  that  a  periodic  penalty  payment  consists  in  injunctive  fines  payable  on  a 
daily  or  per-event  basis  until  the  defendant  satisfies  a  given  obligation.  The 
amount  of  the  periodic  penalty  payment  will  be  determined  by  the  courts.  It  is 
likely that the courts will determine this amount on a case-by-case basis. 

279 Commercial Code, art. L. 225-102-4.-II para. 2. 
280 French Constitutional Court, Decision No 2017-750 DC, para. 13. 
281 For a comment of the decision, see Sandra Cossart, Jérôme Chaplier and Tiphaine Beau de Loménie, The French Law on 
Duty of Care: A Historic Step Towards Making Globalization Work for All, Business and Human Rights Journal, vol 2, 2017, 
p.317-323.  
282 Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, International Review of 
Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], June 2017, Comm 44, 
p.2. 

283 For more information and analysis on the sanction regime of the Vigilance Law, see Anne Danis-Fatôme & Geneviève 
Viney, La responsabilité civile dans la loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses 
d'ordre, Recueil Dalloz, p.1610, 2017 (in French); see also Stéphane Brabant & Elsa Savourey, A Closer Look at the 
Penalties Faced by Companies, International Review of Compliance and Business Ethics [Revue Internationale de la 
Compliance et de l'Ethique des Affaires], June 2017, Comm 44. 

72 

 
 
                                                        
  Civil  liability  action  [action  en  responsibilité  civile]  (Commercial  Code,  article  L. 
225-102-5). The Law provides that companies failing to comply with the Vigilance 
Obligations  will  have  to  remedy  the  damage  that  "the  execution  of  these 
obligations could have prevented". As a reminder, the Vigilance Law's civil liability 
regime is based on the parent or instructing company's own fault (i.e. a breach of 
the Vigilance Obligations). The Vigilance Law does not create a civil liability regime 
for the parent or instructing company based on the fault of other entities in their 
supply chains. This is clear from the reading of the Vigilance Law, and it has also 
been 
[Conseil 
constitutionnel].284 The general conditions for civil liability are provided in articles 
1240 and 1241 of the Civil Code, as specified in the Vigilance Law. There are three 
conditions  for  establishing  civil  liability  under  the  general  law  of  tort:  damage,  a 
breach of one of the obligations defined in the law and a causal link between the 
damage and the breach of the obligation. The burden of proof  is on the claimant 
who has to prove the case satisfies all three conditions. 

the  French  Constitutional  Court 

specifically  noted  by 

Note  moreover  that  the  obligation  to  effectively  implement  a  vigilance  plan  was 
specifically introduced by the Vigilance Law as an obligation for companies to take 
all  steps  in  their  power  to  reach  a  certain  result  [obligation  de  moyens]  rather 
than  to  guarantee  the  actual  attainment  of  that  result  [obligation  de  résultat]. 
Thus,  a  breach  of  an  obligation  cannot  be  inferred  merely  from  the  existence  of 
damage. 

  Publication of the  court decision regarding civil liability (Commercial Code, article 
L. 225-102-5, para. 3): the court can also order its decision (or part of it) on civil 
liability  to  be  published,  disseminated  or  displayed.  This  could  be  considered  a 
"name  and  shame"  process.  This  sanction  is  not  systematic  and  is  left  to  the 
appreciation of the court. 

d.  Incentives  or  implications,  such  as  link  to  procurement,  licensing  or 

export credit 

There is no such provision in the Vigilance Law. 

e.  Enforcement methods 

The  injunction  with  potential  periodic  penalty  payment  could  be  viewed  as  an 
enforcement method. 

f. Examples of enforcement and how the requirement is applied in practice 

The injunction with potential periodic penalty payment has not been applied in practice 
yet but is likely to be sought in 2019. 

Several NGOs and mayors of French municipalities and communities [municipalités et 
collectivités]  have,  for  example,  sent  a  written  letter  to  a  large  petroleum 
multinational  company.  They  considered  that  this  company's  first  vigilance  plan  was 
not in line with the requirements set out in the Vigilance Law. They explained in detail 
why  such  a  vigilance  plan  "does  not  reflect  the  reality  of  the  impacts  of  the 
[company's] activities and induced risks of severe impacts on the climate system".285 
Should  the  company  fail  to  integrate  climate  change  in  its  next  vigilance  plan 
(published  in  2019),  they  expressed  their  intention  to  bring  an  action  before  the 
competent  court  to  ask  for  an  injunction  with  a  potential  periodic  penalty  payment 
pursuant to article L. 225-102-4.-II of the Commercial Code. 

284 Note that under the French law of tort, an individual is liable for his/her own fault [responsabilité du fait personnel] 
except in certain circumstances, where an individual can be liable for the acts of someone else [responsabilité du fait 
d’autrui] or of things [responsabilité du fait des choses]; see also French Constitutional Court, Decision No 2017-750 DC, 
para. 27. 
285 Notre Affaire à Tous, ZEA, Sherpa, Les Eco Maires et al, 1,5°C, 13 collectivités réclament une vigilance TOTALe !, 23 
Oct. 2018, available at https://www.asso-sherpa.org/wp-content/uploads/2018/10/DP_-INTERPELLATION-TOTAL-3-
compressed.pdf ("il ne reflète pas la réalité des impacts de vos activités et les risques d’atteintes graves au système 
climatique qu’elles induisent."). 

73 

 
 
                                                        
5. Procedural Framework 

a.  Competent Court or other body 

For  both  the  periodic  penalty  payment  and  the  civil liability  action,  the  Vigilance  Law 
refers  to  the  "competent  court"  [juridiction  compétente].  During  the  early  stages  of 
the  debates  at  the  National  Assembly,  it  was  explained  that  the  competent  court 
would be determined by rules governing jurisdiction as set out in ordinary law.286 

Depending  on  the  rules  governing  jurisdiction  applicable  to  a  given  case,  the 
competent  jurisdiction  could  be  the  civil  court  (and  more  specifically  the  Tribunal  de 
Grande  Instance)  or  the  commercial  court  (and  more  specifically  the  Tribunal  de 
Commerce). 

b. Standing  (including  participation  of  foreign  plaintiffs/representative 
entities such as NGOs or trade unions) 

 

Injunction  with  possible  periodic  penalty  payment:  the  action  can  be  initiated  by 
any party with standing. It is expected that a number of parties should be able to 
prove that they have standing to initiate such an action (including NGOs and trade 
unions).287 This action could be considered "a privileged tool for members  of  civil 
society  to  check  whether  the  Vigilance  Obligations  are  being  observed, 
irrespective of whether any actual damage has been sustained".288 

  Civil  liability  action:  while  reviewing  the  Vigilance  Law,  the  French  Constitutional 
Court [Conseil constitutionnel] noted that the general rules of civil liability cannot 
be  understood  as  "allow[ing]  actions  to  be  brought  on  behalf  of  the  victim  by  a 
third  party,  since  only  the  victim  has  standing  [locus  standi]."289 In  France,  the 
possibility  for  NGOs  and  trade  unions  to  bring  class  actions  for  remediation  in  a 
civil court for damage incurred by third parties or by their own members is quite 
limited.  Some  NGOs  advocate  for  a  broadening  of  the  scope  of  class  actions  in 
order to allow victims to have more options for obtaining remedies.290 

c.  Jurisdictional  restrictions  (including  forum  non  conveniens,  place  of 
business incorporation) 

Although not specified in the Vigilance Law, territorial competence shall be determined 
by  reference  to  the  place  of  residence  of  the  defendant.  This  solution  aligns  with  the 
ordinary law applicable with regards to jurisdiction in France and it has been confirmed 
by  legal  commentators.  French  courts  will  thus  have  territorial  jurisdiction  over  any 
action brought against companies registered in France and entering into the scope of 
the  Vigilance  Law  (see  article  42  of  the  French  Code  of  Civil  Procedure  [Code  de 
procédure civile] and EU Regulation 1215/2012 on jurisdiction and the recognition and 

286 National Assembly, report No 2628, 11 March 2015, p.75, available at http://www.assemblee-
nationale.fr/14/pdf/rapports/r2628.pdf . 
287 See e.g. AN, report No 2628, 11 March 2015, p.76, available at http://www.assemblee-
nationale.fr/14/pdf/rapports/r2628.pdf (the rapporteur explaining there is no need to specify that trade unions could initiate 
such action because all legal or natural person able to prove they have standing will be able to initiate such action), for 
more developments, see Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, 
International Review of Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des 
Affaires], June 2017, Comm 44, p.4. 
288 For more developments, see Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, 
International Review of Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des 
Affaires], June 2017, Comm 44, p.4. 
289 French Constitutional Court, Decision No 2017-750 DC, para. 28. 
290 French Ministry of Foreign Affairs and International Development, Plan national d’action pour la mise en œuvre des 
principes directeurs des Nations unies relatifs aux droits de l’Homme et aux entreprises, April 2017, p.56 (noting the option 
of class actions in several fields, especially discrimination, health, personal data protection); Sherpa, press release, 
Réaction publique de Sherpa au Plan national d’action pour la mise en œuvre des Principes directeurs des Nations Unies 
relatifs aux droits de l’Homme et aux entreprises, 4 May 2017 (recommending that the option of bringing class actions be 
extended to cover human rights). 

74 

 
 
                                                        
enforcement  of  judgments  in  civil  and  commercial  matters  ("Bruxelles  I"),  article  4). 
291 

For challenges related to the applicable law, see II.5.d. 

d. Main  procedural  rules  and  challenges  (formalities,  deadlines,  expediency, 
in  court  settlement  options,  evidence/discovery  rules,  multi-stage  process, 
etc.) 

The  answer  to  this  question  only  covers  the  civil  liability  action  provided  in  the 
Vigilance Law and its main associated challenges. 

The burden of proof for claimant 

The burden of proof has been presented as a main challenge for victims to bring a civil 
liability action. It remains to be seen, with the first actions to be introduced before the 
courts, if it will be the case in practice. 

The  claimant  bringing  the  civil  liability  action  bears  the  burden  of  proof  and  has  to 
prove the case satisfies all three conditions for establishing civil liability. This task may 
be made more difficult due to the ambiguity of certain concepts, such as the breach of 
obligations or the causal link as applied to the Vigilance Law. 

In addition, a number of challenges from the ground can prevent victims not only from 
collecting  evidence  of  the  three  conditions  for  establishing  civil  liability  but  also  from 
taking  any  legal  action  before  the  courts.  This  is  especially  the  case  when  both  the 
victims  and  the  damage  are  located  outside  of  France.  Obstacles  are  numerous  and 
can relate to material, social, cultural, institutional and linguistic circumstances. 

The civil liability regime is based on an "obligation de moyens", and not an "obligation 
de résultat" (see II.3.d. on these two concepts). Had the later regime been adopted, a 
breach  of  the  Vigilance  Obligations  by  a  company  could  have  been  inferred  from  the 
mere  existence  of  damage,  unless  the  said  company  could  prove  it  had  fulfilled  its 
obligations. 

Note that a number of NGOs are asking for a reversal of the burden on proof.292 This 
would entail the burden of proof shifting from the claimants to the companies entering 
into the scope of the Vigilance Law. 

Other challenges 

  A  further  challenge  is  the  question  of  whether  the  Vigilance  Law  is  the  applicable 
law in the event of damage occurring outside of France. If the Rome II Regulation is 
applicable,  article  4  of  that  Regulation  provides  that  "[u]nless  otherwise  provided 
for in this Regulation, the law applicable to a non-contractual obligation arising out 
of  a  tort/delict  shall  be  the  law  of  the  country  in  which  the  damage  occurs 
irrespective  of  the  country  in  which  the  event  giving  rise  to  the  damage  occurred 
and  irrespective  of  the  country  or  countries  in  which  the  indirect  consequences  of 
that event occur."293 

The provision of this Regulation could prevent the Vigilance Law from being applied 
in  cases  where  the  damage  has  occurred  outside  of  France.  In  that  case,  the 
applicable law would then be that of the country in which the damage has occurred. 

291 For further discussions on juridiction in relation to the Vigilance Law (in French), see Etienne Pataut, Le devoir de 
vigilance – Aspects de droit international privé, Droit social, 2017, p.833; Anne Danis-Fatôme & Geneviève Viney, La 
responsabilité civile dans la loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses d'ordre, 
Recueil Dalloz p 1610, 2017. 

292 Action Aid France-Peuples Solidaires, Amis de la Terre France, Amnesty International France, CCFD-Terre Solidaire, 
Collectif Ethique sur l’Etiquette et Sherpa, Loi sur le devoir de vigilance des sociétés mères et entreprises donneuses d’ordre 
- Année 1: les entreprises doivent mieux faire, March 2019 (in French), available at https://www.business-
humanrights.org/en/frances-law-on-the-corporate-duty-of-vigilance-process-pedagogy-and-pragmatism-as-the-way-
forward.  
293 Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to 
non-contractual obligations (Rome II), article 4, para. 1. 

75 

 
 
                                                        
This  issue  of  private  international  law  has  been  commented  on  by  some 
academics. 294  They  have  explored  exceptions  to  the  rule  that  would  allow  the 
Vigilance  Law  to  be  the  applicable  law  even  when  a  damage  occurs  outside  of 
France. 

These  solutions  include:  1)  applying  the  exception  to  the  aforementioned  general 
rule  pursuant  to  article  4  para.  3  of  Rome  II  Regulation  (i.e.  when  there  is  a 
"manifestly closer connection with another country"; 2) applying article 7 of Rome 
II  Regulation  regarding  "environmental  damage"  should  the  condition  set  in  the 
article  be  met;  3)  applying  article  16  of  Rome  II  Regulation,  provided  that  the 
provisions  of  the  Vigilance  Law  are  characterised  as  "overriding  mandatory 
provisions" [lois de police]; 4) applying article 17 of Rome II regarding the "rules of 
safety and conduct"; and 5) applying article 26 of Rome II Regulation regarding the 
"public  policy  of  the  forum"  [ordre  public],  although  this  is  unlikely  to  succeed 
according to specialists.295 

  An external challenge relates to the fact a civil liability action is limited by the ambit 
rationae  personae  of  the  vigilance  plan.  Any  damage  occurring  outside  this  ambit 
would  therefore  not  be  covered  by  the  civil  liability  action  as  provided  in  the 
Vigilance  Law.  In  particular,  as  already  noted  elsewhere,  "[i]n  certain  cases, 
moreover,  remediation  is  even  less  likely  since  subcontractors  [and  suppliers] 
involved in adverse human rights impacts are not necessarily within the [ambit] of 
the vigilance plan, if they have no established commercial relationship."296 

6. 

Available Remedies 

a.  Civil, criminal and administrative remedies 

See II.4. and II.5. The Vigilance Law only provides civil remedies. 

b. Whether sanctions include compensation 

Yes. See II.4. 

c.  Redress  for  victims  including  type  and  allocation  of  damages  between 
claimants 

Victims,  like  any  other  party  with  standing,  may  seek  an  injunction  with  potential 
periodic  penalty  payment  in  order  to  force  a  company  to  comply  with  its  Vigilance 
Obligations. 

Victims  can  also  bring  a  civil  liability  action.  The  remedies  that  the  court  may  order 
can theoretically be 1) "réparation en nature" [the closest form in common law would 
be specific performance, with the judge asking the person found liable to take specific 
actions  to  compensate  the  damage  which  has  occurred];  or  2)  "reparation  par 
equivalent"  [damages  paid  in  monetary  form/liquidated  damages].  Liquidated 
damages  are  the  most  common  form  of  damages  ordered  by  courts  and  are  most 
likely to be ordered in the context of the Vigilance Law. 

Note that in France, as per the principle of "réparation intégrale", the damages to be 
paid  to  the  victims  are  limited  to  the  actual  harms  suffered  by  the  victims  (be  it 
physical,  moral  or  psychological  injury,  loss  of  revenue,  damage  to  goods  etc.). 
Damages  cannot  be  awarded  beyond  the  amount  needed  to  compensate  such  harms 

294 For further details and discussion see, Etienne Pataut, Le devoir de vigilance – Aspects de droit international privé, Droit 
social, 2017, p.833; Horatia Muir Watt, Devoir de vigilance et droit international privé – Le symbole et le procédé de la loi 
du 27 mars 2017, International Review of Compliance and Business Ethics [Revue Internationale de la Compliance et de 
l'Ethique des Affaires], Dec. 2017, comm 95; Laurence Sinopoli, Ancrer la "RSE" des multinationales - Pistes sur le terrain 
des conflits de lois , Cahiers de droit de l'entreprise, No 5, Sept 2017, dossier 31. 
295 Etienne Pataut, Le devoir de vigilance – Aspects de droit international privé, Droit social 2017, p.833. 
296 Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, International Review of 
Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], June 2017, Comm 44, 
p.4. 

76 

 
 
                                                        
 
suffered  by  the  victims.  The  expenses  [depens]  and  the  costs  [frais]  can  also  be 
awarded in accordance to the rules set in Code de procedure civile. 

d. Remedies that are only available to certain categories of claimants, such as 
workers or consumers 

N/A  with  regard  to  the  Vigilance  Law.  Other  laws  provide  remedies  only  available  to 
certain categories of claimants (see II.2 and II.1). 

e.  Existence and use of judicial and non-judicial grievance mechanisms 

With  regard  to  judicial  and  non-judicial  mechanisms  and  comments  on  those:  see 
II.3.g. 

7. Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
and  b)  to  companies,  either  individually  or  collectively)  (public  information, 
estimated opinion) 

No official estimate has been made available. 

Note  that  with  only  a  few  exceptions,  draft  laws  introduced  by  the  Government 
[projets de loi] require an impact assessment to be conducted prior to the introduction 
of  these  draft  laws.  These  assessments  typically  include  an  evaluation  of  the 
economic, financial, social and environmental consequences, costs and benefits for the 
State and the interested natural and legal persons. The Vigilance Law was a draft law 
introduced  by  members  of  the  Parliament  [proposition  de  loi].  According  to  publicly 
available information, no impact assessment appears to have been conducted. 

Also note that there have been discussions whether a parliamentary mission should be 
established  to  evaluate  a  posteriori  the  implementation  of  the  Vigilance  Law.  Cost  of 
enforcement could be considered at this stage. At the time of writing this report, there 
is  no  information  available  about  the  timing  for  the  creation  of  such  a  parliamentary 
evaluation mission (see also II.4.a.). 

8. Impact of the Regulation 

For most of the questions below, it is too early to have a clear idea of the impacts of 
the  Vigilance  Law.  The  year  2019  will  mark  the  publication  of  the  second  vigilance 
plans  for  companies  entering  into  the  scope  of  the  Vigilance  Law.  Following  the 
publication  of  these  second  vigilance  plans,  we  anticipate  a  better  assessment  of  the 
potential effects of the Vigilance Law.  Assessments could be conducted by comparing 
1)  the  content  of  the  vigilance  plans  of  2018  and  those  of  2019;  and  2)  reading  the 
reports on the effective implementation of the vigilance plans of 2018. 

a.  Impact of the national regulation on behaviour/ policy of businesses (both 
direct and indirect) 

This  answer  only  provides  general  observations  and  it  focuses  principally  on  human 
rights. It is based for the most part on observations made following the enactment of 
the  Vigilance  Law  and  the  publication  of  the  vigilance  plans  in  2018.  The  non-profit 
organisation Entreprises pour les Droits de l'Homme is preparing a report that contains 
its preliminary observations on these plans (to be published in May/June 2019). 

First and foremost, the Vigilance Law and the parliamentary debates that preceded its 
adoption have contributed to raise the awareness of a number of companies about the 
respect  of  human  rights  by  businesses  across  their  activities  and  supply  chains.  The 
Vigilance  Law  has  also  served  to  reinforce  internal  collaboration  within  companies. 
Several  companies  have  created  task  forces  dedicated  to  establishing  and  effectively 
implementing  the  Vigilance  Obligations.  These  task  forces  gather  individuals  from 

77 

 
 
 
 
different  departments,  including  audit  and  risk,  legal,  sustainability,  corporate  social 
responsibility, procurement, etc. 

Admittedly, companies  that enter into the scope  of the Vigilance Law  do not all have 
the same experience with business and human rights issues. Some companies already 
had processes in place prior to the enactment of the Vigilance Law. This facilitated the 
drafting of their vigilance plans. But overall, a "business and human rights" culture is 
still  absent/insufficient  within  a  number  of  companies  entering  into  the  scope  of  the 
Vigilance Law, including at the levels of top management and of operational staff. This 
results in a more difficult implementation of the Vigilance Obligations within companies 
and a lack of appropriate drive at the executive management level. This may explain 
why  some  companies  view  the  Vigilance  Law  as  a  tick-box  exercise,  or  why  they 
conduct  risk  mapping  by  looking  at  their  own  risks,  as  opposed  to  risks  to  rights 
holders  as  the  Vigilance  Law  requires.  This  can  also  lead  to  internal  tensions  within 
companies, with some people feeling uncomfortable disclosing too much information in 
the vigilance plan for fear of exposing their company to legal actions. 

The first vigilance plans (published in 2018) were not yet fully in compliance with the 
Vigilance Law. Admittedly, they were the very first plans and a number of companies 
were  uncertain  on  how  to  approach  the  preparation  of  such  plans.  We  hope  that  a 
number of improvements will appear in the 2019 plans. 

A  number  of  brief  observations  or  recommendations  can  be  made  about  the  2018 
vigilance plans. The methodologies used by companies to comply with the five items of 
the vigilance plans could be clarified in the body of their vigilance plans.  Indeed, the 
vigilance plans could improve on a number of key items, including (but not limited to) 
risk  mapping  and  associated  identification  of  risks,  evaluation  measures,  alert  and 
complaint  mechanism  and  the  consultation  of  stakeholders.  The  accessibility  and 
visibility of the vigilance plans are other main issues. 

In addition, some companies confuse the processes set  out in the Vigilance Law with 
the processes set in the recent anti-corruption law (Law No 2016-1691 of 9 December 
2016  ("Sapin  II  Law")).  This  confusion  is  due  to  the  fact  that  some  of  the  processes 
prescribed  by  the  Vigilance  Law  and  those  of  the  Sapin  II  Law  have  similar  names, 
such as "risk mapping" or "alert mechanisms". However, these two laws do not have 
the  same  objectives;  they  do  not  address  the  same  risks  (the  risks  to  the  company 
itself for the Sapin II Law, and the risks to rights-holders for the Vigilance Law). Other 
avenues for improvement (especially for 2019) include the effective implementation of 
a  vigilance  plan  and  the  assessments  of  its  effective  implementation  (including  using 
appropriate indicators). 

There are also a number of companies which may enter into the scope of the Vigilance 
Law but have not established their vigilance plan (or made it public) yet. It is difficult 
to identify these companies because information on their corporate structure and their 
number of employees is not always public. This is a reason why Dominique Potier [the 
Rapporteur of the Vigilance Law], in an oral question to the Government on 27 March 
2019, requested the Government to issue a list of companies that enter into the scope 
of the Vigilance Law. This list has also been requested by several NGOs. 

As  remarked  by  Dominique  Potier  in  a  recent  conference  to  mark  the  second 
anniversary  of  the  Vigilance  Law,  to  date  we  are  still  in  a  "learning  phase"  [phase 
d'apprentissage],  where  the  objective  is  not  to  sanction  immediately  companies  that 
are making efforts to comply with the Vigilance Law.297 This learning phase is expected 
to  continue  as  companies  progressively  implement  Vigilance  Obligations  (with  a 
number  of  individuals  mobilised  inside  companies,  including  recent  hires,  to  manage 
the  implementation  of  the  Vigilance  Law,  the  Sapin  II  Law  and  the  GDPR).  This 
learning phase is also expected to continue as environmental issues and human rights 

297 Conference at the National Assembly, Devoir de vigilance des multinationales: du premier bilan en France à l’impératif 
d’une réglementation européenne et internationale, 27 March 2019 (introductory speech).  

78 

 
 
                                                        
in value chains gain more momentum in public debates. Similarly, NGOs, trade unions, 
consumers,  and  investors  are  becoming  increasingly  pro-active  about  these  topics. 
Environmental  issues  and  human  rights  are  also  becoming  more  central  in 
parliamentary  debates,  as  exemplified  in  France  with  the  debates  on  the  draft  law 
PACTE  (see  II.1.)  and  in  other  countries  considering  legislation  related  to  human 
rights due diligence. 

Other comments 

  Comments  on  the  first  vigilance  plan  and/or  recommendations  to  improve  the 
next  generation  of  vigilance  plans  and  the  effective  implementation  of  current 
plans  (in  particular  addressing  stakeholders  consultations,  setting  in  place 
vigilance  measures,  transparency,  trainings  etc.)  have  been  formulated  by 
different stakeholders.298 

  Among  such  reports,  several  NGOs  have  formulated  recommendations  following 
an  analysis  of  the  vigilance  plans  of  80  companies  with  a  focus  on  high-risk 
industries  for  human  rights  and  the  environment  (extractives  industries, 
armament,  textile,  agriculture,  and  banking). 299  In  light  of  the  involvement  of 
these  NGOs  in  the  implementation  of  the  Vigilance  Law  (including  their  possible 
involvement to activate the sanction regime of the Vigilance Law), it is relevant to 
present some of their views as expressed in their report. Their report: 

o  Provides  some  recommendations  for  companies  based  on  the  analysis 
they  made  of  the  vigilance  plans  and  the  Vigilance  Plans  Reference 
Guidance authored by Sherpa (NGO)300; 

o  Asks  the  French  public  authorities  to  reinforce  the  Vigilance  Law,  and 
ensure  its  effective  implementation.  Suggestions  include:  the  annual 
publication  of  the  list  of  companies  entering  into  the  scope  of  the 
Vigilance  Law;  the  creation  of  an  administrative  authority  in  charge  of 
monitoring  the  vigilance  Law's  effective  implementation;  a  centralised 
access  to  all  the  vigilance  plans  made  public  by  companies;  the 
reduction  of  the  legal  threshold  related  to  a  company's  number  of 
employees in order to enter into the scope of the Vigilance Law; and the 
reversal  of  the  burden  of  proof  in  civil  liability  actions  so  that  it  rests 
with the companies and not the victims; and 

o  Requests  that  the  French  public  authorities  "bring  their  proactive  and 
constructive  support"  to  a  legally  binding  instrument  to  regulate,  in 
international  human  rights 
transnational 
corporations  and  other  business  enterprises  and  to  a  European  binding 
legislation with regard to the vigilance of multinational companies. 

the  activities  of 

law, 

b. Impact  of  the  national  regulation  on  victims  and  potential  victims  (both 
direct and indirect) 

Note  that  the  injunctions  and  the  civil  liability  actions  are  likely  to  be  triggered  from 
2019 onwards. Thus, it is very early to assess the impact of the Vigilance Law on the 
victims and potential victims. Nevertheless, see references listed on II.8.a. and II.8.d. 
for  some  information  and  a  view  of  the  situation  of  rights-holders  in specific  sectors. 

298 Entreprises pour les Droits de l'Homme, Application of the Law on the Corporate Duty of Vigilance, Analysis of the first 
published plans, 1st edition, April 2018. 2019 edition forthcoming; Elsa Savourey, "France's Law on the Corporate Duty of 
Vigilance: Process, Pedagogy and Pragmatism as the Way Forward", Nov. 2018, available at https://www.business-
humanrights.org/en/frances-law-on-the-corporate-duty-of-vigilance-process-pedagogy-and-pragmatism-as-the-way-
forward; Action Aid France-Peuples Solidaires, Amis de la Terre France, Amnesty International France, CCFD-Terre 
Solidaire, Collectif Ethique sur l’Etiquette et Sherpa, Loi sur le devoir de vigilance des sociétés mères et entreprises 
donneuses d’ordre - Année 1: les entreprises doivent mieux faire, March 2019 (in French), available at https://www.asso-
sherpa.org/wp-content/uploads/2019/02/2019-etude-interasso_devoir_de_vigilance-ilovepdf-compressed-3.pdf. 
299 See Action Aid France-Peuples Solidaires, Amis de la Terre France, Amnesty International France, CCFD-Terre Solidaire, 
Collectif Ethique sur l’Etiquette et Sherpa, Loi sur le devoir de vigilance des sociétés mères et entreprises donneuses d’ordre 
- Année 1: les entreprises doivent mieux faire, March 2019 (in French). 
300 Sherpa, Vigilance Plans Reference Guidance, Feb. 2019. 

79 

 
 
                                                        
These  reports  show  that  a  number  of  NGOs  in  France  and  abroad  are  strongly 
mobilised to make sure that the Vigilance Law is enforced and can provide preventive 
and remedial measures for actual and potential victims. 

c.  Impact of the regulation on workers 

See II.8.a. 

d. Impact  of  the  regulation  on  environmental  rights  (including  biodiversity) 
and climate change 

See, for instance, the two NGOs reports (in French) addressing this question.301 

See also II.4.f. regarding a written letter sent by several NGOs and mayors of French 
municipalities  and  communities  [municipalités  et  collectivités]  to  a  large  petroleum 
multinational company. They consider that this company's  first vigilance plan was not 
in line with the requirements set in the Vigilance Law. They explain in detail why such 
vigilance plan "does not reflect the reality of the impacts of the [company's] activities 
and induced risks of severe impacts on the climate system".302 

e.  Public responses of stakeholders to regulation 

See II.8.a. and 2.8.b. 

A  number  of  stakeholders  in  France  and  abroad  are  strongly  mobilised  to  make  sure 
the  Vigilance  Law  is  enforced  and  can  provide  preventive  and  remedial  measures  for 
actual and potential victims. 

Several foreign governments and parliaments have expressed interest in the Vigilance 
Law.  They  have  approached  various  actors  in  different  stakeholder  groups  to  have  a 
better understanding of the Vigilance Law. 

In  terms  of  the  consultation  with  stakeholders,  note  that  reports  from  various 
stakeholder groups mentioned the insufficient consultation of stakeholders at the time 
of establishing the first vigilance plans in 2018. It remains to be seen if this situation 
will be resolved in the vigilance plans to be published in 2019. 

f.  Degree  of  overcoming  of  obstacles  for  victims  to  bring  claims  in  Member 
State 

See II.5.d. 

g. Relevant  jurisprudence  which  has  had  an  impact  on  corporate  behaviour 
regarding climate change 

No case law yet in relation to the Vigilance Law. 

Aside  from  the  Vigilance  Law,  note  that  some  case  law,  including  the  Erika  case 303 
opened  the  way  to  the  introduction  of  the  notion  of  "ecological  damage"  [préjudice 
écologique] into the Civil Code [Code civil] in 2016.304 

h. Change  in industry  standards, codes of conduct and other business sector 
activity 

Too early to be commented. 

301 CCFD-Terre Solidaire, La vigilance au menu, Les risques que l'agro-industrie doit identifier, March 2019; Mighty Earth, 
Sherpa, FNE, Devoir de vigilance et déforestation: le cas oublié du soja, March 2018. 
302 Notre Affaire à Tous, ZEA, Sherpa, Les Eco Maires et al, "1,5°C, 13 collectivités réclament une vigilance TOTALe !", 23 
October 2018; https://www.asso-sherpa.org/wp-content/uploads/2018/10/DP_-INTERPELLATION-TOTAL-3-compressed.pdf 
("il ne reflète pas la réalité des impacts de vos activités et les risques d’atteintes graves au système climatique qu’elles 
induisent."). 
303 Cour de cassation, Chambre criminelle, arrêt No 3439, 25 sept. 2012, pourvoi No 10-82.938. 
304 Articles 1246 to 1252 of the Civil Code created by the Law No 2016-1087 of 8 August 2016. 

80 

 
 
                                                        
i.  Impact  of  the  regulation  on  business  enterprises  (including  economic 
burden as well as corporate benefits) 

No public information available. 

III. COMPARATIVE ANALYSIS 

This  section  is  also  focused  mainly  on  the  Vigilance  Law,  with  the  exception  of  the 
preliminary  section  below.  Such  preliminary  section  provides  a  summary  of  the 
domestic  law  resulting  from  the  transposition  of  Directive  2014/95/EU  of  22  October 
2014 on non-financial reporting. 

9.  Comparisons between different regulations within the Member State 

a.  Summary  of  the  domestic  law  resulting  from  the  transposition  of 

Directive 2014/95/EU of 22 October 2014 on non-financial reporting305 

Directive 2014/95/EU of 22 October 2014 amending Directive 2013/34/EU as regards 
disclosure of non-financial and diversity information by certain large undertakings and 
groups  has  been  transposed  into  French  Law  through  the  Order  No  2017-1180  of  19 
July  2017  [Ordonnance  No  2017-1180  du  19  juillet  2017  relative  à  la  publication 
d'informations  non  financières  par  certaines  grandes  entreprises  et  certains  groupes 
d'entreprises].  This  type  of  transposition  has  resulted  in  the  amendment  of  several 
provisions  of  the  Commercial  Code  [Code  de  commerce].  Some  of  these  provisions 
have  been  later  amended  including  by  the  Law  No  2018-998  of  23  October  2018 
related  to  the  fight  against  fraud  which  has  widened  the  ambit  of  the  declaration  on 
extra-financial  performance  [Loi  n°  2018-898  du  23  octobre  2018  relative  à  la  lutte 
contre la fraude]. 

Scope306 

Article L. 225-102-1.-I of the Commercial Code read in conjunction with its supporting 
decree307 sets  the  scope  of  companies  which  have  to  prepare  a  declaration  on  extra-
financial  performance  [déclaration  de  performance  extra-financière]  to  be  integrated 
in their annual management report. This includes: 

  All  companies  whose  securities  are  admitted  to  trading  on  a  regulated  market, 
with  20  million  euros  of  balance  sheet  total  [bilan]  OR  40  million  euros  of  net 
turnover [chiffre d'affaires], AND 500 employees (calculated based on the average 
of the number of permanent employees during the financial year); and 

  All companies whose securities are not admitted to trading on a regulated market, 
with 100 million euros of total balance sheet OR 100 million euros of net turnover, 
AND  500  employees  (calculated  based  on  the  average  of  the  number  of 
permanent employees during the financial year). 

In  addition  to  these  criteria,  these  companies  have  to  be  registered  under  some 
specific corporate forms.308 

305 Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU 
as regards disclosure of non-financial and diversity information by certain large undertakings and groups, as transposed by 
Order No 2017-1180 of 19 July 2017. 
306 Note that the following developments provide only an overview of the main provisions in French law on the declaration 
of extra-financial performance, this country report being mostly focused on the Vigilance Law. For further information (in 
French) on the scope of companies required to establish a declaration on extra-financial performance, its content and 
publication, and the mandatory verification of the information included in the declaration on extra-financial performance by 
an independent third party (only for some companies) see e.g. MEDEF (in collaboration with Deloitte and EY), Guide 
Méthodologique Reporting RSE, Déclaration de performance extra-financière, 2e ed, Sept 2017, available at 
https://www.medef.com/uploads/media/node/0001/12/f6ee1c6ad233ebb1fa87922f046d062b59f1a4b2.pdf.  
307 Decree No 2017-1265 of 9 August 2017. 
308 For a summary of these criteria, see (in French) Béatrice Parance, La declaration de performance extra-financière, 
nouvelle ambition du reporting extra-financier, La Semaine Juridique, édition générale, No 44-45, 30 Oct 2017. 

81 

 
 
 
 
                                                        
Note  that  article  L.  225-102-1  of  the  Commercial  Code  also  includes  provisions 
applicable  to  companies  drawing  up  consolidated  accounts  [comptes  consolidés]. 
These  companies  have  to  prepare  a  consolidated  declaration  on  extra-financial 
performance for the group. This situation is not covered in this overview. 

Content of the declaration on extra-financial performance 

  The  declaration  on  extra-financial  performance  "presents  information  on  how  the 
company  takes  into  account  the  social  and  environmental  consequences  of  its 
activity" (article L. 225-102-1.-III of the Commercial Code). In addition, and only 
for  companies  mentioned  at  No  1  above  (i.e.  all  companies  whose  securities  are 
admitted  to  trading  on  a  regulated  market  with  20  million  euros  of  total  balance 
sheet  [bilan]  OR  40  million  euros  of  net  turnover  [chiffre  d'affaires]  AND  500 
employees),  the  declaration  shall  also  report  "the  effects  of  [the  company's] 
activity in relation to the respect of human rights and the fight against corruption 
and  fiscal  evasion."  Note  that  the  reference  to  "fiscal  evasion"  was  introduced 
subsequently by Law No 2018-998 of 23 October 2018 related to the fight against 
fraud. 

  Article  R.  225-105  of  the  Commercial  Code  provides  that  the  declaration  on  the 
extra-financial  performance  includes  the  business  model  [le  modèle  d'affaires]  of 
the company or group of companies. In addition, for each category of information 
listed  in  this  article  (social  information,  environmental  information,  societal 
information, and for companies mentioned at No 1, information on the respect of 
human rights and the fight against corruption and fiscal evasion), the declaration 
on extra-financial performance shall present: 

o  1°  A  description  of  the  main  risks  related  to  the  activity  of  the 
company  or  the  group  of  companies,  and  where  relevant  and 
proportionate, the risks created by its business relationships, its 
products and services; 

o  2° A description of the policies applied by the company or the group of 
reasonable  diligence  procedures 
companies, 
[procédures de diligence raisonnable] implemented to prevent, identify, 
and mitigate the occurrence of risks mentioned at 1°; and 

including 

the 

o  3° The results of these policies with key performance indicators. 

This  article  further  provides  that  when  a  company  does  not  apply  a  policy  with 
regard  to  one  or  several  risks,  the  declaration  includes  a  clear  and  reasoned 
explanation of why it does not apply such policy [une explication claire et motivée 
des raisons]. 

Note  that  there  is  no  information  in  relation  to  what  "reasonable  diligence 
procedures" entails. Clarifications would be helpful, at the very least by reference 
to international standards detailing such procedures. Generally speaking, there is 
little  information  and  guidance  provided  on  the  above  described  three-fold 
process. 

  The  decree  provides  a  detailed  list  of  the  information  to  be  included  in  the 
declaration on extra-financial performance, should such information be relevant in 
light  of  the  identified  risks  and  the  policies  applied  by  the  companies.  This  list, 
provided  in  article  R.  225-105  of  the  Commercial  Code  includes  detailed 
information 
information, 
environmental information,  societal information, and for  companies mentioned at 
No 1, information on the respect of human rights and the fight against corruption 
and  fiscal  evasion).  For  instance,  regarding  environmental  information  and 
information on human rights: 

for  each  category  of 

(i.e.  social 

information 

o  Environmental  information:  companies  have  to  provide  information 
on  general  environmental  policies,  pollution,  circular  economy,  climate 

82 

 
 
change,  protection  of  biodiversity.  Each  category  includes  additional 
specific items.309 

o  Human  rights  information: only companies mentioned at No 1 above 
(i.e.  all  companies  whose  securities  are  admitted  to  trading  on  a 
regulated market with 20 million euros of total balance sheet [bilan] OR 
40 million euros of net turnover [chiffre d'affaires] AND 500 employees) 
also  have  to  provide  information  in  relation  to  human  rights.  The 
information to be provided is the following: 

-  the  respect  for  freedom  of  association  and  the  right  to 

"(a) Promotion and respect of the provisions of the fundamental 

2. 
conventions of the International Labour Organisation relating to: 
3. 
collective bargaining; 
4. 
occupation; 
5. 
6. 
7. 

- the elimination of forced or compulsory labour; 
- the effective abolition of child labour; 
(b) Other actions initiated in favour of human rights."310 

the  elimination  of  discrimination 

- 

in  employment  and 

Note  that  the  information  requested  under  the  categories  "social  information"  and 
"societal  information"  is  likely  to  have  a  connection  with  human  rights.  For  instance, 
such  categories  include  information  in  relation  to  health  and  safety  at  work,  equal 
treatment and the fight against discrimination, and in the relationships with suppliers 
and subcontractors, the consideration of their social and environmental responsibility. 
This "social information" and "societal information" is to be included in the declaration 
on  extra-financial  performance  for  all  companies  entering  into  the  scope  of  the 
legislation,  whether  or  not  their  securities  are  admitted  to  trading  on  a  regulated 
market. 

Sanctions 

Article  L.  225-102-1.-VI  of  the  Commercial  Code  provides  that  when  the  annual 
management  report  does  not  include  the  required  declaration  on  extra-financial 
performance, any interested person may ask the president of the court in the context 
of  interim/emergency  proceedings  [statuant  en  référé]  to  order,  where  appropriate 
under  periodic  penalty  payment,  the  company's  board  of  directors  [conseil 
d'administration]  or  its  executive  board  [directoire]  to  communicate  the  required 
information. When the injunction is granted, the periodic penalty payment and costs of 
proceedings  shall  be  borne  by  the  directors  or  members  of  the  executive  board, 
individually or severally, as the case may be. 

Articulation with the Vigilance Law 

As provided in article L. 225-102-1.-III, "The [extra-financial performance] declaration 
can,  when  appropriate,  refer  to  the  information  provided  in  the  vigilance  plan."  [La 
déclaration peut renvoyer, le cas échéant, aux informations mentionnées dans le plan 
de vigilance prévu au I de l'article L. 225-102-4]. 

b.  Corporate  and  directors’  liability  regime  in  case  of  violations  or  damage 
caused  by  operators  in  the  EU  parent  company’s  supply  chain,  including 
relevant jurisprudence, even in the absence of legislation on due diligence 

The answer to this question only covers the Vigilance Law's civil liability regime. It also 
excludes  specific  instances  of  possible  corporate  and  directors'  liability  under  general 
commercial and criminal law and the law of torts (and related case law) in the event of 

309 Commercial Code, art. R. 225-105-II.-A2°. 
310 Commercial Code, art. R. 225-105-II.-B2°. 

83 

 
 
                                                        
damages caused in companies' supply chains.311 Note that the definition of a "director" 
[dirigeant] is defined in the Commercial Code. 

By  way  of  reminder,  the  Vigilance  Law  focuses  on  civil  liability  and  does  not  include 
provisions on criminal liability. 

On the civil liability action provided in the Vigilance Law, see II.4 to I.6. 

The  company  whose  liability  can  be  established  does  not  have  to  be  an  "EU  parent 
company" as formulated in this question. It could be a parent or instructing company. 
Actually,  the  company  which  liability  can  be  established  could  be  the  subsidiary  of  a 
foreign parent company (EU or non-EU) as long as it has its registered office in France 
and meets certain criteria related to its corporate form and number of employees (see 
II.2.). 

The Vigilance Law provides that "a breach of the obligations defined at article L. 225-
102-4 […] engages the  author's  liability and requires them to remedy any damage 
that the execution of [the Vigilance Obligations] could have prevented". 

The Vigilance Law only refers to companies [sociétés], without any mention of natural 
persons  such  as  directors.  Similarly,  the  explanatory  memorandum  of  the  draft  law, 
clearly  explains  that  the  objective  of  the  civil  liability  action  is  to  engage  the  civil 
liability of companies.312 Besides, in its decision reviewing the constitutionality of the 
Vigilance  Law,  the  French  Constitutional  Court  [Conseil  constitutionnel]  also  only 
refers to the civil liability of companies.313 

c. The extent to which the legal regime translates a corporate duty to respect 
human rights and abstain from other abuse(s) and from causing damage into 
a  civil  law  obligation  by  requiring  a  standard  of  reasonable  care  from  the 
directors 

See answer to previous question. 

d. The  level of “duty  of care”/”due  diligence” required of the business or its 
administrative  organs,  in  order  to  fulfil  their  obligations,  and  the  key 
elements of this legal “duty of care” 

Companies  entering  into  the  scope  of  the  Vigilance  Law  have  to  establish  a  vigilance 
plan  setting  out  "reasonable  vigilance  measures  adequate  to  identify  risks  and  to 
prevent  severe  impacts  on  human  rights  and  fundamental  freedoms,  on  the  health 
and  safety  of  persons  and  on  the  environment,  resulting  from  the  activities  of  the 
company and of those companies it controls within the meaning of II of article L. 233-
16,  directly  or  indirectly,  as  well  as  the  activities  of  subcontractors  or  suppliers  with 
whom  there  is  an  established  commercial  relationship,  when  these  activities  are 
related  to  this  relationship"  (Commercial  Code,  article  L.  225-102-4.-I).  They  must 
effectively  implement  their  vigilance  plan,  and  make  the  plan  and  the  report  on  its 
effective 
in  the  company's  annual 
management report.314 

implementation  public  and 

include  them 

A  couple  of  comments  below  about  the  level  of  the  vigilance  measures  that  is 
expected, including: 

  First,  the  Vigilance  Law  explicitly  refers  to  "reasonable  vigilance  measures" 
[mesures  de  vigilance  raisonnable]  (emphasis  added).  Note  that  we  chose  to  use 
this translation as it is closer to the original in French. However, in the UNGPs, the 

311 For an overview of this civil liability and criminal liability, see, JurisClasseur Commercial, Fasc. 1053 Dirigeant sociaux – 
responsabilité civile, 3 April 2019; Jurisclasseur Commercial, Fasc. 1060 Responsabilité des Dirigeants Sociaux, 1 April 2010 
(latest update 12 Jan.2018). 
312 National Assembly, draft law No 2578, 11 Feb. 2015, p.12, available at http://www.assemblee-
nationale.fr/14/propositions/pion2578.asp. 
313 French Constitutional Court, Decision No 2017-750 DC, para. 27. 
314 Note that France is a civil law jurisdiction and that the "duty of care" is a common law concept and not a civil law 
concept. For a comparative analysis of the duty of vigilance and the duty of care, see Béatrice Parance & Elise Groulx, 
Regards croisés sur le devoir de vigilance et le duty of care, Journal du Droit International (Clunet) No 1, Jan. 2018. 

84 

 
 
                                                        
English  expression  "human  rights  due  diligence"  is  translated  in  French  as 
for 
"procédure  de  diligence  raisonnable".  Similarly,  the  OCDE  Guidelines 
Multinational  Enterprises  use  the  English  expression  "due  diligence'  which  is 
translated in French as "diligence raisonnable".315 

  Second,  the  reasonable  vigilance  measures  are  meant  to  "identify  risks  and 

prevent severe impacts". 

  Third,  the  vigilance  plan  includes  a  risk  mapping  (item  1)  that  aims  at  identifying 
risks,  analysing  them  and  prioritising  them  with  the  view  of  preventing  severe 
impacts. This means that the Vigilance Law acknowledges that companies can (and 
should) prioritise their responses. 

  Fourth, the civil liability regime is based  on an "obligation  de  moyens",  and not 

an "obligation de résultat" (see II.3.d.). 

e. How directors’ responsibility can be engaged 

On the Vigilance Law, see III.2. 

f. Whether the concept of due diligence is used in the domestic regulation of 
other  areas  of  corporate  governance,  and  if  so,  what  the  legal  elements  are 
to  establish  a  duty  and/or  liability  (including,  if  any,  for  subsidiaries  and  in 
the supply chain). 

Law  No  2016-1691  of  9  December  2016  on  Transparency,  Anti-corruption  and 
Modernisation  of  Economic  Life  ("Sapin  II  Law")  [Loi  No  2016-1691  du  9  décembre 
2016 relative à la transparence, à la lutte contre la corruption et à la modernisation de 
la  vie  économique].  The  Sapin  II  Law  was  debated  in  Parliament  at  about  the  same 
time as the Vigilance Law. In several respects, article 17 of the Sapin II Law and the 
Vigilance  Law  have  a  similar  structure.  However,  the  processes  to  be  implemented 
such  as  "risk  mapping"  or  "alert  mechanisms"  are  not  the  same.  These  two  laws  do 
not  have  the  same  objectives;  they  do  not  address  the  same  risks  (the  risks  to  the 
company  itself  for  the  Sapin  II  Law,  and  the  risks  to  rights-holders  for  the  Vigilance 
Law).  In  addition,  other  differences  relate  to  the  sanction  regime  and  the  scope  of 
both laws. 

This  section  only  provides  an  overview  of  article  17  of  the  Sapin  II  Law.  This  article 
provides  for  an  obligation  to  prevent  and  detect  corruption  and  influence  peddling  in 
France and abroad and details specific measures for doing so.316 

The  scope  of  the  Sapin  II  Law  combines  an  employee  and  turnover  threshold.  The 
obligation  provided  in  article  17  applies  to  "chairpersons,  managing  directors  and 
managers  [les  présidents,  les  directeurs  généraux  et  les  gérants]  of  a  company  that 
employs at least five hundred employees [au moins 500 salariés], or [of a company] 
part  of  a  corporate  group  [groupe  de  sociétés]  with  the  parent  company  having  its 
registered  office  in  the  French  territory  and  employing  at  least  500  employees 
[employant  au  moins  500  salariés],  and  with  a  net  turnover  [chiffre  d'affaires]  or 

315 See e.g., UNGPs, Principle 15; OECD MNE, General Principles 10 & 14. 
316 Note that the other principal provisions of the Sapin II Law includes the creation of the French anticorruption agency 
[Agence française anticorruption] (articles 1 to 5), the provision of a general status for whistle blowers (articles 6 to 15) 
that is distinct from the whistle blowing system of article 17, a penalty of mandatory compliance [programme de mise en 
conformité] (article 18), a system presented as similar to the deferred prosecution agreements [convention judiciaire 
d'intérêt public] (article 22). For more information on Sapin II Law, see French anticorruption agency, Guidelines to help 
private and public sector entities prevent and detect corruption, influence peddling, extortion by public officials, Dec. 2017, 
available at https://www.agence-francaise-anticorruption.gouv.fr/files/2018-
10/French_Anticorruption_Agency_Guidelines.pdf; see also Agence française anticorruption, Guide sur la fonction 
conformité anticorruption en entreprise, Jan. 2019 (in French) available at 
https://www.economie.gouv.fr/files/files/directions_services/afa/2019-01-29_-_Guide_pratique_fonction_conformite.pdf 
(note that this guide is the first of a series of six upcoming guides to be published by the French anticorruption agency). For 
a discussion on the articulation of the EU General Data Protection Regulation, the Vigilance Law and Sapin II Law (in 
French), see e.g., Géraldine Péronne & Emmanuel Daoud, Loi Sapin II, loi vigilance et RGPD – Pour une approche 
décloisonnée de la compliance, Dalloz IP/IT, Nov. 2017, p.584. 

85 

 
 
                                                        
consolidated  net  turnover  superior  to  100  million  euros."  (article  17.-I,  emphasis 
added).317 

This  obligation  also  applies,  with  the  same  employee  and  turnover  thresholds,  to 
chairpersons  and  managing  directors  of  public  establishments  of  an  industrial  and 
commercial  nature  [établissements  publics  à  caractère  industriel  et  commercial]  or 
belonging to a public group [groupe public] and to some extent to the members of the 
management board [membres du directoire] of sociétés anonymes. (See article 17.-I 
1° and 2° for more details). 

See article 17.-I. for additional details as to the situation of corporate groups and the 
entities inside these groups which are covered by the obligation provided in article 17. 
Article  17.II  details  the  measures  and  procedures  required  to  comply  with  the 
obligation  to  prevent  and  detect  corruption  and  influence  peddling.  The  persons 
mentioned at article 17.-I as well as the company, as a legal person, can be held liable 
in case of failure to comply with the measures provided in article 17.-II.318 

These measures are: 

1°  A  code  of  conduct  defining  and  illustrating  the  various  types  of  behaviours  to  be 
forbidden  as  they  are  likely  signs  of  corruption  [faits  de  corruption]  or  influence 
peddling  [trafic  d'influence].  The  code  of  conduct  must  be  included  in  the  company’s 
règlement intérieur; 

2°  An  internal  whistle-blowing  system  to  allow  employees  to  disclose  conduct  or 
situations that do not comply with the code of conduct; 

3°  Risk  mapping  taking  the  form  of  a  structured  written  document  regularly  updated 
and  aimed  at  identifying,  analysing,  and  prioritising  the  risks  of  external  solicitations 
for  corrupt purposes to which the company is exposed, with due consideration of the 
business sectors and geographical areas in which the company operates; 

4° Evaluation procedures regarding the situation of customers, first-tier suppliers, and 
intermediaries  [clients,  fournisseurs  de  premier  rang  et  intermédiaires],  in  line  with 
the risk mapping; 

5° Internal and external accounting control procedures to ensure that books,  records 
and accounts are not used to conceal acts of corruption or influence peddling; 

6°  A  corruption  risk  training  system  directed  to  managers  and  staff  [cadres  et 
personnels]  who  have  the  greatest  exposure  to  risks  of  corruption  and  influence 
peddling; 

7° Disciplinary rules allowing the enforcement of sanctions upon employees [salariés] 
of the company in case of infringement of the code of conduct; and 

8° An internal monitoring and assessment system of the measures implemented. 

The French anticorruption agency ensures compliance with the above listed measures. 
If  a  company  fails  to  adopt  these  measures,  the  magistrate  [magistrat]  head  of  the 
agency has the possibility to seize the agency's sanction commission [Commission des 
sanctions]. The commission can (article 17.-IV and V): 

  Issue  an 

injunction  requiring  the  company  and 

its  representatives  [ses 

representants] to comply with its recommendations; 

  Impose  fines  up  to  200,000  euros  for  natural  persons  and  one  million  euros  for 
legal persons. The quantum of the fine must be proportionate to the breach and to 
the financial situation of the natural person or legal person subject to the fine; and 

317 Translations of the Sapin II Law are based, when possible, on the translations used in the following document: French 
anticorruption agency, Guidelines to help private and public sector entities prevent and detect corruption, influence 
peddling, extortion by public officials, Dec. 2017. 
318 Sapin II Law, article 17.-II."Indépendamment de la responsabilité des personnes mentionnées au I du présent article, la 
société est également responsable en tant que personne morale en cas de manquement aux obligations prévues au présent 
II.". 

86 

 
 
                                                        
  Order  the  publication,  dissemination  or  display  of  the  decision  regarding  the 
injunction  or  fine  or  an  extract  thereof.  The  costs  are  borne  by  the  person  found 
liable. 

For references to other domestic laws, see I.2 and II.1 and III.1. 

g.  How  parent  companies  can  be  held  liable  in  the  Member  States  for  the 
impacts  of  their  subsidiaries,  including  non-EU  based  subsidiaries  (including 
in  comparative  areas  of  corporate  governance  such  as  anti-bribery  and 
corruption, anti-money laundering, taxation, competition, health and safety) 

See developments on the Vigilance Law, section II. 

For comparative area for corporate governance, see previous question. 

h. How companies in Member State can be held liable for the impacts of their 
supply  chain,  including  non-EU  based  suppliers,  and  including  suppliers 
beyond the first tier of the supply chain 

See developments on the Vigilance Law, section II. 

Note that the vigilance plan is not limited to EU-based suppliers or first-tier suppliers 
in the supply chain. Indeed, the vigilance plan covers: 1) the activities of a company 
that enters into the scope of the Vigilance Law and which has to establish the vigilance 
plan;  2)  the  activities  the  companies  that  such  a  company  controls,  within  the 
meaning  of  article  L.  233-16  II,  directly  or  indirectly;  and  3)  the  activities  of 
subcontractors  or  suppliers  with  whom  there  is  an  established  commercial 
relationship, when these activities are related to this relationship. 

Any  supplier  can  thus  enter  into  the  ambit  of  a  company's  vigilance  plan  as  long  as 
there  is  an  established  commercial  relationship  and  the  activities  are  related  to  this 
relationship,  irrespective  of  where  the  supplier  operates,  where  it  is  registered  or  its 
rank in the supply chain. 

i.  Whether  any  other  area  of  law  requires  due  diligence  for  cross-border 
corporate impacts, such as cross-border pollution or environmental hazards. 

Vigilance Law covers cross-border corporate risks provided that: 

  Such risks enter into the ambit rationae materia of the vigilance plans (i.e. risks to 
human  rights  and  fundamental  freedoms,  to  the  health  and  safety  of  persons  and 
to the environment); and 

  Such  risks  arise  in  entities  which  enter  into  the  ambit  rationae  personae  of  the 
vigilance plans (i.e. risks resulting from the activities of the company and of those 
companies  it  controls  within  the  meaning  of  II  of  article  L.  233-16,  directly  or 
indirectly, as well as the activities of subcontractors or suppliers with whom there is 
an  established  commercial  relationship,  when  these  activities  are  linked  to  this 
relationship). 

Regarding other laws requiring due diligence for cross border impact, see I.2. and II.1. 

j.  Whether  due  diligence  over  own  operations  or  the  supply  chain  is  a  legal 
requirement in other areas of law regulating business, including whether due 
diligence is available as a defence 

Regarding other areas of law regulating business, see I.2. and II.1. 

With regards to the use of the vigilance plan as a possible defence, it is important to 
note that the vigilance plan is the cornerstone of the Vigilance Obligations. As a result, 
the showing that a vigilance plan has been properly established and implemented may 
be viewed as a means of defence in the event of a civil liability action. In practice, the 
court will have to assess a vigilance plan's comprehensiveness and how effectively it is 

87 

 
 
implemented.  This  will  likely  determine  the  extent  to  which  a  vigilance  plan  may  be 
used as a means of defence in a civil liability action. 

k.  Whether  the  severity  of  the  human  rights  abuses  is  relevant,  taking  into 
account the specific risks of certain activities 

Severity  is  a  key  concept  in  the  Vigilance  Law  since  the  vigilance  plan  "shall  contain 
reasonable  vigilance  measures  adequate  to  identify  risks  and  to  prevent  severe 
impacts on […]." The Vigilance Law, however, does not specify how and at what scale 
the  notion  of  severity  should  be  assessed.  The  UNGPs  may  however  offer  a  possible 
interpretation.319 

l.  The  burden  of  proof  to  hold  a  business  or  its  board/director  liable  for 
human  rights  or  other  impacts,  including  which  regulations  are  the  most 
efficient for victims in this respect 

In relation to the Vigilance Law, the burden of proof is on the claimant. 

10.Access to remedy by individuals 

The  Vigilance  Law's  civil  liability  regime  provides  access  to  remedies  for  individuals 
whose  rights  are  affected.  To  date,  the  Vigilance  Law  appears  as  one  of  the  most 
advanced domestic regimes that provide access to remedy for individuals whose rights 
have been impacted along supply chains and for environmental impacts. 

A number of challenges, however, exist at this stage. These challenges raise questions 
as to the effectiveness of this regime (see II.5. and II.6.). 

The  Vigilance  Law  has  a  twofold  objective:  remediation  and  prevention.320 It  remains 
to  be  seen  how  effective  remediation  will  be  when  the  first  actions  are  introduced 
before the competent courts. In the meantime, the very existence of the civil liability 
action  (and  of  the  sanction  regime  of  the  Vigilance  Law  as  a  whole)  serves  the 
objective  of  prevention  and  could  even  lead  to  new  standards  of  behaviour  for 
companies.321 

a.  Adherence  by  Member  States  to  their  fundamental  human  rights 
obligations 

The  French  National  Action  Plan  refers  to  the  Vigilance  Law,  together  with  other 
domestic  laws,  as  a  way  for  France  to  adhere  to  its  fundamental  human  rights 
obligations. The Vigilance Law also appears to be one of the most advanced domestic 
regimes with respect to mandated human rights due diligence. The Vigilance Law has 
the  potential  to  contribute  to  France's  effective  adherence  to  "its  obligations  to 
respect, protect and fulfil human rights and fundamental freedoms", as provided in the 
UNGPs.322 In  practice,  this  will  depend  on  how  French  institutions  take  ownership  of 
the Vigilance Law (including courts in the enforcement phase, the Government in the 
promotion  and  support  phase,  and  the  Parliament  in  its  possible  monitoring  of  the 
implementation of the Vigilance Law through a parliamentary evaluation mission). 

b. Under which conditions and how victims can hold the Member State parent 
companies  or  their  subsidiaries  liable  in  case  of  human  rights  violations  or 
other relevant damage caused within the supply chains 
See II.5. and II.6. for more details on the civil liability regime provided in the Vigilance 
Law. 

319 See, UNGPs, Principle 14; see also II.3.a. on the interpretation of some expressions in the Vigilance Law 
320 National Assembly, draft law No 2578, 11 Feb. 2015, p.4 available at http://www.assemblee-
nationale.fr/14/propositions/pion2578.asp; see also II.2.a. 
321 Stéphane Brabant & Elsa Savourey, A Closer Look at the Penalties Faced by Companies, International Review of 
Compliance and Business Ethics [Revue Internationale de la Compliance et de l'Ethique des Affaires], June 2017, Comm 44, 
p.5 ("preventive action is essential to raising company awareness, limiting the negative impact of their activities on human 
rights and thus reducing the number of potential victims of such impacts."). 
322 UNGPs, General Principles, p.1. 

88 

 
 
 
                                                        
Note  that  the  company  whose  liability  can  be  established  does  not  have  to  be  a 
"Member  State  parent  company"  as  formulated  in  this  question.  It  could  be  a  parent 
or  an  instructing  company.  Moreover,  the  company  which  liability  can  be  established 
could  be  the  subsidiary  of  a  foreign  parent  company  (EU  or  non-EU),  as  long  as  its 
subsidiary  has  its  registered  office  in  France  and  meets  certain  criteria  related  to  its 
corporate form and number of employees (see II.2.). 

To  sum  up,  a  victim  can  hold  a  company  liable  in  case  of  human  rights  violations  or 
other relevant damage under the following conditions: 

  The company enters into the scope of the Law; and 

  The victim is able to prove that the three conditions for civil liability are met. 

c. What are the main obstacles and difficulties 
Some  obstacles  related  to  remediation  include  (see  II.5.  and  II.6.  for  more 
developments): 

  The burden of proof  rests  on the victims. This situation has been presented as a 
main  challenge  for  the  civil  liability  action.  It  remains  to  be  seen  with  the  first 
actions  introduced  before  the  courts,  whether  this  will  be  the  case  in  practice.  A 
number of NGOs are asking for a reversal of the burden of proof so that it shifts 
from the claimant to the company entering into the scope of the Vigilance Law. 

  Access to court for claimants. 

  Knowledge  of  the  Vigilance  Law  and  of  related  business  and  human  rights 

standards by courts and by the legal profession in general. 

  Another  challenge  is  the  question  of  whether  the  Vigilance  Law  would  be  the 

applicable law in the event of a damage occurring outside of France. 

IV. REGULATORY FRAMEWORK 
a.  Which  regulatory  model 

is  most  effective 

in  achieving  corporate 

implementation of adequate due diligence 

This  is  a  difficult  question  to  address  as  the  Vigilance  Law  is  only  two  years  old  and 
the  sanction  regime  has  not  yet  been  triggered.  At  this  preliminary  stage,  a  few 
comments are possible. 

The  Vigilance  Law  has  integrated  into  domestic  "hard  law"  what  can  be  viewed  as 
mandatory due diligence in relation to human rights, health and safety of the persons 
and  the  environment.  As  such,  it  has  contributed  to  both  raising  the  awareness  of 
companies on these topics and to integrating these topics in the legal risk analysis of 
companies.  In  particular,  the  risk  of  severe  impacts  on  human  rights  now  appears 
better  captured  as  a  legal  risk  by  companies  in  light  of  the  litigation risks  associated 
with the Vigilance Law. It is possible to anticipate that the sanction regime as a whole 
is  serving  as  a  strong  incentive  for  companies  to  comply  with  the  Vigilance  Law  and 
implement adequate human rights due diligence. On this subject, see also III.14. 

In terms of "regulatory model", and based on the preliminary observations about the 
Vigilance  Law,  a  regulatory  approach  with  associated  sanctions  may  contribute  to  a 
large  mobilisation  within  companies  on  the  topics  of  human  rights,  health  and  safety 
of  persons  and  the  environment.  It  may  also  help  to  ensure  that  companies  more 
closely  integrate  these  topics  in  the  risk  analysis  they  conduct  with  respect  to  their 
various projects, including as part of their legal risk analysis (and thus going beyond a 
"reputational risk" approach). 

Beyond  the  Vigilance  Law,  it  would  also  be  worth  exploring  the  effectiveness  of  an 
incentive-based  "model"  (in  connection  for  instance  with  participation  in  public 
procurement) as an alternative or complement to a sanction-based approach. 

Having a general regime for human rights and environmental due diligence at the EU 
level may provide clarity in a context where a number of EU regulations and directives 

89 

 
 
 
(in  place  and  under  discussion)  refer  to  the  UNGPs,  the  OECD  Guidelines  for 
Multinational Enterprises, and human rights due diligence.  In addition, a potential EU 
regime  may  contribute  (depending  on  the  companies  entering into  the  scope  of  such 
regime) to levelling the playing field so that the same rules apply to a larger number 
of companies operating in/from the EU. This would also be helpful, for instance, when 
these  companies  compete  on  international  projects.  It  is  possible  to  consider  that 
having a level playing field at the EU level may also help increase the "acceptability" of 
mandatory  due  diligence  for  the  companies  concerned.  An  important  part  of  the 
acceptability  of  such  an  EU-wide  initiative  (and  the  ability  of  companies  to  take 
ownership  of  it)  would  rely  on  pedagogy.  A  pedagogical  approach  would  include 
explaining  and  providing  guidance  to  companies  on  the  processes  to  be  conducted, 
including  on  due  diligence.  It  would  also  consist  in  acknowledging  that  the 
implementation  of  these  processes  can  take  time  for  companies  that  are  not  used  to 
addressing questions relating to human rights/environment. 

b.Which  regulatory  model  is  most  effective  in  providing  victims  with  access 
to remedy 
This  is  a  difficult  question  to  address  as  the  Vigilance  Law  is  only  two  years  old  and 
the  sanction  regime  has  not  yet  been  triggered.  In  any  event,  and  as  previously 
explained, the  existence of the  civil liability regime in the Vigilance Law serves as an 
incentive to achieve corporate implementation of adequate due diligence. 

The Vigilance Law uses civil liability as a mechanism to provide remedies. However, in 
light  of  the  foreseeable  obstacles  with  such  a  remedy  mechanism,  a  number  of 
questions should be clarified when considering regulatory models. These clarifications 
should also be based  on how the courts will enforce the Vigilance Law. They include: 
1)  whether  this  regime  is  the  most  appropriate  to  provide  access  to  remedies 
(especially  in  the  context  where  the  claimant  is  located  outside  of  France  and  where 
the  damage  has  occurred  outside  of  France);  2)  who  should  be  able  to  bring  a  suit 
before  the  court,  which  raises  the  question  of  the  possibility  of  class  actions;  and  3) 
whether the conditions to establish civil liability should be adjusted (possibly leading to 
a  reversal  of  the  burden  of  proof  in  favour  of  the  claimants).  These  questions  would 
also  be  of  relevance  if  the  EU  considers  a  legislative  approach  to  human  rights  and 
environmental  due  diligence.  Such  approach  would  need  to  be  carefully  considered 
within the context of Rome II Regulation. 

Lastly, it is also important for EU Member States to approach the development of any 
regulatory  model  providing  access  to  remedy  in  connection  with  their  obligations 
under pillars 1 and 3 of the UNGPs. 

c.  An  overall  assessment  of  the  main  strengths  and  weaknesses  (risks  and 
opportunities)  of  the  examined  legislative  regimes,  providing  a  detailed 
comparative  analysis,  including  whether  they  are  effective  to  address  the 
most  important  potential  harms  and  negative  impact  of  companies  in  their 
operation and in their supply chain 
The list below tries to provide an account of the main strengths and weaknesses of the 
Vigilance Law. The list is not exhaustive. 

Other  legislative  initiatives  are  not  reviewed  here.  For  a  commentary  on  the  non-
financial reporting legislation, see III.1. 

Main strengths of the Vigilance Law: 

  The Vigilance Law and the parliamentary debates that preceded its adoption have 
contributed  to  raise  the  awareness  of  a  number  of  companies  (and  also  of  the 
public  in  general)  about  the  respect  of  human  rights  by  businesses  across  their 
activities and supply chains. Within a number of companies, it has also served to 
reinforce  internal  collaboration  through  the  creation  of  task  forces  dedicated  to 
establishing and effectively implementing the Vigilance Obligations. 

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  The  Vigilance  Law  is  not  merely  about  reporting  but  it  is  also  about  effectively 

implementing a vigilance plan. 

  The  Vigilance  Law  is  not  limited  to  a  discrete  set  of  human  rights  (e.g.  those 
related to slavery and forced labour or child labour). It has a much broader ambit 
as it covers risks and severe impacts on human rights and fundamental freedoms, 
on the health and safety of persons, and on the environment. 

 

In  the  presence  of  a  corporate  veil  between  legal  entities  in  a  supply  chain,  the 
Vigilance  Law  uses  the  Vigilance  Plan  as  a  connection  between  the  parent  or 
instructing  companies,  certain  legal  entities  in  the  supply  chains  of  such 
companies and subsidiaries. The sanction regime is thus attached to the parent or 
instructing companies and not to any other legal entities. 

  While the number of companies entering into the scope of the Vigilance Law may 
not  be  significant  (between  150  and  300  according  to  various  estimates),  the 
number  of  companies  entering  into  the  ambit  of  a  company's  vigilance  plan  and 
therefore subject to the processes to be put in place as part of the establishment 
and effective implementation of the vigilance plan, is large. 

  There  is  no  "comply  or  explain"  mechanism:  any  company  entering  the  scope  of 
the  Vigilance  Law  has  to  comply  with  the  Vigilance  Obligations.  The  Vigilance 
Obligations  range  from  the  establishment  of  a  vigilance  plan  covering  the  five 
measures  listed  in  the  Vigilance  Law,  the  effective  implementation  of  such  plan, 
and  its  publication  and inclusion in  the  company's  annual  management  report  as 
provided in the Vigilance Law. 

  The sanction regime is a key element of the Vigilance Law. This sanction regime is 
three fold: injunction, civil liability, and the publication of the civil liability decision. 
Hence  it  is  a  unique  combination  of  an  implementation  process,  a  remediation 
process, and a name and shame process. 

As  it  has  already  been  discussed  in  this  Report,  the  existence  of  the  sanction 
regime  serves  the  two-fold  objective  of  the  Vigilance  Law:  prevention  and 
remediation,  although  it  remains  to  be  seen  how  the  court  will  enforce  such  a 
regime. 

Although  "hard  sanctions"  already  existed  in  the  event  of  non-compliance  by 
businesses with human rights "soft law" standards, the existence of the Vigilance 
Law's  sanction  regime,  even  if  it  has  not  yet  been  enforced  before  the  courts,  is 
an incentive for companies to comply with the Vigilance Obligations. 

As a side note, this sanction regime also contributed to have a number of lawyers 
(who  may  not  have  viewed  "soft  law"  standards  as  a  sufficient  justification  for 
companies  to  respect  human  rights)  taking  the  respect  of  human  rights  by 
businesses more seriously. 

  The  number  of  parties  with  standing  who  may  seek  an  injunction  with  potential 
periodic penalty payment is large. This empowers NGOs, trade unions and various 
other stakeholders to  monitor the implementation of the Vigilance Obligations by 
the companies entering into the scope of the Vigilance Law. 

  Provisions of the Vigilance Law in relation to the involvement of stakeholders are 
quite  innovative.  Indeed,  the  vigilance  plan  "is  meant  to  be  drawn  up  in 
conjunction  with  the  stakeholders  [parties  prenantes]  of  the  company,  where 
appropriate as part of multi-stakeholder initiatives [initiatives pluripartites] within 
sectors or at territorial level."323 In addition, the Vigilance Law provides that trade 
unions  in  particular  shall  be  consulted  in  the  set-up  of  the  alert  and  complaint 
mechanism.  In  addition,  and  providing  they  can  prove  standing,  the  injunction 

323 Commercial Code, art. L. 225-102-4.-I para. 4 ("Le plan a vocation à être élaboré en association avec les parties 
prenantes de la société, le cas échéant dans le cadre d'initiatives pluripartites au sein de filières ou à l'échelle territoriale."). 

91 

 
 
                                                        
mechanism  is  also  a  tool  for  various  stakeholders  to  ensure  that  companies 
entering into the scope of the Vigilance Law comply with the Vigilance Obligations. 

Main weaknesses: 

  Only a limited number of companies fall within the scope of the Vigilance Law. In 
addition,  foreign  companies  that  have  no  subsidiaries  in  France  entering  into  the 
scope of the Vigilance Law do not have to comply with the Vigilance Law, even if 
they have activities in France. 

  There  is  a  difficulty  in  identifying  the  companies  entering  into  the  scope  of  the 
Vigilance  Law,  due  to  the  lack  of  publicly  available  information  in  relation  to  the 
corporate  structure  of  a  company/group  of  companies  and  their  number  of 
employees  in  France  and  globally.  It  is  difficult  to  know  with  certainty  whether 
companies which have not published a vigilance plan fall outside the scope of the 
Vigilance Law. This explains why a number of NGOs and the French rapporteur of 
the Vigilance Law are asking the Government to issue a list of companies entering 
into the scope of the Vigilance Law. 

  The same comment applies to the identification of the entities that enter into the 
ambit rationae personae of the vigilance plan. This also explains why certain NGOs 
have asked companies to disclose a list of companies that enter into the ambit of 
the vigilance plan. 

  Some concepts included in the Vigilance Law are likely to be clarified by the courts 
as  they  are  currently  not  defined  in  the  Vigilance  Law  and  therefore  subject  to 
diverging interpretation.  In such a context, an important question is whether the 
judges and the legal profession in general will have pre-existing knowledge of the 
UNGPs  and  related  standards  and  practices  pertaining  to  the  emerging  field  of 
"business  and  human  rights"  which  may  prove  helpful  tools  to  implement  and 
enforce the Vigilance Law. 

  Sanctions  regime:  access  to  remedy  through  civil  liability  may  be  difficult  as  a 
result  of  the  challenges  previously  identified  (see  II.5.,  II.6.,  III.17.)  Several 
provisions  of  the  Vigilance  Law  remain  subject  to  the  courts'  interpretation.  The 
applicable law in the event of a damage occurring abroad needs to be clarified. 

  The monitoring of the implementation of the Vigilance Law so far mostly relies on 
civil  society  organisations,  which  may  have  limited  financial  and  operational 
capacity.  This  raises  the  question  of  whether  a  monitoring  agency  should  be 
established to provide independent advice and guidance on the implementation of 
the Vigilance Law and/or contribute to its enforcement. 

  The  Vigilance  Law  was  enacted  approximately  at  the  same  time  as  the  Sapin  II 
Law on anti-corruption. Processes to be implemented have similar names, such as 
"risk mapping" or "alert mechanisms". These two laws, however, do not have the 
same  objectives;  they  do  not  address  the  same  risks  (the  risks  to  the  company 
itself for the Sapin II Law, and the  risks to  rights-holders for the Vigilance  Law). 
This may be a source of confusion for some companies. 

  The  articulation  of  the  Vigilance  Law  with  trade  secrets  and  whistleblowing  could 
be clarified. So far, a number of companies are hesitant to disclose risks that exist 
but  have  not  yet  entered  into  the  public  domain.  The  alert  and  complaint 
mechanism also needs to provide sufficient protection for the persons using it. 

  The coexistence, for the non-financial reporting legislation and the Vigilance Law, 
of  different  thresholds  in  terms  of  scope  of  application  and  of  complementary 
information to be published may lead to various confusions for companies having 
to  prepare  a  declaration  on  extra-financial  performance  and,  when  applicable,  a 
vigilance  plan.  The  articulation  of  the  Vigilance  Law  with  more  specific  due 
diligences  initiatives  (mentioned  at  II.1.)  may  also  be  complex  to  navigate  for 
companies and their stakeholders. 

92 

 
 
Comments on the first vigilance plans: 

  This  subject  is  partially  covered  in  II.8.a.  and  by  reports  from  various 
stakeholders.  These  reports note that, in spite of some positive aspects, the first 
vigilance plans are generally not fully satisfactory. See these reports for details on 
the positives aspects of the first vigilance plans and suggestions to improve them 
in the future.324 Overall, methodologies used by companies to comply with the five 
items of the vigilance plan could be clarified in the body of their plans. Indeed, the 
vigilance plans can be improved  with regard to a number  of  key items, including 
risk mapping and associated identification of risk, evaluation measures, alert and 
complaint  mechanism  and  the  consultation  of  stakeholders.  Another  relevant 
question is the effective implementation of a vigilance plan and the assessment of 
such  implementation  (including  through  the  identification  of  relevant  indicators). 
Accessibility and visibility of the vigilance plans are other main issues. 

  Overall,  there  is  still  a  lack  of  a  "business  and  human  rights"  culture  within  a 
number  of  companies  entering  into  the  scope  of  the  Vigilance  Law,  including  at 
the levels of top management and operational staff. This results in a more difficult 
implementation  of  the  Vigilance  Obligations  within  companies  and  a  lack  of 
appropriate drive at the executive management level. This may explain why some 
companies view the Vigilance Law as a tick-box exercise, or conduct risk mapping 
by  looking  at  their  own  risks,  as  opposed  to  risks  to  rights  holders,  as  the 
Vigilance  Law  requires.  This  can  also  lead  to  internal  tensions  within  companies, 
with  some  people  feeling  uncomfortable  disclosing  too  much  information  in  the 
vigilance plan for fear of exposing the company to legal action. 

  Admittedly,  we  are  still  in  a  learning  phase,  as  noted  by  Dominique  Potier  in  a 
conference  on the Vigilance Law  on 27 March  2019.  Given this learning phase, a 
question  remains  as  to  the  guidance  that  should  be  offered  to  help  companies 
comply with the Vigilance Law  or whether such guidance should not  be issued in 
order  maintain  companies'  flexibility  in  the  implementation  of  the  Vigilance  Law. 
Sherpa,  a  leading  NGO,  including  on  issues  related  to  the  Vigilance  Law,  has 
issued such guidance late 2018 (English version was published in 2019). But other 
questions  are  whether  it  would  have  been  appropriate  to  issue  guidance  before 
the  first  vigilance  plans  were  implemented  and  if  so,  which  other  entity/entities 
should have issued such guidance, and whether it is still timely to do so now. 

11. Review of Proposals for Regulation 

a.  How  would  new  or  planned  legislative  regimes  have  changed/would 
change this situation 

See previous sections on the Vigilance Law. 

b. What have been the critiques or limitations of regulatory proposals (if any) 

See III.20. on the main weaknesses of the Vigilance Law 

324 Entreprises pour les droits de l'Homme & BL Evolution, The application of the Law of the Corporate Duty of Vigilance, 
Analysis if the first published plans, 1st edition, 25 April 2018, available at https://www.e-
dh.org/userfiles/Edh_2018_Etude_EN_V4.pdf (see summary of key recommendations p.6-7); EY, Loi sur le devoir de 
vigilance: analyse des premiers plans de vigilance, Sept. 2018, available at 
https://www.ey.com/Publication/vwLUAssets/ey-analyse-des-premiers-plans-de-vigilance-du-sbf-120/$File/ey-analyse-des-
premiers-plans-de-vigilance-du-sbf-120.pdf; ActionAid France-Peuples Solidaires, Amis de la Terre France, Amnesty 
International France, CCFD-Terre Solidaire, Collectif Ethique sur l’Etiquette et Sherpa, Loi sur le devoir de vigilance des 
sociétés mères et entreprises donneuses d’ordre - Année 1: les entreprises doivent mieux faire, March 2019 (in French), 
available at https://www.asso-sherpa.org/wp-content/uploads/2019/02/2019-etude-interasso_devoir_de_vigilance-
ilovepdf-compressed-3.pdf; Sherpa, Mighty Earth, FNE, Devoir de vigilance et déforestation: le cas oubliés du soja, March 
2019, available at http://www.mightyearth.org/wp-content/uploads/rapport_soja_WEB_bassdef2.pdf; Elsa Savourey, 
France's law on the corporate duty of vigilance: process, pedagogy and pragmatism as the way forward, Nov. 2018, 
available at https://www.business-humanrights.org/en/frances-law-on-the-corporate-duty-of-vigilance-process-pedagogy-
and-pragmatism-as-the-way-forward.  

93 

 
 
 
                                                        
c. 

What kind of regulation is available at EU level for regulating corporate 
due diligence in the Member State, and how this is likely to be applied and/or 
incorporated 
law  (including  civil,  criminal  and 
administrative measures, and possible remedies) 

into  Member  State 

This  answer  is  limited  to  Regulation  (EU)  2017/821  of  17  May  2017  on  conflict 
minerals  laying  down  supply  chain  due  diligence  obligations  (such  obligation  being 
applicable  from  Jan  2021  onward)  for  EU-based  importers  of  minerals  or  metals 
containing or consisting of tin, tantalum, tungsten their ores, and gold originating from 
conflict-affected and high-risk areas. 

Member States shall designate one or more competent authorities responsible for the 
application of this Regulation and for conducting ex-post check of the conduct of due 
diligence. France's competent authority is the Ministry for an ecological and solidarity 
transition; General Directorate for Urban Development, Housing and Natures; Bureau 
of  Non-Energy  Mineral  Resources  Policy  [Ministère  de  la  transition  écologique  et 
solidaire; Direction générale de l'aménagement, du logement et de la nature (DGALN); 
Bureau  de  la  politique  des  ressources  minérales  non  énergétiques]. 325  Possible 
sanctions may be introduced at a later stage.326 

325 List of the competent authorities of Member States designated under article 10(1) of Regulation (EU) 2017/821, 
available at http://trade.ec.europa.eu/doclib/docs/2019/april/tradoc_157843.pdf.  
326 Regulation (EU) 2017/821 of the European Parliament and of the Council of 17 May 2017 laying down supply chain due 
diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-
affected and high-risk areas, art. 17(3) ("Based on the findings of the review under paragraph 2, the Commission shall 
assess whether Member State competent authorities should have competence to impose penalties upon Union importers in 
the event of persistent failure to comply with the obligations set out in this Regulation. It may, as appropriate, submit a 
legislative proposal to the European Parliament and to the Council in this regard."). 

94 

 
 
 
                                                        
GERMANY COUNTRY REPORT 

Daniel Augenstein327 

I. 

OVERVIEW 

The  German  legal  order  contains  examples  of  different  types  of  due  diligence  obligations, 
whose concrete scope and content is tailored to the  respective purpose of the law and the 
risks it aims to address. In one way or the other, all due diligence obligations are subject to 
standards  of  reasonableness,  appropriateness,  adequacy,  cost-benefit  analysis,  etc.,  which 
ultimately  give  effect  to  the  constitutional  proportionality  principle.  These  standards  are 
fleshed out with regard to the type of risk to be addressed, the likelihood and severity of the 
impact/damage to be expected, and the economic costs involved in minimising or excluding 
the risk. Part II considers due diligence obligations in German public law, private law, labour 
law, and industry and multi-stakeholder initiatives. Part III provides a comparative analysis, 
focussing  on  the  key  elements  of  regulation  of  corporate  due  diligence;  its  application  to 
foreign  subsidiaries  and  suppliers;  and  its  public  and  private  law  enforcement.  Part  IV 
examines  a  recent  German  legislative  proposal  to  regulate  corporate  human  rights  and 
environmental  due  diligence  through  global  value  chains  as  a  promising  avenue  to  render 
the notion of corporate human rights due diligence contained in the 2nd pillar of the UNGPs 
legally  binding  via  domestic  public  law.  Particular  attention  is  paid  in  that  Part  to  the 
concept of adequacy, also found in other areas of German law, as a means to flesh out the 
corporate responsibility to respect human rights. 

GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 

II. 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

A. 

Due Diligence Obligations in German Public Law 

Given  the  overall  focus  of  the  study,  this  section  briefly  examines  human  rights  due 
diligence  obligations  in  German  constitutional  law  and  then  focusses  on  the  regulation  of 
due  diligence  requirements  in  environmental  law.  In  addition,  the  section  discusses  due 
diligence  obligations  in  product  liability  law,  the  German  Administrative  Offences  Act,  and 
public procurement. 

1. 

Human Rights Due Diligence Obligations in Constitutional Law 

German constitutional law distinguishes between a state duty to respect basic/fundamental 
rights (Grundrechte als Abwehrrechte) and a state duty to protect basic/fundamental rights 
(Grundrechte  als  staatliche  Schutzpflichten).  While  the  duty  to  respect  imposes  an 
obligation of result, the duty to protect imposes an  obligation  of diligent conduct on public 
authorities. The scope of the duty to protect is determined by the intensity and probability 
of the impending violation of human rights, in the light of the proportionality principle. The 
limit  of  discretion  accorded  to  public  authorities  in  complying  with  their  duty  to  protect  is 
reached  in  cases  of  evident  violations  of  the  core  values  protected  by  a  human  right  (so-
called  ‘Untermaßverbot’). 328  Where  a  regulation  pertains  to  dangerous  facilities  such  as 
nuclear power plants, the duty to protect entails an obligation to take all steps necessary to 

327 Associate Professor, Tilburg Law School. 
328 German Federal Constitutional Court, BVerfGE 88, 203 – Schwangerschaftsabbruch. 

95 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
minimise  the  risk  of  human  rights  violations.329 The  duty  to  protect  furthermore  requires 
public  authorities  to  put  into  place  administrative  and  judicial  procedures  aimed  at 
preventing  and  redressing  human  rights  violations  (so-called  verfahrensrechtliche  Funktion 
der  Grundrechte).  These  procedures  can  range  from  the  imposition  of  industrial  licencing 
and  process  safety  requirements  to  the  creation  of  participation  rights  for  all  those 
potentially affected in the exercise of their human rights by public and private activities.330 

2. 

Due Diligence Obligations in Environmental Law 

Many  due  diligence  obligations  in  German  environmental  law  owe  their  existence  to  the 
precautionary  principle  which,  as  laid  down  in  Article  20a  of  the  German  Constitution, 
requires the state to prevent risks to the environment from materialising even where cause-
and-effect relationships are not fully established scientifically. The federal law that provides 
for protection of humans, animals and the environment against harmful emissions 
(Bundesimmissionsschutzgesetz,  BISchG)  is  one  such  example.  §  5  BISchG  imposes  on 
operators  of  industrial  compounds  (factories,  machinery,  etc.)  a  duty  of  protection  and  a 
duty of precaution. As concerns scope and content of these duties, the duty of protection (§ 
5  I  (1)  No  1  BISchG)  requires  operators  to  take  the  measures  necessary  for  preventing 
probable environmental impacts from occurring (so-called ‘vorbeugende  Gefahrenabwehr’), 
irrespective of whether these impacts are caused by the industrial compound or by external 
factors.  The  duty  of  precaution  (§  5  I  (1)  No  2)  requires  operators  to  take  measures,  in 
accordance with the scientific and technical state of the art (‘Stand der Technik’, § 3 VI (1) 
BISchG), to reduce risks of environmental nuisance whose materialisation is possible yet not 
sufficiently probable to trigger a duty of protection. The concrete scope of the latter duty is 
determined in the light of criteria such as the risk-potential of the emissions, the severity of 
damages  to  be  expected,  and  the  economic  costs  of  minimising  risks.  Compliance  of 
operators is monitored  and enforced by the  competent public authority. Unlike the duty  of 
protection, the duty of precaution is generally not considered to confer subjective rights on 
third parties. 

§  6  of  the  Federal  Law  for  the  Regulation  of  Genetic  Engineering  (Gesetz  zur  Regulierung 
der  Gentechnik,  GenTG)  imposes  on  operators  of  biogenetical  compounds  a  general  due 
diligence obligation. The overall purpose of the law is to protect the life and health of human 
beings,  the  environment,  animals,  plants  and  material  goods  from  the  harmful  effects  of 
genetic  engineering  processes  and  products,  while  also  creating  a  legal  framework  for 
developing their scientific, technological and economic potential  (§ 1 GentTG). Accordingly, 
the  scope  of  the  due  diligence  obligation  is  not  confined  to  the  operation  of  biogenetical 
compounds  but  also  applies  when  operators  release  or  bring  into  circulation  genetically 
modified organisms or products (§ 6 I GenTG). The key legal elements of the due diligence 
process  consist  of  (a)  a  comprehensive  analysis  of  relevant  risks  and  safety  measures  in 
place, which should be reviewed whenever necessary but at least periodically in the light of 
the scientific and technical state of the art; and (b) the adoption of precautionary measures 
which,  in  accordance  with  the  risk  assessment,  are  necessary  to  protect  the  legal  goods 
listed in § 1 GenTG from possible dangers and to prevent such dangers from occurring. The 
latter obligation continues even after the operation of the plant has ceased (§ 6 II GentTG). 
§  6  III  GenTG  regulates  documentation  and  monitoring  requirements:  the  operator  has  to 
keep  records  of  genetic  engineering  work  and  the  release  of  genetically  modified  material 
and submit these records to the competent authority upon request. § 6 IV GenTG contains 
an obligation to appoint project managers and biological safety officers or committees. 

329 German Federal Constitutional Court, BVerfGE 49, 89 – Kalkar I. 
330 German Federal Constitutional Court, BVerfGE 53, 30 – Mühlheim-Kärlich. 

96 

 
 
 
 
 
 
 
                                                        
The purpose of the German law regulating  environmental  impact  assessments  (Gesetz  
über  die  Umweltverträglichkeitsprüfung,  UVPG)  that  implements  EC  Directive  85/337/EWG 
of  27  June  1985  is  the  early  identification,  description  and  evaluation  of  all  direct  and 
indirect impacts of a project on the environment, including ecological interdependencies (§ 2 
II UVPG).331 The UVPG also covers cross-border environmental impacts (§ 2 III UVPG). The 
competent public authority has to identify, describe and evaluate the environmental impacts 
in accordance with applicable laws (nach Maßgabe der geltenden Gesetze, § 3 UVPG), which 
entails  that  the  project  must  also  comply  with  environmental  due  diligence  requirements 
regulated elsewhere. One such example is the general due diligence obligation laid down in 
the  Water  Resources  Act  (Gesetz  zur  Ordnung  des  Wasserhaushalts  –  WHG)  that  gives 
effect to the precautionary principle. According to § 5 I WHG, every person is required to act 
with due diligence as required by the circumstances (die nach den Umständen erforderliche 
Sorgfalt) to avoid a deterioration of the water quality; to use water sparingly having regard 
to  the  water  balance;  to  maintain  the  efficiency  of  the  water  balance;  and  to  avoid  an 
enlargement  or  acceleration  of  water  drainage.  A  violation  of  the  due  diligence  obligation 
that causes an environmental damage can result in liability for restoring the environment (§ 
90 II WHG in conjunction with the environmental liability law, Umwelthaftungsgesetz). 

3. 

Due Diligence Obligations in Product Liability Law 

The rationale behind the German (and EU) regulation of product liability is that consumers 
should  be  protected  in  their  physical  integrity  and  personal  property  against  damages 
caused by faulty products.332 Manufacturers are liable if their products do not conform to the 
standards  that  a  reasonable  objective  consumer  can  expect  (§  3  Produkthaftungsgesetz, 
ProdHaftG). In this regard, producers are subject to a variety of due diligence requirements 
that  have  been  developed  through  case-law  and  that  map  onto  the  different  stages  of  the 
production process:333 

-  Oversight  of  the  production  process  to  minimise  the  risk  of  product  failure,  including 
through  the  selection  and  monitoring  of  employees,  the  provision  of  instructions,  and  the 
customization of work stations and equipment. 

-  Control of the construction design and the manufacturing process to ensure that the product 

complies with the standards a reasonable and objective consumer can expect. 

-  Provision  of  correct  and  adequate  operating  instructions,  notes  and  warnings  to  ensure  a 

proper usage of the product. 

-  Continuous  observation  of  products  that  have  been  placed  in  the  market,  including  where 

necessary warnings and retraction of products. 

With  regard  to  remedies,  the  product  liability  law  modifies  the  civil  liability  rules  on  the 
allocation of the burden of proof, considering the difficulties consumers encounter in proving 
negligence in the organisational sphere of the producer. Consumers only have to prove that 
the violation of their legal interests was caused by a faulty product. The producer, in turn, 
has to prove that he/she acted without negligence. Where the fault of the product is due to 
the  construction  design  or  manufacturing  process,  the  producer  also  has  to  prove 
compliance with his/her corresponding due diligence obligations. Finally, the producer has to 
prove that, in organising the production process, he/she has taken all necessary measures 
to prevent faulty products from entering the market.334 

331 See further W. Erbguth & S. Schlacke, Umweltrecht (Baden-Baden: Nomos, 2016, 6th edn.) 100-112. 
332 The German Produkthaftungsgesetz implements Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, 
regulations and administrative provisions of the Member States concerning liability for defective products, OJ L 210, 07.08.1985, p. 
29-33.  
333 See further D. Looschelders, Schuldrecht BT (München: Verlag Franz Vahlen, 2013) 462-469. 
334 See, generally, Federal High Court of Justice (BGH), BGHZ 51, 91, Urteil vom 26.11.1968 (“Hühnerpest-Entscheidung”); and 
regarding the producer’s duty to prevent faulty products from entering the market BGHZ 104, 323, Urteil vom 07.06.1988.  

97 

 
 
 
 
 
 
                                                        
4. 

Due Diligence Obligations in the Administrative Offences Act 

§  130  of  the  Administrative  Offences  Act  (Ordnungswidrigkeitsgesetz  –  OWiG)  authorises 
the competent public authority to impose fines on business owners for failure to comply with 
their  monitoring  and  supervision  obligations  (Aufsichtspflichten). 335  A  business  owner  is 
liable  if,  intentionally  or  negligently,  he/she  fails  to  take  the  supervisory  measures 
necessary  for  his/her  business  to  comply  with  legal  duties  incumbent  upon  him/her  as  its 
owner.  A  further  condition  is  that  a  violation  of  these  legal  duties  could  have  been 
prevented  or  significantly  impeded  had  a  proper  supervision  taken  place.  The  nature  and 
scope  of  the  monitoring  and  supervisory  measures  are  not  further  defined  in  the  OWiG. 
They  are  determined  within  the  context  of  the  law  that  stipulates  the  business  owner’s 
duties,  having  regard  to  the  likelihood  of  an  infringement,  the  size  of  the  business 
organisation,  and  the  complexity  of  the  tasks  to  be  monitored.336 Feasible  and  reasonable 
organisational measures are those which a diligent member of the profession would consider 
necessary  and  adequate  to  ensure  compliance  with  the  relevant  regulations.  The  owner’s 
supervisory  obligations  also  extend  to  the  selection,  appointment  and  monitoring  of 
supervisors (Aufsichtspersonen). 

A  fine  can  also  be  imposed  on  the  business  entity  itself  if  its  director  commits  an  offence 
that violates duties incumbent upon the company or that leads to an unjustified enrichment 
of the company (§§ 130, 30 OWiG). Absent corporate criminal liability in Germany, this is of 
significant  practical  relevance  for  sanctioning  violations  of  due  diligence  requirements.  For 
example, in the 2018 Volkswagen exhaust emissions scandal, a public prosecutor imposed a 
fine  on  the  company  for  breach  of  its  supervisory  duties  in  ensuring  compliance  with  the 
German  regulation  implementing  Framework  Directive  2007/46/EC  (approval  of  motor 
vehicles). 

5. 

Human Rights and Environmental Due Diligence in Public Procurement Law 

In the National Action Plan implementing the UN Guiding Principles on Business and Human 
Rights  (German  NAP),  the  German  federal  government  has  committed  to  examining 
whether and to what extent binding minimum requirements for corporate human rights due 
diligence can be enshrined in public procurement law.337 The bulk of German regulation on 
public  procurement  consists  of  a  transposition  of  EU  directives  into  domestic  law. 338 
According  to  the  German  Government,  one  important  limitation  imposed  by  EU  law  in  this 
regard is that the specification of human rights due diligence requirements must be tailored 
to the specific subject of the contract and cannot take into account the overall business- and 
corporate policy of the bidder.339 

Following domestic legal reform implementing the EU directives on public procurement, § 97 
(Gesetz  gegen 
III  of 

the  German  Law  against  Restraints  of  Competition 

335 See further E. Göhler, Gesetz über Ordnungswidrigkeiten, Beck’sche Kurzkommentare Bd. 18 (München: Beck, 2002). 
336 See BGH, Urteil vom 25.06.1985, NStZ 1986, 34 (prevention of antitrust violations by the business owner). 
337 German Federal Foreign Office, National Action Plan: Implementation of the UN Guiding Principles on Business and Human 
Rights 2016-2020, p. 16. 
338 See Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement; Directive 
2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, 
energy, transport and postal services sectors; and Directive 2014/23/EU of the European Parliament and of the Council of 26 
February 2014 on the award of concession contracts. 
339 See German Government, Antwort der Bundesregierung auf die Kleine Anfrage der Abgeordneten Michel Brandt, Heike Hänsel, 
Zaklin Nastric, weiterer Abgeordneter und der Franktion DIE LINKE, Deutscher Bundestag, Drucksache 19/6512 (14.12.2018); and 
German government, Antwort der Bundesregierung auf die Große Anfrage der Abgeordneten Uwe Kekeritz, Katharina Dröge, Harald 
Ebner, weiterer Abgeordneter und der Fraktion BÜNDNIS 90/DIE GRÜNEN: Ökologische, soziale und menschenrechtliche Kriterien in 
der öffentlichen Beschaffung als Beitrag für eine nachhaltige Entwicklung weltweit, Deutscher Bundestag, Drucksache 19/7567 
(02.02.2019). 

98 

 
 
 
 
 
 
 
 
 
                                                        
Wettbewerbsbeschränkungen  –  GWB)  now  provides  that  social  and  environmental  aspects 
shall  be  taken  into  consideration  when  awarding  contracts. 340 Regarding  the  suitability  of 
the  bidder,  §  124  GWB  contains  a  number  of  ‘optional’  reasons  for  exclusion  (facultative 
Ausschlußgründe).  Subject  to  the  principle  of  proportionality,  a  company  can  be  excluded 
from the bidding process if that company has demonstrably violated existing environmental, 
social or labour law obligations in the execution of public  contracts (§ 124 I (1) GWB). The 
exclusion from participation in public tenders is limited to maximum period of three years (§ 
126 GWB). According to § 127 I GWB, the contract must be awarded to the most economic 
tender,  determined  by  a  price-performance  ratio.  In  addition  to  the  price  or  cost, 
environmental  and  social  aspects  ‘can’  be  taken  into  account. 341 In  any  case,  the  chosen 
award  criteria  must  be  connected  to  the  subject  of  the  contract,  which  includes  criteria 
pertaining to the production, provision or disposal of the service, to trade in the service, or 
to another stage in the life cycle of the service (§ 127 III GWB). After the acceptance of a 
bid,  the  contracting  authority  can  require  companies  to  observe  social  and  environmental 
aspects in the execution of the contract (§ 128 GWB). Non-acceptance  of these conditions 
by the bidder can result in a cancellation of the award; later violations  of these conditions 
constitute a breach of contract and can result in liability. 

B.  Due Diligence Obligations in German Private Law 

This section focusses on the law of non-contractual obligations which contains the probably 
most  comprehensive  body  of  rules  concerning  the  regulation  and  enforcement  of  due 
diligence  requirements  in  the  German  legal  order.  In  addition,  the  section  considers  due 
diligence  obligations  in  company  law,  corporate  reporting  requirements,  and  competition 
law. 

1.  Due Diligence Obligations in the Law of Non-Contractual Obligations 

In Germany, one of the most important areas of law with respect to corporate due diligence 
requirements  is  the  law  of  non-contractual  obligations  or  tort  law  (Deliktsrecht).  Of 
particular  relevance  is  §  823  of  the  German  Civil  Code  (Bürgerliches  Gesetzbuch  –  BGB), 
whose  purpose  is  to  provide  persons  with  a  cause  of  action  for  infringements  of  their  life, 
bodily  integrity,  freedom,  property  and  personality  rights  –  thus  covering  a  wide  range  of 
legal goods that are also protected by international human rights law. 

In order to establish liability, claimants must prove a number of requirements. With respect 
to  infringements  resulting  from  positive  acts,  they  must  prove  that  the  defendant  caused 
damage  to  a  protected  interest  through  intentional  or  negligent  conduct.  Defendants  act 
intentionally when they know that their conduct involves a risk of damage and accept that 
such  damage  may  occur;  they  act  negligently  when  their  conduct  was  contrary  to  the 
diligence required by general business practice (die im Verkehr erforderliche Sorgfalt, § 276 
II BGB). Courts apply an objective test to determine negligence, comparing the defendant’s 
factual  conduct  to  the  conduct  that  can  be  expected  from  a  person  of  average 
circumspection  and  capability.  With  respect  to  infringements  resulting  from  omissions,  the 
claimants  must  additionally  prove 
‘safety  duty’ 
(Verkehrspflicht)  –  an  affirmative  duty  to  prevent  the  infringement  whose  breach  satisfies 

the  defendant 

incurred  a 

that 

340 Other than the Law against Restraints of Competition, the German Regulation on the Award of Public Contracts 
(Vergabeverordnung) also contains provisions on sustainable sourcing that include social and environmental aspects: for an 
overview see Beschaffungsamt des Bundesministeriums des Inneren, Vergaberecht und Nachhaltigkeit. 
341 Das wirtschaftlichste Angebot bestimmt sich nach dem besten Preis-Leistungs-Verhältnis. Zu dessen Ermittlung können neben 
dem Preis oder den Kosten auch qualitative, umweltbezogene und soziale Aspekte berücksichtigt werden. 

99 

 
 
 
 
 
 
 
 
 
 
                                                        
the  negligence  requirement  if  the  ensuing  damage  was  foreseeable. 342 Bearers  of  safety 
duties recognised in the case-law include land owners, manufacturers, medical practitioners, 
tour operators and building contractors. 

Perhaps most significant with regard to the content of regulation is that these safety duties 
can  be  viewed  as  binding  due  diligence  obligations,  given  that  they  were  developed  to 
determine  whether  defendants  are  obliged  to  take  safety  measures  to  prevent  an 
infringement of protected interests. Safety duties exist where a person creates, maintains or 
controls  a  source  of  danger  to  the  protected  interests  of  third  parties  (Sicherungspflichten 
gegenüber  Gefahrenquellen); and where a person  assumes a  responsibility to protect the 
interests of third parties (Fürsorgepflichten gegenüber Rechtsgütern). Bearers of safety 
duties  must  take  all  reasonable  measures  to  prevent  infringements  of  these  interests. 
Reasonable  measures  are  all  those  which  are  factually  and  legally  possible  and  which  a 
careful  person  of  average  circumspection  and  capability  would  consider  necessary  and 
adequate in order to prevent infringements of protected interests. The relevant threshold is 
determined  on  the  basis  of  a  cost-benefit  analysis:  the  more  probable  and  serious  the 
possible  impact/damage  and  the  lower  the  costs  of  preventing  it,  the  more  precautionary 
measures a reasonable person is expected to take.343 

Litigants  can  also  claim  damages  for  violations  of  statutory  laws  protecting  individual 
interests (Schutzgesetze) under § 823 II BGB. The claimant and the claimed damage must 
fall  within  the  scope  of  protection  of  §  823  II  BGB.  In  addition,  the  defendant  must  have 
violated the statutory norm intentionally or negligently, and the violation must have caused 
the damage at issue.344 The main relevance of § 823 II BGB for the present purpose is that 
it integrates due-diligence obligations found in other laws into the ambit of non-contractual 
liability. For example, violations of the Water Resources Act discussed in section II.2 above 
can  give  rise  to  non-contractual  liability  if  these  violations  also  cause  damage  to  persons 
and property. 

As concerns business entities covered by these due diligence obligations, companies can be 
sued for breaches of safety duties on the basis of § 823 I in conjunction with § 831 I or § 31 
BGB. § 831 I BGB constitutes a form of negligence liability with a reversed burden of proof. 
A company incurs liability for damages unlawfully caused by vicarious  agents unless it can 
prove that it exercised due diligence in selecting, equipping or supervising these agents; or 
that the damage would have occurred in spite of exercising the required due diligence. § 31 
BGB  constitutes  a  form  of  vicarious  liability.  Companies  can  be  held  liable  for  damages 
caused  by  acts  and  omissions  of  constitutionally  appointed  representatives  when  acting  in 
their capacity as company officials. In addition, a company can incur safety duties itself.345 
For  example,  a  petrochemical  company  must  take  all  reasonable  measures  to  ensure  that 
the  storage  and  disposal  of  mineral  oil  wastes  does  not  cause  environmental  impacts 
harming  third  parties.  Where  companies  incur  safety  duties,  they  have  to  appoint  a 
representative  for  whom  they  are  vicariously  liable  under  §  31  BGB.  This  representative 
must organize the company’s operations and instruct and supervise its employees to ensure 

342 On the relation between safety duties and negligence see further: H. Kötz. & G. Wagner, Deliktsrecht (München: Franz Vahlen, 
2010). 
343 These requirements have been developed in the case-law of the Bundesgerichtshof (BGH), the highest German court of appeal 
in civil matters; see BGH, Urteil vom 31. Oktober 2006 - VI ZR 223/05, VersR 2007, 72; BGH, Urteil vom 5. Oktober 2004 - VI ZR 
294/03, VersR 2005, 279; BGH, Urteil vom 15.07.2003 - VI ZR 155/02, VersR 2003, 1319; BGH, Urteil vom 19.12.1989 - VI ZR 
182/89, VersR 1990, 498. 
344 In principle, the burden of proof concerning the violation of the statutory norm, damage, fault and causation rests on the 
claimants. However, if they can prove that the defendants have violated a statutory rule that prescribes the required conduct in a 
sufficiently specific way and if that rule protects against the type of damage suffered, the courts will consider this as prima facie 
evidence of fault and causation which must be rebutted by the respondent. 
345 See further P. Wesche and M. Saage-Maaß, ‘Holding Companies Liable for Human Rights Abuses Related to Foreign Subsidiaries 
and Suppliers before German Civil Courts: Lessons from Jabir and Others v KiK’, 16(2) Human Rights Law Review (2016) 370–385.  

100 

 
 
 
 
 
 
                                                        
implementation 
the 
Organisationspflicht). 

of 

the 

required 

precautionary  measures 

(betriebliche 

Absent  relevant  case-law,  it  remains  unclear  whether  the  German  law  of  non-contractual 
liability would be suitable for cases of transnational parent or supply chain liability.346 Within 
corporate  groups,  the  separate  legal  personality  principle  generally  applies  and  the 
recognised  exceptions  (‘veil-piercing’)  are  largely  irrelevant  for  the  cases  of  interest  here. 
As concerns negligence liability across corporate groups, affiliates or employees of affiliates 
do not qualify as vicarious agents of other companies of the group under § 831 I BGB.347 It 
is  however  arguable  that  a  parent  company  could  itself  incur  safety  duties  under  §  823  I 
BGB  in  relation  to  violations  committed  by  its  subsidiaries.  This  could  for  example  be  the 
case where a parent company effectively directs or administers the harmful operations of its 
subsidiary, thus creating or controlling the source of danger that gives rise to safety duties; 
or where the parent company formulates health and safety standards at the subsidiary, thus 
assuming  by  way  of  delegation  a  responsibility  to  protect  the  interest  of  third  parties. 348 
There is in principle no reason why the same should not also apply in the relation between a 
company and its suppliers, provided the conditions for assuming a safety duty on the part of 
the company (control or delegation) are met. 

2.  Due Diligence Obligations in Company Law 

§  93  I  of  the  German  Companies  Act  (Aktiengesetz  –  AktG)  requires  all  members  of  the 
company’s  executive  board  (Vorstand)  to  act  with  the  diligence  of  a  decent  and 
conscientious  manager. 349 Members  of  the  executive  board  bear  the  burden  of  proof  for 
complying with their due diligence obligations (§ 93 II AktG). Pursuant to § 91 II AktG, the 
executive board has to take appropriate measures, and in particular to set up a monitoring 
system,  to  ensure  that  developments  which  threaten  the  continued  existence  of  the 
company  are  detected  at  an  early  stage.  Following  a  much-discussed  judgment  of  the 
Munich  District  Court  (Landgericht),  all  members  of  the  executive  board  have  a  joint  due 
diligence  obligation  to  set  up  and  supervise  a  firm-wide  compliance  system  for  damage 
prevention  and  risk  control.350 Members  of  the  executive  board  breach  their  due  diligence 
obligations  if  they  fail  to  establish  a  functioning  compliance  system  that  ensures  effective 
monitoring  and  control  of  business  processes.  This  due  diligence  obligation  to  ensure  a 
functioning  compliance  system  also  applies  in  the  relation  between  the  members  of  the 
executive  board.  It  extends  to  all  of  the  companies’  subsidiaries  even  if  they  are  located 
abroad  (in  the  case  at  hand,  in  Nigeria).  The  scope  of  the  due  diligence  obligation  is 
determined in view of the type, size and organisation of the company, the legal regulations 
to be complied with (in the case at hand, the prevention of bribes) and the risk of violations 
in  the  light  of  past  performance.  Once  concrete  breaches  of  legal  regulations  become 
known,  the  executive  board  has  to  regularly  follow  up  on  internal  investigations  and 
attempts  to  remedy  the  violation.  Apart  from  criminal  and  administrative  (§  130  OWiG) 
sanctions, violations of due diligence obligations can lead to civil liability in the relationship 
between the company and members of the executive board. While the Neubürger judgment 

346 Pursuant to Article 4 I Rome-II Regulation, the German material law of non-contractual obligations will generally not apply to 
such cases.   
347 BGH, decision of 06 November 2012 — VI ZR 174/11, NJW 2013, 1002; BGH, decision of 02 December 2014 — VI ZR 520/13; 
BGH, decision of 03 June 2014 — VI ZR 394/13, VersR 2014, 1018; BGH, decision of 10 December 2013 — VI ZR 534/12, NJW-RR 
2014, 614. 
348 See Wesche and Saage-Maaß (n 19). 
349 Die Vorstandsmitglieder haben bei ihrer Geschäftsführung die Sorgfalt eines ordentlichen und gewissenhaften Geschäftsführers 
anzuwenden. 
350 See LG München I, Urteil vom 10 Dezember 2013 – 5 HK O 1387/10 – Siemens/Neubürger; and further R. Grabosch & C. 
Scheper, Die menschenrechtliche Sorgfaltsplicht von Unternehmen: Politische und rechtliche Gestaltungsansätze (Berlin: Friedrich 
Ebert Stiftung, 2015) 34-35. 

101 

 
 
 
 
 
 
                                                        
concerned a stock corporation, the same requirements should also pertain to limited liability 
companies where § 93 II AktG applies by analogy. 

The central role of the board of directors is to supervise the management of the company (§ 
111  I  AktG).  This  supervisory  role  not  confined  to  monitoring  completed  business  matters 
but also has future-oriented dimension. The board of directors must control the legality as 
well as the expediency and economic viability of decisions by the executive board. It has to 
intensify  its  monitoring  efforts  where  there  are  indications  of  a  breach  of  managerial 
duties.351 In  this  regard,  the  German  National  Baseline  Assessment  for  implementing  the 
UNGPs  proposes  to  examine  whether  and  how  due  diligence  obligations  could  be  better 
integrated  into  the  supervisory  role  of  the  board  of  directors,  given  the  important 
monitoring role the latter could play in ensuring corporate respect for human rights.352 The 
core  instrument  for  the  board  of  directors  to  exercise  its  supervisory  functions  is  the 
imposition of reporting duties on the company’s management (§ 90 AktG). In addition, the 
board  of  directors  has  a  number  of  inspection  and  auditing  rights  vis-à-vis  the  executive 
board (§ 116 II AktG). 

3.  Human Rights Due Diligence in Non-Financial Reporting 

Implementing  the  EU  directive  on  the  disclosure  of  non-financial  and  diversity  information 
by certain large undertakings and groups,353 the German Parliament enacted in April 2017 a 
law  to  strengthen  companies  non-financial  reporting  in  their  management  and  group 
management  reports  (Gesetz  zur  Stärkung  der  nicht-finanziellen  Berichterstattung  der 
Unternehmen in ihren Lage- und Konzernlageberichten – CSR Richtlinie Umsetzungsgesetz), 
which amends the German commercial code (Handelsgesetzbuch – HGB). 

Companies  that  fall  within  the  scope  of  the  law  have  to  report  on  the  human  rights, 
environmental,  labour  and  social  aspects  of  their  business  activities,  as  well  as  on  their 
efforts in combatting corruption and bribery (§ 289c II HGB). § 289c III No 1-6 specifies the 
content on non-financial reporting, which must contain the following information: 

-  A  description  of  the  ‘concepts’  (Konzepte)  used  by  the  company,  including  the 

implementation of due diligence processes and their result; 

-  A description of significant risks associated with the company’s own operations that are very 
likely  to  have  severe  adverse  impacts  on  the  legal  goods  listed  in  §  289c  II  HGB,  and  a 
description of how the company addresses these risks; 

-  A description of significant risks associated with the company’s business relations, products 
and  services  that  are  very  likely  to  have  severe  adverse  impacts  on  the  sustainability 
aspects listed in § 289c II HGB, and where relevant and proportionate a description of how 
the company addresses these risks; 

-  A  description  of  the  most  significant  non-financial  performance  indicators  relevant  to  the 

business activity of the company; and 

-  Where necessary for comprehending the report, references to the annual balance sheet and 

additional information. 
In addition, companies have to explain their business model. Companies that do not have a 
‘concept’  in  relation  to  sustainability  aspects  listed  in  §  289c  II  HGB  are  subject  to  the 
‘comply  or  explain’  requirement  of  §  289c  IV  HGB.  Companies  do  not  have  to  report  on 

351 See further J. Kindl, Gesellschaftsrecht (Baden-Baden: Nomos, 2019, 2nd edn.) 396-397. 
352 Deutsches Institut für Menschenrechte, National Baseline Assessment: Umsetzung der UN-Leitprinzipien für Wirtschaft und 
Menschenrechte (Berlin: 2015) p. 15. 
353 Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as 
regards disclosure of non-financial and diversity information by certain large undertakings and groups. 

102 

 
 
 
 
 
 
 
                                                        
 
sustainability  aspects  if  this  would  cause  them  a  significant  disadvantage,  provided  the 
omission  does  not  impede  a  meaningful  comprehension  of  the  impacts  of  their  business 
activities (§ 289e HGB). 

4.  Due Diligence Obligations in Competition Law 

One  of  the  purposes  of  the  German  law  against  unfair  competition  (Gesetz  gegen  den 
unlauteren  Wettbewerb,  UWG)  is  to  protect  consumers  against  unfair  (‘unlauter’)  business 
practices  by  corporations,  including  through  misleading  advertisement.  The  prohibition  of 
unfair  business  practices  furthermore  serves  to  maintain  a  level  playing  field  between 
competing corporations. Both rationales of the law can lend themselves to protecting human 
rights  when  products  that  have  been  manufactured  abroad  in  violation  of  international 
human rights and labour standards are introduced into the German market. Regarding the 
scope of the law, § 3 II UWG defines unfair business practices as business actions towards 
consumers 
requirements  of  corporate  due  diligence 
(unternehmerische  Sorgfalt)  and  that  are  likely  to  materially  affect  consumers’  economic 
behaviour.  Corporate  due  diligence  means  the  standard  of  expertise  and  diligence  that  an 
entrepreneur  can  be  reasonably  be  expected  to  observe  in  relation  to  consumers, 
considering his/her field of activity, the principle of good faith, and honest market practices 
(§ 2 I No 7 UWG).354 

that  do  not  satisfy 

the 

Companies  that  mislead  consumers  into  believing  that  their  products  have  been 
manufactured (abroad) in compliance with international human rights and labour standards 
can  fall  under  the  prohibition  of  unfair  business  practices  within  the  meaning  of  §  3  UWG. 
For example, in 2010 an unfair competition complaint was brought against German retailer 
Lidl  for  claims  made  in  the  company’s  advertisements  about  fair  working  conditions  in  its 
supply chain.355 Lidl was accused of deceiving consumers by falsely creating the impression 
that  working  conditions  in  Bangladeshi  factories  from  which  it  sourced  its  products 
conformed to the standards set by the Business Social Compliance Initiative (BSCI) and its 
code  of  conduct.  The  company  had  to  issue  a  declaration  of  discontinuance  in  which  it 
committed  to  ceasing  the  contested  advertising  pledge  about  world-wide  fair  working 
conditions. 

Irrespective  of  misleading  advertisement,  unfair  competition  complaints  in  relation  to 
violations of international human rights and labour standards abroad can be based upon the 
UWG’s  purpose  to  maintain  a  level  playing  field  between  companies  competing  in  the 
German market. According to the German Federal Court of Justice (Bundesgerichtshof), the 
economic  exploitation  of  lower  protection  standards  in  third  countries  does  not  as  such 
constitute an unfair business practice. However, a violation of corporate due diligence within 
the  meaning  of  §  2  UWG  can  be  assumed  where  foreign  working  conditions  violate  basic 
ethical requirements every legal order should aim to protect and are therefore incompatible 
with the principle of good faith and honest market practices.356 

C.  Due Diligence Obligations in German Labour Law 

354 „Unternehmerische Sorgfalt“: der Standard an Fachkenntnissen und Sorgfalt, von dem billigerweise angenommen werden kann, 
dass ein Unternehmer ihn in seinem Tätigkeitsbereich gegenüber Verbrauchern nach Treu und Glauben unter Berücksichtigung der 
anständigen Marktgepflogenheiten einhält. 
355 European Center for Constitutional and Human Rights, Complaint Re Fair Working Conditions in Bangladesh: Lidl forced to back 
down (2010). 
356 See BGH GRUR 1980, 858ff – Asbestimporte; and R. Grabosch & C. Scheper (n 24) 41-42. 

103 

 
 
 
 
 
 
 
 
 
 
                                                        
This  section  focusses  on  due  diligence  obligations  in  the  form  of  protective  duties  that  the 
employer  owns  to  its  employees.  It  discusses  occupational  safety  measures  and  measures 
for  the  protection  of  working  mothers  next  to  obligations  to  ensure  wage  payments  of 
posted workers. 

1.  Due Diligence Obligations in the Labour Protection Act 

The purpose of the Labour Protection Act (Arbeitsschutzgesetz  – ArbSchG) is to ensure the 
safety  and  health  of  employees  at  work  through  occupational  safety  measures.357 The  Act 
does not apply to employees in private households. As regards the law’s scope, the ArbSchG 
is based on a broad understanding of occupational safety which includes not only measures 
to  prevent  work-related  accidents  and  health  hazards  but  also  measures  to  ensure  decent 
working  conditions  (menschengerechte  Gestaltung  der  Arbeit).  §  3  I  ArbSchG  requires 
employers to take the steps necessary for supervising, adapting and improving occupational 
safety.  Employers  must  monitor  their  business  premises  in  regular  intervals  and  adapt 
occupational  health  and  safety  measures  as  required  by  the  circumstances  and  necessary 
for their effectiveness. 

§  4  ArbSchG  contains  a  number  of  principles  that  guide  employers  when  designing 
occupational safety measures: 
-  Work  must  be  organised  in  such  a  way  that  dangers  to  life  and  physical  and  mental 

health are avoided and remaining risks are minimised; 

-  Dangers must be tackled at their source; 
-  Measures must take into account the state of the art, occupational medicine and hygiene, 

and other proven findings of occupational science; 

-  Measures  must  be  planned  with  a  view  to  appropriately  linking  technology,  work 
organisation,  other  working  conditions,  social  relations,  and  environmental  impacts  on 
the workplace; 

-  Individual protection measures are subordinate to other measures; 
-  Specific  hazards  for  particularly  vulnerable  groups  of  workers  have  to  be  taken  into 

account; 

-  Employees must be given appropriate instructions by the employer; and 
-  Direct or indirect gender-specific regulations are only permissible if this is imperative for 

biological reasons. 

Pursuant  to  §  5  ArbSchG,  employers  must  identify  the  concrete  health  and  safety  hazards 
bound  up  with  a  particular  activity  and  determine  which  protective  measures  are  actually 
required.  Employers  must  furthermore  ensure  that  employees  are  physically  and  mentally 
capable  of  observing  and  complying  with  protective  measures  (§  7  ArbSchG).  They  also 
have an obligation to instruct employees about occupational health and safety in a way that 
is sufficient and adequate considering the individual work situation (§ 12 ArbSchG). Failure 
to  comply  with  the  instruction  obligation  reverses  the  burden  of  proof  regarding  fault  and 
causality. Failure to ensure observance of occupational health and safety standards can give 
rise  to  civil  liability  provided  the  violated  norm  is  also  intended  to  protect  the  individual 
employee.  For  example,  the  employee  can  demand  that  the  employer  formally  assesses 
occupational  risks  at  his/her  workplace  as  a  secondary  employment  obligation  (§§  5 
ArbSchG, 618 I BGB). 

2.  Due Diligence Obligations in the Protection of Mothers Act 

357 See further T. Dieterich et al., Erfurter Kommentar zum Arbeitsrecht (München: C. H. Beck, 2013, 14th edn.), ArbSchG, §§ 1-14 
(Wank). 

104 

 
 
 
 
 
 
 
 
                                                        
The purpose of the German Protection of Mothers Act (Mutterschutzgesetz – MuSchuG) is to 
require  employers  to  take  the  necessary  measures  for  protecting  pregnant  and 
breastfeeding  mothers  and  their  children.  This  includes  measures  to  protect  the  health  of 
the mother and her  child; and measures to ensure that the mother can continue her work 
during and/or after the pregnancy in a responsible way and without suffering disadvantages 
(§ 1 MuSchuG).358 These protective duties cannot be amended or set aside by the working 
contract. Pursuant to § 9 I MuSchuG, the employer has to take the measures necessary to 
protect  the  physical  and  psychological  health  of  the  mother  and  her  child,  in  accordance 
with  the  proven  findings  of  work  science,  medicine  and  technology.  The  employer  must 
ensure a working environment and working conditions in which all technically, medically and 
ergonomically necessary protection measures can be realised. 

What particular measures are necessary in a concrete case must be determined by way of a 
risk analysis. § 10 MuSchuG requires employers to conduct a general and independent risk 
assessment  of  working  conditions  (§  5  ArbSchG)  under  maternity  protection  aspects.  The 
need for protective measures should be determined in  advance, having regard to the type, 
extent  and  duration  of  hazards  to  which  a  pregnant  or  breastfeeding  woman  or  her  child 
may be exposed (§ 10 I (1) MuSchuG). The obligation to conduct a risk assessment exists 
irrespective of whether the business enterprise currently employs women.359 The protective 
measures have to be implemented without delay after a woman has  notified the  employer 
that  she  is  pregnant  or  nursing  (§  10  II  MuSchuG).  The  employer  also  has  to  ensure  that 
pregnant  or  nursing  women  only  exercise  work  tasks  for  which  protective  measures  have 
been  implemented  (§  10  III  MuSchuG).  Violations  of  protective  duties  listed  in  §  32 
MuSchuG constitute administrative offences, some of which are also punishable as crimes if 
committed intentionally (§ 33 MuSchuG). 

3.  Due Diligence Obligations in the Posted Workers Act 

The  objectives  of  the  Posted  Workers  Act  (Arbeitnehmerentsendegesetz  –  AEntG)  are  to 
create  and  enforce  appropriate  minimum  working  conditions  for  workers  posted  across 
borders, and to ensure fair and efficient conditions of competition by extending the reach of 
sectoral  collective  agreements.  This  should  also  contribute  to  preserving  employment 
subject to social security contributions and to strengthening collective bargaining autonomy 
(§  1  AEntG).360 To  implement  these  objectives,  §  14  AEntG  provides  for  no-fault  joint  and 
several  liability  of  an  entrepreneur  (the  general  or  main  contractor)  for  contractors 
commissioned by him (subcontractors) with regard to the payment of minimum wages and 
holiday fund contributions of employees. Civil liability regardless of negligence or fault aims 
to  incentivise  the  main  contractor  to  ensure  that  subcontractors  comply  with  the  working 
conditions  laid  down  in  the  AEntG,  including  ‘tariff-loyalty’.  The  2014  German  Minimum 
Wage  Act  (Gesetz  zur  Regelung  eines  allgemeinen  Mindestlohns  –  MiLoG)  extends  the  no-
fault liability of the main contractor (§ 14 AEntG) to the illegal employment of foreigners in 
Germany (§ 13 MiLog). 

358 See further T. Dieterich et al., Erfurter Kommentar zum Arbeitsrecht (München: C. H. Beck, 2013, 14th edn.), MuSchuG, §§ 9-
10 (Schlachter). 
359 Failure on the part of the employer to conduct a proper risk assessment deprives (putative) female employees of protective 
measures to which they are entitled pursuant to Article 4 (1) of Council Directive 92/85/EEC of 19 October 1992 (on measures to 
improve the health and safety of pregnant workers), which according to the European Court of Justice constitutes a discrimination 
based on sex within the meaning of Article 19 of Directive 2006/54/EC of 05 July 2006 (on the implementation of the principle of 
equal opportunities and equal treatment of men and women in matters of employment and occupation); see ECJ, Case C-531/15 – 
Elda Otero Ramos (Judgment of 19 October 2017). 
360 See further W. Däubler et al., Arbeitsrecht: Individualarbeitsrecht mit kollektivrechtlichen Bezügen (Baden-Baden: Nomos, 2017, 
4th edn.), AEntG, §§ 1-23 (Kühn). 

105 

 
 
 
 
 
 
 
 
                                                        
This  civil  liability  scheme  is  supported  by  a  public-law  control-  and  sanction  system  that 
primarily  seeks  to  protect  (foreign)  workers  unaware  of  their  rights  under  the  AEntG  or 
unable to assert them (§ 8 AEntG). Subcontractors that violate the compulsory employment 
requirements  listed  in  §  23  AEntG  can  be  fined  with  up  to  500.000  EUR.  The  main 
contractor  commits  an  administrative  offence  if  he/she  knows  or  negligently  fails  to  know 
that  the  subcontractor  violated  his/her  obligations  under  §  8  AEntG.  In  this  regard,  the 
general  contractor  is  obliged  to  exercise  due  diligence  in  the  selection  and  inspection  of 
subcontractors.  When  concluding  the  contract,  the  main  contractor  should  require  written 
confirmation of the subcontractor’s (and his/her subcontractors) compliance with § 8 AEntG. 
In case of objective indications for breaches of compulsory employment requirements by the 
subcontractor  or  his/her  subcontractors,  the  general  contractor  must  take  reasonable 
organisational and bureaucratic measures, within  the realm of his/her legal possibilities, to 
ensure compliance. 

D.  Due Diligence Requirements in Industry and Multi-Stakeholder Initiatives 

This  section  first  provides  a  brief  overview  of  international industry-  and  multi-stakeholder 
initiatives  on  human  rights  diligence  in  which  major  German  companies  participate.  The 
section then focusses  on the probably most important German industry standard of supply 
chain management, the Partnership for Sustainable Textiles. 

1.  Overview 

Many German companies, in particular large corporations, adhere to industry standards and 
participate  in  multi-stakeholder  processes  formulating  HRDD  requirements. 361  As  the 
initiatives listed below  are international in nature and therefore not specific to the German 
context,  the  sole  purpose  of  this  brief  overview  is  to  convey  an  idea  about  the  uptake  of 
international  standards  by  German-based  companies.  Industry  standards  in  which  German 
companies  participate  include  AIM  Progress  (consumer  goods);  the  Automotive  Industry 
Action  Group  and  the  European  Automotive  Working  Group  on  Supply  Chain  Sustainability 
(automotive);  the  Business  Environmental  Performance  Initiative  and  the  Business  Social 
Compliance Initiative (commerce); the Electronics Industry Citizenship Council (electronics); 
the Global e-Sustainability Initiative and the Joint Audit Cooperation (telecommunications); 
ICTI  Care  (toys); 
the  Pharmaceutical  Supply  Chain  Initiative  (pharmaceuticals); 
Railsponsible  (rail  transport);  the  Responsible  Sport  Initiative  (sports  equipment);  the 
Sustainable  Apparel  Coalition  (textiles);  and  Together  for  Sustainability  (chemicals). 362 In 
addition,  German  companies  take  part  in  multi-stakeholder  initiatives  formulating  due-
diligence  requirements,  some  of  which  encompass  companies  from  different  business 
sectors  while  others  are  industry-specific.  Among  those  are,  for  example,  the  Global 
Compact  (non-sector  specific);  the  Better  Cotton  Initiative  and  the  Fair  Wear  Foundation 
(textile); the  Ethical Trading Initiative (commerce); the  Extractive  Industries Transparency 
Initiative  (extractives);  the  Global  Coffee  Platform  and  the  International  Cocoa  Initiative 
(coffee  &  cocoa);  and  the  Roundtable  on  Responsible  Soy  and  the  Roundtable  on 
Sustainable Palm Oil (soy & palm oil). 

2. 

The Partnership for Sustainable Textiles 

361 Industry standards are understood as common standards to avoid the causation of, contribution to, or linkages with adverse 
human rights impacts that are agreed upon by associations of companies within an industry, sometimes in collaboration with other 
stakeholders, such as government and non-governmental organizations. 
362 For an overview of these initiatives and their relevance with respect to human rights due diligence along the supply chain, see: 
M. Müller & Y. Bessas, Potenziale von Brancheninitiativen zur nachhaltigen Gestaltung von Liefer- und Wertschöpfungsketten 
(Berlin: Bundesministerium für Arbeit und Soziales, 2017). 

106 

 
 
 
 
 
 
 
 
 
                                                        
The arguably most advanced German initiative with respect to industry standards of supply 
chain  due  diligence  is  the  Partnership  for  Sustainable  Textiles. 363  The  Partnership  was 
founded  in  2014  upon  the  initiative  of  the  German  Federal  Minister  for  Economic 
Cooperation  and  Development  in  response  to  a  number  of  tragic  accidents  in  the  textile 
industries  of  Bangladesh  and  Pakistan.  It  is  a  multi-stakeholder  body  with  about  130 
representatives  from  five  different  actor  groups:  government,  business,  nongovernmental 
organizations, trade unions and standard-setting organizations. It covers roughly half of the 
German  market  in  relation  to  the  100  top-selling  companies  in  the  German  textile  retail 
industry.  The  purpose  of  the  Textile  Partnership  is  to  achieve  social,  ecological  and 
economic improvements along the entire textile supply chain  – from the production of raw 
materials for textile production to the disposal of textiles. To this end, all members commit 
to  binding  and  verifiable  targets  that  become  gradually  more  ambitious.  The  Partnership’s 
Steering  Committee  comprises  twelve  representatives  of  business  associations  (2), 
companies  (2),  standard-setting  (1)  and  nongovernmental  (3)  organizations,  trade  unions 
(1) and government (3).364 In cases of non-compliance by members, that is, failure to move 
towards  the  objectives  or  making  adequate  progress,  the  Steering  Committee  can  impose 
sanctions  up  to  an  exclusion  from  the  Partnership. 365  In  2018,  the  Steering  Committee 
excluded seven members for not complying with their obligations.366 

The  Textile  Partnership  operates  on  the  basis  of  three  pillars:  individual  responsibility, 
collective engagement and mutual support. Under the mutual support pillar, members learn 
from  one  another  by  exchanging  information,  discussing  content-related  questions, 
participating  in  various  training  programs  and  receiving  practical  assistance.  Under  the 
collective  engagement  pillar,  members  jointly  devise  and  implement  so-called  Partnership 
Initiatives  in  textile  producing  countries  that  aim  at  improving  basic  conditions  on  the 
ground,  integrating  suppliers  and  local  actors,  and  creating  best  practices  in  the  process. 
Under  the  individual  responsibility  pillar,  members  commit  to  binding  and  verifiable 
procedural  obligations.  These  include  an  obligation  to  publish  roadmaps  and  progress 
reports  in  which  each  member  defines  binding  individual  targets  for  the  coming  year  and 
reports  on  their  implementation. 367  In  addition,  the  Textile  Partnership  has  defined  a 
number  of  stakeholder-specific  deadlines  and  volume  targets,  applicable  to  all  members 
since 2018. These targets are based on international frameworks, including the UNGPs, the 
ILO and the OECD. Some of these targets are overarching while others are sector specific; 
some are obligatory while others merely constitute recommendations. 

The  overarching targets include a number  of  mandatory measures  relating to supply chain 
management. All brands, retailers and manufactures must:368 
-  Contribute to raising public awareness of sustainable textile production by 2018. 
-  Recognise and prioritise their risks and potential negative impacts by 2018; 
-  Systematically record their business partners and producers by 2018; 
-  Establish  a  system  for  reviewing  implementation  of  their  requirements  in  the  supply 

chain on an ongoing basis by 2019; and 

-  Introduce  a  procedure  for  dealing  with  violations  of  their  requirements  by  business 

partners and producers by 2020. 
In  addition,  the  overarching  targets  include  recommendations  with  respect  to  supply 
chain due diligence. All brands, retailers and manufactures should: 

363 See https://www.textilbuendnis.com/en/ 
364 See https://www.textilbuendnis.com/en/who-we-are/panels/ 
365 See https://www.textilbuendnis.com/steuerungskreis-beschliesst-ueber-sanktionen/ 
366 See https://www.textilbuendnis.com/steuerungskreis-beschliesst-ueber-sanktionen/ 
367 See https://www.textilbuendnis.com/en/what-we-do/individual-responsibility/  
368 See https://www.textilbuendnis.com/wp-content/uploads/2018/02/targets-overview-2017.pdf   

107 

 
 
 
 
 
 
                                                        
-  Publish a list of their producers and business partners; 
-  Keep a record of stakeholders in the deeper supply chain; and 
-  Prohibit  producers  and  business  partners  from  engaging  in  unauthorised  subcontracting 

practices. 

The  sector-specific  targets  also  contain  some  mandatory  measures  on  supply  chain 
management. For example, all brands, retailers and manufacturers must:369 
-  Require  their  business  partners  and  producers  to  comply  with  the  Textile  Partnership’s 
Manufacturing  Restricted  Substances  List,  which  contains  substances  that  should not  be 
used in textile production by 2018; 

-  Require  their  producers  and  business  partners  to  comply  with  the  Textile  Partnership’s 

social goals and support them in implementation by 2018; 

-  Establish a procedure  for dealing with cases of child and forced labour, including access 

to remedy, by 2018; 

-  Require their producers and business partners to comply with a wastewater standard by 

2019; and 

-  Take  account  of  identified  social  risks  and  potential  negative  effects  when  selecting 

suppliers and awarding contracts. 

III. COMPARATIVE ANALYSIS 

a. Sources of corporate due diligence regulation in German law relevant to human 
rights and environmental protection 

The  German  legal  order  contains  ample  examples  of  corporate  due  diligence  requirements 
relevant  to  human  rights  and  environmental  protection.  Requirements  pertaining  to 
corporate  human  rights  due  diligence  are  ultimately  rooted  in  the  state  duty  to  protect 
human  rights,  which  imposes  an  obligation  of  diligent  conduct  on  public  authorities.  This 
constitutional  obligation  assumes  effect  in  the  relation  between  corporations  and  private 
persons  via  domestic 
legislation  and  adjudication.  Many  examples  of  corporate 
environmental  due  diligence  give  expression  to  the  precautionary  principle  (Article  20a 
German  Constitution)  which  requires  the  state  to  prevent  risks  to  the  environment  from 
materialising  even  where  cause-and-effect  relationships  are  not 
fully  established 
scientifically.  In  addition,  various  laws  that  contain  corporate  due  diligence  requirements 
implement  European  Union  legislation,  including  the  laws  regulating  environmental  impact 
assessments, product liability, public procurement, and reporting duties. 

b. Type of due diligence obligations and key elements of regulation, including the 
risks addressed and the severity and likelihood of impact/damage 

The  German  legal  order  contains  examples  of  different  types  of  due  diligence  obligations, 
including  precautionary  duties,  supervision  duties,  protective  duties  and  safety  duties, 
whose concrete scope and content is tailored to the  respective purpose of the law and the 
risks it aims to address. In one way or the other, all due diligence obligations are subject to 
standards  of  reasonableness,  appropriateness,  adequacy,  cost-benefit  analysis,  etc.,  which 
ultimately  give  effect  to  the  constitutional  proportionality  principle.  These  standards  are 
fleshed out with regard to the type of risk to be addressed, the likelihood and severity of the 
impact/damage to be expected, and the economic costs involved in minimising or excluding 

369 Id. 

108 

 
 
 
 
 
 
 
 
 
 
                                                        
the  risk.  For  example,  acting  with  due  diligence  within  the  meaning  of  the  German  law  of 
non-contractual  obligations  requires  the  adoption  of  reasonable  measures  that  a  careful 
person of average circumspection and capability would consider necessary and adequate in 
order  to  prevent  infringements  of  protected  interests.  The  threshold  of  reasonableness  is 
determined  on  the  basis  of  a  cost-benefit  analysis:  the  more  probable  and  serious  the 
possible  impact/damage  and  the  lower  the  costs  of  preventing  it,  the  more  precautionary 
measures  a  reasonable  person  is  expected  to  take.  In  this  regard,  the  particularity  of 
precautionary duties in environmental law (such as laid down in § 5 I (1) No 2 BISchG) is 
that they aim to address risks whose materialisation is possible yet not sufficiently probable 
to trigger a more robust duty of protection. This is of particular importance where – as often 
in cases of environmental harm – the damage may prove irreversible. 

An important purpose of supervision duties that can be found in different areas of law is to 
prevent  human  rights  risks  from  materialising  through  the  organisation  and  monitoring  of 
production  and  working  processes.    In  this  vein,  the  Product  Liability  Law  imposes  due 
diligence  obligations  on  producers  that  are  mapped  onto  the  different  stages  of  the 
production process, including an obligation to observe products that have been placed in the 
market. Or, § 91 II AktG makes it part of the due diligence of a ‘decent and conscientious’ 
member of the executive board to set up a firm-wide monitoring and compliance system for 
risk  control  and  damage  prevention.  Supervision  duties  also  equip  corporations  with  the 
necessary  knowledge  to  adapt  safety-  and  protection  measures  in  response  to  changing 
conditions. § 3 I ArbSchG, for example, requires employers to monitor business premises in 
regular intervals and to adapt occupational health and safety measures as required by the 
circumstances and necessary  for their  effectiveness.  In  some cases,  supervision duties are 
coupled  with  requirements  to  inform  the  concerned  parties  about  impeding  risks  and  the 
way they should be addressed, such as the obligation to warn consumers about the dangers 
of  faulty  products  in  product  liability  law  or  the  obligations  to  instruct  employees  about 
health and safety at work in the Labour Protection Act. 

Protective and safety duties imbue due diligence obligations with more substantive content, 
generally  tailored  to  the  purpose  of  the  law  in  the  context  of  which  they  operate.  The 
German  law  against  unfair  competition,  for  example,  protects  consumers  by  prohibiting 
business  practices  that  do  not  satisfy  the  requirements  of  corporate  due  diligence.  A 
particularity  of  the  Protection  of  Mothers  Act  is  that  it  requires  employers  to  conduct  an 
analysis of the type and extent of hazards at work that a breastfeeding mother or her child 
may  be  exposed  to  in  advance  of  any  concrete  manifestation  of  risks  and  irrespective  of 
whether  the  business  enterprise  currently  employs  women.  The  German  law  of  non-
contractual obligations specifies the diligence required by general business practice in terms 
of safety duties in two main constellations: where a person creates, maintains or controls a 
source of danger to the protected interests of third parties; and where a person assumes a 
responsibility to protect the interests of third parties. Bearers of safety duties recognised in 
the case-law include land owners, manufacturers, medical practitioners, tour operators and 
building contractors. 

c.  Regulation  of  corporate  due  diligence  requirements  in  relation  to  foreign 
subsidiaries and suppliers and/ or with extraterritorial effect (‘abroad’) 

The  due  diligence  obligation  of  members  of  the  executive  board  to  set  up  a  firm-wide 
compliance  system  for  damage  prevention  and  risk  control  contained  in  §  91  II  AktG  also 
applies  includes  foreign  subsidiaries.  However,  this  due  diligence  obligation  has  no  third-
party  effect,  that  is,  it  can  only  be  enforced  in  the  relationship  between  the  company  and 
the  members  of  its  executive  board.  Pursuant  to  the  German  Posted  Workers  Act,  the 
general  contractor  must  take  all  reasonable  organisational  and  bureaucratic  measures  to 

109 

 
 
 
 
 
 
 
ensure  compliance  with  minimum  working  conditions  for  the  benefit  of  posted  workers. 
These  obligations  of  the  main  contractor  apply  in  relation  to  subcontractors  and  their 
subcontractors.  There  is  in  principle  no  reason  why  the  safety  duties  contained  in  the 
German law of non-contractual obligations would not apply in relation to foreign subsidiaries 
and contractors, provided the factual conditions of assuming such duties on the part of the 
company  (control  or  delegation)  are  met.  There  is,  however,  no  relevant  case-law  to 
confirm  this,  which  is  mainly  due  to  the  fact  that  in  transnational  tort  litigations  before 
German courts, the existence and scope of due diligence obligations is generally determined 
on  the  basis  of  the  (foreign)  law  of  the  place  where  the  delict  was  committed  (lex  loci 
delicti).370 

The German law against unfair competition requires business actors to observe the standard 
of  expertise  and  diligence  that  an  entrepreneur  can  be  reasonably  expected  to  observe  in 
relation  to  consumers,  considering  his/her  field  of  activity,  the  principle  of  good  faith,  and 
honest  market  practices  (§  2  I  No  7  UWG).  Business  actors  that  mislead  consumers  into 
believing  that  their  products  have  been  manufactured  in  compliance  with  international 
human rights and labour standards can fall under the prohibition of unfair business practices 
within  the  meaning  of  §  3  UWG.  Irrespective  of  misleading  consumers,  a  violation  of  due 
diligence  obligations  can  be  assumed  where  foreign  working  conditions  violations  basic 
ethical requirements every legal order should aim to protect and are therefore incompatible 
with the principle of good faith and honest market practices. While the UWG only applies to 
products  placed  in  the  German  market,  the  law  has  extraterritorial  effect  in  that  the 
prohibition  of  unfair  business  practices  extends  to  foreign  subsidiaries  and  suppliers  (the 
distinction  is  immaterial  in  this  context)  whose  production  processes  violate  international 
human rights and labour standards. 

As  concerns  public  procurement,  the  German  Act  against  Restraints  of  Competition  allows 
the competent authorities to take into account social and environmental aspects pertaining 
to the production, provision or disposal of the service, to trade in the service, or to another 
stage in the life cycle of the service. It also entitles the competent authorities to impose, on 
a  contractual  basis,  conditions  of  environmental  and  social  protection  on  the  successful 
bidder.  This  regulation  has  extraterritorial  effect  insomuch  as  it  enables  the  competent 
authorities  to  take  into  account  and  regulate  conditions  for  the  provision  of  the  service 
outside the German domestic jurisdiction. The effectiveness of the regulation is mitigated by 
the  fact  that  the  inclusion  of  social  and  environmental  aspects  at  the  bidding  and  the 
execution stage remains optional. 

d. Corporate liability for violations of due diligence requirements, including burden 
of proof 

To facilitate the enforcement of corporate due diligence  obligations, some areas of German 
law  provide  for  a  reversal  of  the  burden  of  proof.  In  some  cases,  this  accounts  for  the 
weaker bargaining position of the beneficiaries of such obligations. In this vein, the German 
Labour  Protection  Act  provides  for  a  reversal  of  the  burden  of  proof  regarding  fault  and 
causality  if  the  employer  fails  to  instruct  the  employee  in  a  sufficient  and  adequate  way 
about  occupational  health  and  safety  measures.  The  Posted  Workers  Act  goes  further  by 
establishing no-fault liability of the main contractor for subcontractors who violate protective 
duties with regard to the payment of minimum wages and holiday fund contributions of the 
employee. In other cases, the reversal of the burden of proof is justified with regard to the 
fact  that  the  beneficiary  of  due  diligence  obligations  has  no  meaningful  access  to,  or 

370 This would change if, as proposed by the draft German Wertschöpfungskettengesetz discussed further below, corporate due 
diligence requirements would be considered mandatory rules of the forum. 

110 

 
 
 
 
 
 
 
                                                        
information  about,  the  sphere  of  the  duty  bearer.  According  to  German  company  law, 
members  of  the  executive  board  bear  the  burden  of  proof  for  having  acted  with  due 
diligence in setting up a firm-wide compliance system. Or, product liability law modifies the 
general civil liability rules on proving compliance with due diligence obligations, considering 
the difficulties consumers encounter in accessing the organisational sphere of the producer. 

German  law  provides  for  public  and  private  enforcement  of  corporate  due  diligence 
obligations.  In practice, the most important instrument of public law enforcement is § 130 
of the Administrative Offences Act. § 130 OWiG authorises public authorities to impose fines 
on  business  owners  for  failure  to  comply  with  their  monitoring  and  supervision  obligations 
with regard to compliance with legal duties contained in other areas of law and addressed to 
them in their capacity as business owners. A fine can also be imposed on the business entity 
itself if its director commits an offence that violates duties incumbent upon the company or 
that leads to an unjustified enrichment of the  company.  The most important instrument of 
private  enforcement  of  corporate  due  diligence  requirements  is  the  law  of  non-contractual 
obligations. In addition to § 823 I BGB which renders due diligence obligations enforceable 
as  safety  duties,  §  823  II  BGB  enables  litigants  to  claim  damages  for  violations  of  due 
diligence  obligations  contained  in  other  law,  provided  these  laws  also  aim  to  protect 
individual interests. 

Public and private law enforcement of corporate due diligence obligations often combine and 
intersect. For example, the civil liability scheme under the Posted Workers Act is supported 
by  a  public  law  control-  and  sanction  system  that  seeks  to  protect  (foreign)  workers 
unaware of their rights or unable to assert them through civil litigation. Or, the general due 
diligence  obligation  contained  in  the  German  Water  Resources  Act  not  only  makes  part  of 
environmental  impact  assessments  conducted  by  public  authorities  (UVPG)  but  also 
provides a legal basis for civil litigation for damages in conjunction with the environmental 
liability law and § 823 II BGB. 

There  is  a  German  National  Contact  Point  under  the  OECD  Guidelines.  There  is  one 
complaint  under  this  non-judicial  process  which  is  relevant.  In  2016  Dominic  Whiting 
brought  a  complaint  against  NORDIX  SE.  The  complaint  related  to  the  general  risk-based 
due  diligence  of  the  respondent  in  relation  to  supplies  of  wind  turbines  to  wind  park 
projects.  Following  the  conciliation  procedure,  the  respondent  agreed  to  improve  its 
implementation  of  the  OECD  due  diligence  recommendations,  but  refused  to  sign  a  Joint 
Final Statement to this effect.371 

IV. 

REGULATORY INITIATIVES AND LEGISLATIVE PROPOSALS 

This  part  discusses  three  recent  German  initiatives  that  may  result  in  a  legally  binding 
regulation of human rights due diligence (HRDD) in global supply/value chains. While some 
of these initiatives remain at present rather unspecific and hypothetical, they are important 
to  appreciate  the  current  political  and  regulatory  context  in  Germany.  The  three  initiatives 
discussed  differ  not  only  with  regard  to  the  appropriate  (German/EU)  forum  of  regulation 
but  also  with  regard  to  the  preferred  regulatory  method.  Moreover,  the  recent  proposals 
advanced  by  the  Ministry  of  Labour  and  Social  Affairs  and  the  Ministry  of  Economic 
Cooperation and Development may conflict with the timeline agreed for the implementation 
of  HRDD  in  the  German  National  Action  Plan  (NAP)  under  the  auspices  of  the  Ministry  of 
Foreign Affairs. 

371 https://www.bmwi.de/Redaktion/EN/Textsammlungen/Foreign-Trade/national-contact-point-ncp.html 

111 

 
 
 
 
 
 
 
 
 
 
                                                        
a.  Implementation  of  Corporate  Human  Rights  Due  Diligence  via  the  German 
National Action Plan on Business and Human Rights 

The German NAP formulates an expectation that ‘all enterprises’ introduce human rights due 
diligence in line with the UNGPs and ‘in a manner commensurate with their size, the sector 
in  which  they  operate  and  their  position  in  supply  and  value  chains’. 372  The  scope  and 
content  of  human  rights  due  diligence  (HRDD)  envisaged  by  the  NAP  corresponds  to  the 
requirements laid down in the second pillar of the UN Guiding Principles. 

Corporate  compliance  with  the  above  NAP  requirement  is  monitored  annually  from  2018 
onwards.  The  reference  group  of  the  monitoring  are  German-based  enterprises  with  more 
than 500 employees, including subsidiaries of foreign companies based in Germany. Chapter 
VI of the  NAP specifies  that monitoring shall take the form  of an annual survey  conducted 
on  the  basis  of  a  representative  sample  of  enterprises  and  shall  include  qualitative 
interviewing  on  the  substantive  depth  of  HRDD  measures  introduced  and  challenges 
encountered  during  their  implementation. 373  Enterprises  participate  in  the  monitoring 
process on a voluntary basis. The annual survey contains a ‘comply or explain’ mechanism 
whereby  participating  enterprises  ‘can’  explain  why  they  have  not  implemented  particular 
procedures or measures.374 The annual surveys are conducted by a consortium led by Ernst 
&  Young  that  produced  an  Inception  Report  in  September  2018. 375  Civil  society 
organisations  are  involved  in  the  monitoring  process  via  the  National CSR-Forum,  Working 
Group on Business and Human Rights. 

As concerns sanctioning and enforcement, the eventual goal of the monitoring is to establish 
whether at least 50% of all German-based enterprises with more than 500 employees have 
incorporated  HRDD  into  their  business  processes  by  2020.  Failing  ‘adequate  compliance’, 
the  German  Government  ‘will  consider  further  action,  which  may  culminate  in  legislative 
measures  and  in  a  widening  of  the  circle  of  enterprises  to  be  reviewed’. 376 The  present 
governing coalition agreement of March 2018 goes further in announcing the government’s 
intention to work towards a national or European legal regulation of corporate human rights 
due diligence should the 50% benchmark not be reached by 2020.377 

As  concerns  stakeholder  responses,  while  the  50%  benchmark  of  corporate  HRDD 
implementation by 2020 is one of the elements of the German NAP that has been received 
rather  positively,  civil  society  organisations  have  complained  about  the  reluctance  of  the 
German  government  to  develop  legally  binding  standards  and  have  voiced  concerns  about 
their  role  in  monitoring  process. 378 Data  on  the  corporate  uptake  of  HRDD,  on  obstacles 
encountered  in  the  implementation  process,  and  on  the  impact  of  the  measure  more 
generally is not yet available. 

372 German Federal Foreign Office, National Action Plan: Implementation of the UN Guiding Principles on Business and Human 
Rights 2016-2020, p. 7. 
373 Id. p. 28. 
374 Id. p. 28. 
375 Ernst & Young et al., Inception Report: Monitoring des Umsetzungsstandes der im Nationalen Aktionsplan Wirtschaft und 
Menschenrechte 2016-2020 beschriebenen menschenrechtlichen Sorgfaltspflicht von Unternehmen (04 September 2018); and 
further German Federal Foreign Office, Erhebung zur Überprüfung des Umsetzungsstandes der im Nationalen Aktionsplan Wirtschaft 
und Menschenrechte 2016-2020 beschriebenen menschenrechtlichen Sorgfaltspflicht von Unternehmen (Monitoring), FAQ (14 
March 2019). 
376 See NAP (n 1) p. 7. 
377 See German Federal Foreign Office (n 4) p. 2. 
378 See CorA et al., Kein Mut zur Verbindlichkeit: Kommentar deutscher Nichtregierungsorganisationen zum Nationalen Aktionsplans 
Wirtschaft und Menschenrechte der Bundesregierung (February 2017, revised version); CorA et al., Stellungnahme zum Monitoring 
der menschenrechtlichen Sorgfalt deutscher Unternehmen (December 2018). 

112 

 
 
 
 
 
 
 
 
 
                                                        
b.  Proposal  by  the  Federal  Ministry  of  Labour  and  Social  Affairs  to  promote  EU-
wide Legal Regulation of Human Rights Due Diligence in Global Supply Chains 

In  a  public  speech  of  20  February  2019,  the  Federal  Minister  of  Labour  and  Social  Affairs, 
Hubertus  Heil,  expressed  the  intention  of  his  Ministry  to  work  towards  an  EU-wide  legal 
regulation  of  corporate  human  rights  due  diligence  in  global  supply  chains.379 According  to 
Heil,  there  are  ‘weighty  reasons’  to  push  for  such  EU  legislation  –  irrespective  of  the 
corporate  uptake  of  HRDD  in  the  German  NAP  implementation  process  (see  I.1).  As 
concerns scope and content, the regulation should formulate a ‘process-standard’ for large 
enterprises  on  how  to  implement  human  rights  due  diligence  in  their  supply  chains, 
presumably  based  on  the  requirements  of  the  UNGPs.  The  regulation  should  also  apply  to 
non-European enterprises that ‘do business’ in the European Union. The Ministry of Labour 
and  Social  Affairs  apparently  pursues  this  initiative  in  close  collaboration  with  France,  the 
Netherlands and other EU Member States, with a view to securing a majority by the second 
half of 2020 when Germany takes over the leadership of the Council of the European Union. 

c.  Draft  German  Legislation  on  Corporate  Human  Rights  and  Environmental  Due 
Diligence  in  Global  Value  Chains  (Nachhaltige  Wertschöpfungskettengesetz  – 
NaWKG) 

i. Purpose, Scope and Regulatory Approach of the NaWKG 

In  early  February  2019,  a  draft  law  that  aims  to  regulate  corporate  human  rights  and 
environmental  due  diligence  in  global  value  chains  was  leaked  from  Federal  Ministry  for 
Economic  Cooperation  and  Development. 380 The  Nachhaltige  Wertschöpfungskettengesetz 
(NaWKG)  bears  significant  resemblance  with  an  earlier  proposal  to  regulate  HRDD  in 
German  public  law  that  was  developed  by  a  small  consortium  of  NGOs,  legal  practitioners 
and academics and that was published in March 2016 with extensive legal commentary. 381 
The  NaWKG  has  received  wide  support  from  civil  society  organisations  but  has  not  (yet) 
been endorsed by other German ministries.382 

The purpose of the NaWKG is to ensure the protection of human rights and the environment 
in  the  context  of  global  value  chains,  in  the  public  interest  and  the  interest  of  individuals 
employed  in  global  value  chains  or  otherwise  immediately  affected  by  their  operation  (§  1 
NaWKG).  As  concerns  the  size  and  type  of  business  covered,  the  draft  law  applies  to  all 
‘major  companies’  (Großunternehmen)  within  the  meaning  of  §  267  III  of  the  German 
Commercial Code (§ 2 NaWKG). In addition, it covers ‘other companies’ (with the exception 
of  ‘minor  companies’  (Kleinunternehmen))  and  subsidiaries  controlled  by  their  parent 
company (beherrschtes Unternehmen), provided these companies (a) operate in a ‘high risk 
sector’  (agriculture,  forestry  and  fishery;  mining;  manufacturing  industries,  including  food, 
textile and electronics; and energy supply, § 3 VI NaWKG) or (b) operate in conflict-affected 
or high-risk areas (§ 3 VII NaWKG). 

379 Bundesministerium für Arbeit und Soziales, Wirtschaftlicher Erfolg und soziale Gerechtigkeit sind keine Gegensätze, Public 
Speech on Occasion of the Zukunftsforum „Globalisierung gerecht gestalten“ in Berlin (20 February 2019). 
380 Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung, Entwurf eines Gesetzes zur nachhaltigen Gestaltung 
globaler Wertschoepfungsketten und zur Änderung wirtschaftsrechtlicher Vorschriften (Nachhaltige Wertschoepfungskettengesetz 
NaWKG) VS/NfD (01.02.2019). 
381 Remo Klinger et al, Verankerung menschenrechtlicher Sorgfaltspflichten von Unternehmen im deutschen Recht (Berlin, March 
2016). 
382 See, for example, Germanwatch, Germanwatch begrüpt Gesetzesvorhaben für nachhaltige Wertschöpfungsketten aus dem 
Bundesentwicklungsministerium (February 2019); CorA, CorA-Netzwerk begrüßt Gesetzesvorschlag für Menschenrechtsschutz in 
Wertschöpfungsketten von Entwicklungsminister Gerd Müller (February 2019). 

113 

 
 
 
 
 
 
 
 
 
                                                        
Following the approach found inter alia in the Brussels I Regulation, the NaWKG applies to 
all  companies  that  have  their  statutory  seat,  central  administration  or  principal  place  of 
business in Germany (§ 2  I NaWKG).  It also covers business activities  of these  companies 
outside  Germany  (‘ausländische  Geschäftstätigkeit’,  §  2  II  NaWKG).  From  a  jurisdictional 
perspective,  the  draft  law  adopts  a  model  of  so-called  ‘home-state’  or  ‘parent-based’ 
regulation which, rather than directly reaching out to foreign subsidiaries of German-based 
companies,  regulates  companies  domiciled  in  Germany  with  extraterritorial  effect.  This 
regulatory  method,  which  the  SRSG  John  Ruggie  dubbed  ‘domestic  measures  with 
extraterritorial  implications’,  relies  on  territory  as  jurisdictional  basis  and  is  generally 
considered fairly unproblematic from the perspective of public international law.383 

ii.  Regulation  of  corporate  human  rights  and  environmental  due  diligence, 
including the concept of adequacy 

As  concerns  the  content  of  regulation,  the  draft  law  requires  companies  to  comply  with 
comprehensive  due  diligence  requirements  to  protect  human  rights  and  the  environment. 
The  draft  law  covers  all  ‘internationally  recognised  human  rights’  (as  listed  in  the  draft’s 
annex,  §  3  I  NaWKG).  In  the  area  of  environmental  protection,  it  requires  companies  to 
fulfil  ‘basic  environmental  requirements’  and  to  avoid  damage  to  the  environment.  ‘Basic 
environmental  requirements’  are  defined  with  reference  to  environmental legislation  of  the 
country where the damage occurs (‘Erfolgsort’) and international treaties that bind Germany 
(§ 3 VIII NaWKG). 

To  prevent  negative  human  rights  and  environmental impacts,  companies  have  to  conduct 
an annual country- and sector-specific risk assessment which is ‘adequate’ in the light of the 
expected probability and gravity of negative impacts, the company’s size, the immediacy of 
the  company’s  contribution,  and  its  de  facto  and  economic  influence  on  the  entity  that 
directly  causes  the  violation/damage  (§  5  NaWKG).  In  this  regard,  §  5  IV  NaWKG  clarifies 
that a company’s contribution to a violation/damage extends to the company’s products and 
services and the acts  of third parties (enterprises and public authorities) if they unlawfully 
contribute  to  the  violation/damage  in  the  course  of  the  company’s  business  activities. 
Whenever  a  company  identifies  relevant  risks,  it  has  to  take  adequate  preventative 
measures  (§  6  NaWKG)  and,  if  applicable,  take  prompt  remedial  action  (§  7  NaWKG).  For 
the  latter  purpose,  the  company  has  to  establish  an  internal  grievance  mechanism  or 
participate in an effective non-judicial grievance mechanism by a multi-stakeholder initiative 
(§ 9 NaWKG). Companies are furthermore required to establish a whistle-blower system (§ 
10 NaWKG) and to draw up comprehensive documentation of its compliance with the draft 
law’s due diligence obligations (§ 11 NWKG). 

While  corporate  due  diligence  obligations  thus  apply  across  the  entire  value  chain,  their 
scope is delimited by a notion of ‘adequacy’ (Angemessenheit) that applies at the stages of 
risk analysis (§ 5 II NaWKG), preventative measures (§ 6 I NaWKG) and remedial action (§ 
7 NaWKG).384 § 5 III NaWKG furthermore specifies that in order to satisfy the requirement 
of  adequacy,  business  enterprises  have  to  conduct  an  ‘enhanced  risk  analysis’  whenever 
they  become  aware  of  concrete  risks  of  human  rights  impacts.  There  are  numerous 
precedents  in  German  law  for  delimiting  the  scope  of  due  diligence  obligations  relating  to 
risk analysis, prevention and remediation with help of a notion of adequacy. As part of the 

383 See H. R. C., Business and Human Rights: Further Steps towards the Operationalisation of the ‘Protect, Respect, and Remedy 
Framework, A/HRC/14/27 (2010) para 55. 
384 The same approach also informs the earlier proposal to regulate corporate HRDD in German public law; see Klinger et al (n 9) 
58-61. This proposal explicitly ties the notion of adequacy to the commentary attached to Principle 14 of the UNGPs, according to 
which the means through which a business enterprise meets its responsibility to respect human rights should be ‘proportional’ to 
the company’s size and/or the severity of the human rights impacts, judged by their scale, scope and irremediable character. 

114 

 
 
 
 
 
 
 
                                                        
proportionality  principle  (Grundsatz  der  Verhältnismäßigkeit  or  Übermaßverbot),  adequacy 
is enshrined in the German Constitution and binds all public authorities via the protection of 
fundamental (basic) rights. Adequacy  requires  a proportionate relationship between means 
and  ends.  In  constitutional  law,  an  act  of  public  power  is  only  adequate  if,  considering  all 
relevant  circumstances  the  measure  deployed  is  not  out  of  proportion  with  the  goal 
pursued.  This  entails  that  the  more  severe  a  measure  interferes  with  fundamental  rights, 
the weightier the public interest in regulation has to be.385 

A  notion  of  adequacy  is  also  found  in  a  variety  of  German  laws,  in  some  cases  specifically 
tied  to  requirements  of  risk  analysis.  §  25a  I  of  the  Law  regulating  the  Credit  System 
(Gesetz  über  das  Kreditwesen  –  KWG),  for  example,  provides  that  ‘proper  business 
administration must include adequate and effective risk management, on the basis of which 
the  credit  institute  must  continuously  ensure  its  risk-bearing  capacity’.386 What  is  required 
for adequate risk management depends on the type, scope, complexity, and risks inherent 
in  the  business  activity.  The  adequacy  and  effectiveness  of  the  risk  management  must  be 
regularly  assessed  by  the  credit institute  (§  25a  KWG).  Further  examples  are  found  in  the 
German Money  Laundering  Act (Gesetz über das Aufspüren von Gewinnen aus schweren 
Straftaten – GwG). § 10 II (4) GwG provides that upon request of the regulating authority, 
addressees  of  the  law’s  ‘general  due  diligence  obligations’  (allgemeinen  Sorgfaltspflichten) 
have  to  demonstrate  that  the  scope  of  due  diligence  measures  taken  is  ‘adequate’  in 
relation  to  the  risks  of  money  laundering  and  terrorist  financing.  §  15  GwG  imposes 
‘enhanced due diligence obligations’ (verstärkte Sorgfaltspflichten), among others if the risk 
analysis  indicates  a  ‘higher  risk’  of  money  laundering  or  terrorist  financing.  The  same 
requirement of demonstrating the adequacy of due diligence measures taken applies (§ 15 
II (3) GwG). § 17 KWG provides that where the implementation of due diligence obligations 
is  delegated  to  third  parties,  the  credit  institute  that  bears  the  obligation  has  to  verify  the 
‘adequacy’ of measures taken by the third party, and to take ‘adequate steps’ to ensure that 
the third party submits upon request the relevant documentation. Finally, adequacy plays a 
role in the German law  of  non-contractual  obligations, discussed in section III.1 below, 
where  it  determines  the  reasonable  measures  necessary  to  prevent  an  infringement  of 
protected interests. 

iii. Monitoring and Enforcement of the NaWKG 

Companies  have  to  appoint  a  compliance  officer  that  monitors  compliance  with  the  draft 
law’s  due  diligence  obligations  (§  8  NaWKG).  The  compliance  officer  is  responsible  for 
establishing the complaints mechanism and the whistle blower system, and for fulfilling the 
company’s  documentation  and  reporting  obligations.  He  must  be  consulted  in  advance  of 
‘strategic  entrepreneurial  decisions’  (in  particular  concerning  fundamental  changes  of  the 
company’s business activities, § 3 XI NaWKG). As other German laws with similar provisions 
(such as the Money Laundering Act discussed above), the NaWKG provides for a number of 
safeguards to ensure that the compliance officer can exercise his/her tasks in a competent 
and  independent  way.  These  safeguards  include  requirements  imposed  on  companies  to 
establish  close  ties  between  the  compliance  officer  and  the  company  management  and  to 
ensure that the compliance  officer has access to the necessary resources and information; 
and enhanced protection of the compliance officer against discrimination and dismissal. 

The  draft  law  also  envisages  various  channels  of  administrative  oversight.  The  company’s 
management  must notify the  competent public authority  of the appointment and dismissal 

385 See, for example, BVerGE 30, 292 – Erdölbevorratung. 
386 Eine ordnungsgemäße Geschäftsorganisation muss insbesondere ein angemessenes und wirksames Risikomanagement 
umfassen, auf dessen Basis ein Institut die Risikotragfähigkeit laufend sicherzustellen hat. 

115 

 
 
 
 
 
 
 
                                                        
of  the  compliance  officer  (§  8  II  NaWKG).  In  monitoring  corporate  compliance  with  the 
NaWKG, the competent public authority can issue ordinances as necessary for the execution 
of  the  draft  law.  For  that  purpose,  public  authorities  are  empowered  to  enter  business 
premises and to request disclosure of information and documents (§ 12 NaWKG). From the 
perspective  of  victims  of  corporate-related  human  rights  violations,  the  fact  that  public 
authorities investigate ex officio can contribute to alleviating burdens relating to proof- and 
disclosure  requirements  and  costs  and  resources  that  often  hamper  (cross-border)  civil 
litigation. 

The compliance officer also plays a role in the sanctioning and enforcement of the draft law. 
Culpable  breaches  of  his/her  obligations  (such  as  a  violation  of  documentation  duties  that 
causes  serious  bodily  harm)  incur  criminal  liability  (§  14  NaWKG).  The  competent  public 
authority  can  impose  fines  up  to  five  million  Euro  for  non-compliance  with  the  draft  law’s 
human  rights  and  environmental  HRDD  requirements  (§  13  NaWKG).  Companies  that  are 
found  to  have  committed  serious  violations  of  the  draft  law  (indicative  are  administrative 
fines  of  a  minimum  of  250.000  Euro)  should  be  excluded  from  public  procurement.  The 
exclusion  should  last  for  an  ‘appropriate  time’  necessary  to  re-establish  the  reliability 
(Zuverlässigkeit)  of  the  company  (§  16  NaWKG).  Finally,  the  draft  law  contributes  to 
facilitating attempts by victims to vindicate their rights through private litigation in German 
civil courts. Companies are obliged to waive the statute of limitations pending completion of 
the corporate non-judicial grievance procedure (§ 9 VI). Furthermore, as mandatory rules of 
the  forum,  the  draft  law’s  due  diligence  requirements  apply  to  non-contractual  liability 
claims  against  German-based  companies  irrespective  of  the  otherwise  applicable  law 
(pursuant to the lex loci delicti rule under the Rome-II Regulation). 

116 

 
 
 
 
 
 
 
 
IRELAND COUNTRY REPORT 
Shane Darcy* 

I.  OVERVIEW 

Ireland  does  not  generally  require  business  enterprises  to  undertake  due  diligence  in 
their  own  operations  or  in  their  supply  chains,  to  prevent,  mitigate  and  account  for 
human  rights  or  environmental  impacts.  The  role  of  human  rights  due  diligence  in 
advancing  business  respect  for  human  rights  has  been  recognised  by  the  Irish 
government,  civil  society,  political  representatives  and  business  representative 
organisations, but to date no legislation has been  adopted or  formally proposed for the 
purpose of explicitly mandating human rights or environmental due diligence by business 
enterprises. The Irish Government has largely favoured a voluntary approach to human 
rights due diligence by either State-owned or private business enterprises. A narrow due 
diligence  requirement  is  provided  for  in  legislation  and  statutory  instruments  giving 
effect  to  European  Union  directives  addressed  to  a  variety  of  discrete  areas,  although 
these  are  not  usually  related  to  the  protection  of  human  rights  and  the  environment. 
Nonetheless,  non-financial  reporting  requirements  for  large  Irish  companies  in 
furtherance of EU Directive 2014/95 touch on the role of due diligence processes. Certain 
State-owned  or  financed  companies  also  appear  subject  to  the  “public  sector  duty”  on 
human rights and equality which requires that such entities identify, take measures and 
report  on  human  rights  and  equality  issues  of  relevance  to  their  functions.  Irish 
legislation frequently provides for a defence of due diligence in relation to a wide range 
of  offences  by  corporate  actors,  although  the  majority  of  these  are  not  germane  to 
business  impacts  on  human  rights  and  the  environment.  A  number  of  Irish  companies 
with business activities in the United Kingdom have publicly addressed the issue of due 
diligence  in  the  context  of  slavery  and  trafficking  when  reporting  under  the  United 
Kingdom  Modern  Slavery  Act  2015.  This  section  seeks  to  provide  an  overview  of  the 
legal  and  policy  context  in  Ireland  relating  to  due  diligence  by  business  enterprises  in 
regard  to  their  potential  human  rights  and  environmental  impacts,  before  turning  to  a 
more in-depth examination of the relevant legislative undertakings. 

Ireland’s  National  Plan  on  Business  and  Human  Rights  2017-2020  is  aimed  at 
implementing the United Nations  Guiding Principles on Business and  Human Rights and 
includes  a  number  of  commitments  addressed  to  human  rights  due  diligence.  The 
National Plan, for example, notes the Irish government’s support for the implementation 
of  the  EU  regulation  on  conflict  minerals.387 It  also  envisages  the  establishment  of  a 
Business  and  Human  Rights  Implementation  Group  with  responsibility  for  meeting  the 
following commitments of relevance: 

  develop  a  practical  toolkit  on  business  and  human  rights  for  public  and  private 

entities within 12 months to assist them in their human rights due diligence 

  encourage  and  support  awareness  of  effective  human  rights  due  diligence  by 

state owned or controlled companies 

  encourage  and  support  effective  human  rights  due  diligence  in  the  context  of 

state support to business and NGOs 

  encourage  companies  and  NGOs  funded  by  the  state  to  carry  out  human  rights 
due  diligence  as  appropriate  to  their  size,  the  nature  and  context  of  operations 
and the severity of the risk of adverse human rights impacts 

  encourage  and  facilitate  the  sharing  of  best  practice  on  human  rights  due 

diligence, 

* Senior Lecturer & Deputy Director, Irish Centre for Human Rights, School of Law, National University of Ireland Galway. 
387 Government of Ireland, National Plan on Business and Human Rights 2017-2020, November 2017, p. 20, available at: 
https://www.dfa.ie/media/dfa/alldfawebsitemedia/National-Plan-on-Business-and-Human-Rights-2017-2020.pdf.  

117 

 
 
                                                        
including effective supply chain audits.388 

Following  the  adoption  of  the  National  Plan,  the  Minister  for  Foreign  Affairs  and  Trade, 
Simon  Coveney  referred  to  building  awareness  “of  the  need  to  exercise  effective  due 
diligence  on  human  rights  issues,  particularly  where  there  is  a  risk  of  adverse  human 
rights impacts”.389 Although the Working Outline of the National Action Plan on business 
and  human  rights  had  described  human  rights  due  diligence  as  forming  “a  central 
component of a business enterprise’s ability to assess and act upon potential and actual 
risks to their operations”,390 neither the Working Outline nor the National Plan included a 
commitment  to  developing  a  regulatory  framework  to  address  human  rights  due 
diligence  for  business  enterprises.  The  Business  and  Human  Rights  Implementation 
Group  was  formally  convened  in  January  2019, 391  and  is  in  the  early  stages  of 
addressing the commitments in the National Plan related to human rights due diligence. 

In  furtherance  of  a  commitment  in  Ireland’s  National  Plan,  the  Department  of  Foreign 
Affairs and Trade commissioned an independent study to provide a baseline assessment 
of  Ireland’s  legislative  and  regulatory  framework  for  business  and  human  rights.  The 
Baseline Assessment addressed human rights due diligence in some detail, taking some 
issue with the approach adopted by Ireland as set out in the National Plan: 

The  commitments  in  the  National  Plan  propose  a  largely  voluntary  regime, 
whereby  the  role  of  the  State  is  to  encourage  and  support  rather  than  to 
ensure  compliance  by  way  of  a  mandatory  regime.  While  such  an  approach 
may derive results in some cases, it may not result in compliance across the 
board, and indeed may take longer to achieve compliance.392 

The  Baseline  Assessment  recommended  that  consideration  “ought  to  be  given  to  the 
adoption  of  mandatory  human  rights  due  diligence”,  as  well  as  to  the  provision  of 
benefits  to  companies  undertaking  human  rights  due  diligence,  or  to  making  it  a 
requirement for  eligibility for State investment, participation in trade  missions or listing 
on  the  Irish  Stock  Exchange.393   It  also  suggested  that  human  rights  due  diligence  be 
considered  for  those  business  enterprises  seeking  to  do  business  with  the  State  or  to 
receive State support, including when operating extra-territorially: 

[H]uman  rights  due  diligence  ought  to  be  considered  as  a  minimum 
requirement  for  State  companies,  businesses  that  obtain  government 
contracts  through  the  public  procurement  process,  businesses  that  Ireland 
engages with through its embassies and State agencies and bodies that derive 
State support and that act outside the jurisdiction. Human rights due diligence 
should include reporting on human rights practices outside the jurisdiction so 
that  companies  that  provide  human  rights  reporting  in  Ireland,  whether  due 
to  being  domiciled  in  Ireland,  or  otherwise,  must  also  report  on  the  human 
rights of their out of territory operations.394 

The  Baseline  Assessment  highlighted  the  importance  of  human  rights  due  diligence  for 
“companies  connected  to  high  risk  industries  or  conflict  jurisdictions”,  and  the  need  for 
“clear guidance” for such companies in order to “facilitate compliance with human rights 

388 Ibid., pp. 18-19.  
389 Dáil Eireann Debates, Thursday, 4 October 2018. 
390 Department of Foreign Affairs and Trade, Working Outline of Ireland’s National Plan on Business and Human Rights 2016-
2019, p. 6, available at: https://www.dfa.ie/media/dfa/alldfawebsitemedia/ourrolesandpolicies/int-
priorities/humanrights/Working-Outline-of-Irelands-National-Plan-on-Business-and-Human-Rights-2016---2019.pdf.  
391 Press Release, Department of Foreign Affairs and Trade, Tánaiste addresses Inaugural Meeting of Business and 
Human Rights Implementation Group, 16 January 2019, available at: 
 https://www.dfa.ie/news-and-media/press-releases/press-release-archive/2019/january/tanaiste-addresses-inaugural-
meeting-of-business-and-human-rights-implementation-group.php  
392 ReganStein / Leading Edge Group / Department of Foreign Affairs and Trade, National Plan on Business and Human Rights; 
Baseline Assessment of Legislative and Regulatory Framework, March 2019, p. 20 available at: 
https://www.dfa.ie/media/dfa/ourrolepolicies/humanrights/Baseline-Study-Business-and-Human-Rights-v2.pdf.  
393 Ibid., p. 21.  
394 Ibid., p. 22.  

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due  diligence”. 395  The  recommendations  in  the  Baseline  Assessment  are  intended  to 
guide the work of the Business and Human Rights Implementation Group in meeting the 
commitments in the National Plan.396 

Key legislative enactments in Ireland related to human rights due diligence are the 2017 
Regulations  implementing  the  EU  Directive  on  Non-Financial  Reporting  and  the  Irish 
Human Rights and Equality Commission Act 2014.397 The Regulations, adopted by way of 
a  statutory  instrument  which  creates  binding  obligations,  use  a  “comply  or  explain” 
approach  to  non-financial  reporting  and  although  they  do  not  require  business 
enterprises  to  undertake  human  rights  due  diligence,  they  recognise  the  role  of  this 
process  in  ensuring  business  respect  for  human  rights  and  have  been  suggested  as  a 
potential  basis  for  future  legislation.  The  Regulations  apply  to  a  specific  set  of  larger 
companies  only.398 They  establish that the directors’ annual report must contain a non-
financial statement containing information “to the extent necessary for an understanding 
of the development, performance, position and impact of its activity” relating to: 

(i)  

(ii)  

(iii)  

(iv)  

environmental matters; 

social and employee matters; 

respect for human rights; 

bribery and corruption.399 

These  statements  shall  include  a  description  of  policies  pursued  in  relation  to  such 
matters  and “due diligence processes implemented and a description of the  outcome  of 
those  policies”. The  Regulations  do  not  mandate  the  undertaking  of  due  diligence,  but 
rather require the business enterprises in question to report on such processes as have 
been  undertaken.  Directors  must  also  report  on  the  environmental,  human  rights  and 
other risks linked to the company’s operations and “where relevant and proportionate … 
its business relationships, products or services which are likely to cause adverse impacts 
in those areas, and … how the applicable company manages those risks”.400 If companies 
do not pursue policies in these areas, then directors are required under the legislation to 
“include a clear and reasoned explanation for not so doing”.401 

While  the  Regulations  on  non-financial  reporting  do  not  require  human  rights  or 
environmental  due  diligence  by  business  enterprises,  they  have  been  considered  as  a 
“useful  foundation  upon  which  mandatory  human  rights  due  diligence  could  be 
developed”.402 The  Baseline  Assessment  undertaken  pursuant  to  Ireland’s  National  Plan 
on  business  and  human  rights  emphasised  the  direction  of  legislative  developments  in 
other  European  jurisdictions  concerning  mandatory  human  rights  due  diligence  and 
suggested  that  examples  such  as  the  Netherlands  Compact,  France’s  Duty  of  Vigilance 
Law or the United Kingdom Modern Slavery Act could be followed in the Irish context.403 
This  recommendation  echoes  those  previously  made  by  a  number  of  Irish  civil  society 
organisations  and  statutory  bodies  calling  on  the  Irish  government  to  place  a  human 
rights due diligence requirement for Irish business enterprises on a statutory footing.404 

395 Ibid., p. 45.  
396 Minister for Foreign Affairs and Trade, Simon Coveney, Dáil Eireann Debates, Thursday, 4 October 2018. 
397 S.I. No. 360/2017 - European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings 
and groups) Regulations 2017, available at: http://www.irishstatutebook.ie/eli/2017/si/360/made/en/print; Irish Human Rights and 
Equality Act 2014, s42, available at https://www.ihrec.ie/download/pdf/ihrec_act_2014.pdf.  
398 S.I. No. 360/2017, s4. 
399 Ibid., s5(1)-(2). 
400 Ibid., s5(2). 
401 Ibid., s5(3). 
402 National Plan on Business and Human Rights; Baseline Assessment of Legislative and Regulatory Framework, p. 21.  
403 Ibid.  
404 See for example Irish Human Rights and Equality Commission, Submission on Ireland’s National Action Plan on Business 
and Human Rights, March 2015, p. 19 available at: 
https://www.dfa.ie/media/dfa/alldfawebsitemedia/ourrolesandpolicies/int-priorities/humanrights/nationalplanonbizandhr/Irish-
Human-Rights-and-Equality-Commission.pdf; Trócaire, Making a Killing: Holding corporations to account for land and human 
rights violations, March 2019, p. 47, available at: 

119 

 
 
                                                        
In  the  absence  of  a  mandatory  framework,  undertaking  human  rights  due  diligence 
remains  largely  discretionary  for  most  Irish  business  enterprises.  A  small  number  of 
large Irish companies have provided brief overviews of their due diligence processes with 
regard  to  modern  slavery  when  reporting  under  the  United  Kingdom’s  Modern  Slavery 
Act 2015 on account of their activities in that jurisdiction.405 

For  State-owned  or  financed  companies,  certain  requirements  approximating  human 
rights  due  diligence  exist  under  the  public  sector  duty  as  enshrined  in  the  Irish  Human 
Rights  and  Equality  Commission  Act  2014.  The  Act  requires  public  entities  to  identify, 
take  measures  and  report  on  human  rights  and  equality  issues  of  relevance  to  their 
functions. Section 42 of the Act sets out that in the performance of its functions a public 
body shall “have regard to the need to (a) eliminate discrimination, (b) promote equality 
of  opportunity  and  treatment  of  its  staff  and  the  persons  to  whom  it  provides  services, 
and  (c)  protect  the  human  rights  of  its  members,  staff  and  the  persons  to  whom  it 
provides  services”. 406   The  Act  requires  that  such  public  bodies  undertake  a  form  of 
human rights due diligence: 

[A] public body shall, having regard to the functions and purpose of the body 
and to its size and the resources available to it— 

(a) set out in a manner that is accessible to the public in its strategic plan … 
an  assessment  of  the  human  rights  and  equality  issues  it  believes  to  be 
relevant to the functions and purpose of the body and the policies, plans and 
actions in place or proposed to be put in place to address those issues, and 

(b)  report  in  a  manner  that  is  accessible  to  the  public  on  developments  and 
achievements in that regard in its annual report407 

According to the Irish Human Rights and Equality Commission, the public sector equality 
and  human  rights  duty  applies  not  only  to  government  departments,  local  authorities, 
and  other  public  authorities,  but  also  to  companies  “wholly  or  partly  financed”  or  a 
majority  stake  is  owned  by  the  Irish  government. 408 As  elaborated  further  below,  the 
requirements under the Irish Human Rights and Equality Commission Act 2014 regarding 
human  rights  and  equality  have  not  as  of  yet  been  implemented  by  the  important  but 
narrow set of companies to which they apply. Moreover, the legislation does not provide 
for robust monitoring, sanction or enforcement of the requirements set down. 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

1. Area of Regulatory Framework 

a.   Company Law 

https://www.trocaire.org/sites/default/files/resources/policy/making_a_killing_holding_corporations_to_account_for_land_and
_human_rights_violations_1.pdf; Irish Congress of Trade Unions, Congress Submission on Ireland’s Proposed National Action 
Plan on UN Guiding Principles on Business and Human Rights, February 2015, available at: 
https://www.dfa.ie/media/dfa/alldfawebsitemedia/ourrolesandpolicies/int-
priorities/humanrights/nationalplanonbizandhr/ICTU.pdf.   
405 See for example Allied Irish Bank (https://group.aib.ie/content/dam/aib/group/Docs/modern-slavery-statement.pdf); 
Keelings (https://keelings.ie/corporate/wp-content/uploads/2016/07/modern-slavery.pdf); Dornan 
(https://www.dornan.ie/anti-slavery-policy/); Seetec (https://www.seetec.ie/modern-slavery-statement); Bosch 
(https://www.bosch.ie/modern-slavery-statement/). 
406 Irish Human Rights and Equality Commission Act 2014, s42(1). 
407 Ibid., s42(2). 
408 Irish Human Rights and Equality Commission, Public Sector Equality and Human Rights Duty- FAQ, available at:  
https://www.ihrec.ie/our-work/public-sector-equality-and-human-rights-duty-faq/ 

120 

 
 
 
 
 
 
 
                                                                                                                                                                            
Irish  company  law  does  not  generally  establish  human  rights  or  environmental 
obligations for companies  or company directors, although reporting requirements under 
this  body  of  law,  including  legislation  giving  effect  to  European  Union  directives,  make 
reference  to  human  rights  and  environmental  matters,  including  the  concept  of  due 
diligence. 

As  regards  reporting  requirements  under  Irish  company  law,  the  directors’  report  for  a 
financial  year  must  contain  “a  description  of  the  principal  risks  and  uncertainties  facing 
the company” and where appropriate, “to the  extent necessary  for an understanding of 
such  development,  performance  or  financial  position  or  assets  and  liabilities  …  an 
analysis using non-financial key performance indicators, including information relating to 
environmental  and  employee  matters”. 409 The  Companies  Act  2014  makes  clear  that 
such  indicators  are  understood  as  “factors  by  reference  to  which  the  development, 
performance  and  financial  position  of  the  business  of  the  company  can  be  measured 
effectively”. 410  However,  as  noted  above,  the  European  Union  (Disclosure  of  Non-
Financial  and  Diversity  Information  by  certain  large  undertakings  and  groups) 
Regulations  2017  require  that  the  directors  of  certain  large  companies  include  in  their 
annual  report  a  non-financial  statement  containing  information  relating  to  the 
development, performance, position and impact of the company’s activity on: 

(i)  

environmental matters; 

(ii) social and employee matters; 

(iii) respect for human rights; 

(iv) bribery and corruption. 411 

Human  rights  or  environmental  due  diligence  are  not  required  under  this  legislation, 
although  directors  may  report  on  “due  diligence  processes  implemented  and  a 
description  of  the  outcome  of  those  policies”. These  regulations  apply to  financial  years 
commencing  on  or  after  1  August  2017,  and  thus  companies  coming  under  this 
legislation have yet to issue the required non-financial statements. 

b. 

Human Rights Law 

State-owned or  financed companies may fall under the public sector  duty arising under 
the Irish Human Rights and Equality Commission Act 2014, which requires such entities 
to identify, take measures and report on human rights and equality issues of  relevance 
to their functions. Section 42 of the Act sets out that in the performance of its functions 
a public body shall “have regard to the need to (a) eliminate discrimination, (b) promote 
equality  of  opportunity  and  treatment  of  its  staff  and  the  persons  to  whom  it  provides 
services,  and  (c)  protect  the  human  rights  of  its  members,  staff  and  the  persons  to 
whom  it  provides  services”. 412  The  Act  requires  that  such  public  bodies  undertake  a 
process  that  is  comparable  to,  although  far  less  prescriptive  than  human  rights  due 
diligence as understood in the United Nations Guiding Principles on Business and Human 
Rights:  public  bodies  must  “set  out  in  a  manner  that  is  accessible  to  the  public  in  its 
strategic plan … an assessment of the human rights and equality issues it believes to be 

409 Companies Act 2014, s327(1)-(3), available at: http://www.irishstatutebook.ie/eli/2014/act/38/enacted/en/html.  
410 Ibid., s327(7). 
411 S.I. No. 360/2017 - European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings 
and groups) Regulations 2017, s5(1)-(2), available at: http://www.irishstatutebook.ie/eli/2017/si/360/made/en/print.  
412 Irish Human Rights and Equality Commission Act 2014, s42(1). 

121 

 
 
                                                        
relevant to the functions and purpose of the body and the policies, plans and  actions in 
place or proposed to be put in place to address those issues, and … report in a manner 
that is accessible to the public on developments and achievements in that regard in its 
annual  report”.413 There  is  no  evidence  to  date  of  State-owned  or  financed  companies 
meeting the requirements of the public sector duty under this legislation. 

2.  

Scope 

Non-financial reporting 

The  European  Union  (Disclosure  of  Non-Financial  and  Diversity  Information  by  certain 
large undertakings and groups) Regulations 2017 were introduced in order to give effect 
to EU Directive 2014/95/EU. Upon entry into effect of the 2017 Regulations, the Minister 
for  Business,  Enterprise  and  Innovation,  Francis  Fitzgerald,  stated  that  “I  believe  that 
public  disclosure  of  this  type  will  help  to  encourage  sustainable  growth  in  Irish 
enterprise.  I  expect  that  it  will  also  be  of  interest  to  investors,  consumers,  non-
governmental  organisations  and  wider  society.  A  flexible  approach  has  been  taken  in 
framing  these  new  transparency  requirements,  which  bears  in  mind  the  needs  of  both 
companies and those who will rely on the new disclosures”.414 

The  Regulations  create  a  non-financial  reporting  obligation  for  companies,  including 
holding  companies,  which  qualify  as  a  large  company  under  Section  280H  of  the 
Companies Act 2014, have an average number of employees exceeding 500, and are “an 
ineligible entity”, meaning they have transferable securities listed on a regulated market, 
are a credit institutions, or an insurance undertaking, for example.415 

With regard to terminology, the Regulations refer specifically to “environmental matters” 
and “respect for human rights”, as well as “social and employee” matters, although each 
of  these  terms  is  not  defined  in  the  specific  legislation.  As  regards  the  jurisdictional 
scope  of  the  Regulations,  little  detail  is  provided  in  the  legislation,  although  s5(11) 
provides as follows: 

An  applicable  company  which  is  a  subsidiary  company  shall  be  exempt  from 
the  obligation  to  prepare  a  non-financial  statement  if  that  company  and  any 
subsidiaries of the company are included in the group non-financial statement 
or  the  separate  statement  of  another  undertaking,  drawn  up  in  accordance 
with these Regulations or in accordance with the provisions implementing the 
Directive in a Member State other than the State. 

It is not clear whether the obligation arising under the Regulations requires an applicable 
company to address the activities of its subsidiaries in its non-financial statement where 
those subsidiaries are not themselves applicable companies. 

Public sector duty 

The  public  sector  equality  and  human  rights  duty  under  the  Irish  Human  Rights  and 
Equality Commission Act 2014 applies to government departments, local authorities, and 
other  public  agencies,  and  also,  in  the  view  of  Irish  Human  Rights  and  Equality 
Commission to: 

413 Ibid., s42(2). 
414 Department of Business, Enterprise and Innovation, Press Release: New rules will see some of Ireland’s 
biggest companies publishing information on a range of policies from gender diversity on boards of directors to 
greenhouse gas emissions, 21 August 2017, available at: https://dbei.gov.ie/en/News-And-Events/Department-
News/2017/August/21082017.html.  
415 S.I. No. 360/2017, s4(1). On “ineligible entities” see Companies (Accounting) Act 2017, s12, available at: 
http://www.irishstatutebook.ie/eli/2017/act/9/enacted/en/print.  

122 

 
 
 
 
 
                                                        
a  company  wholly  or  partly  financed  by  or  on  behalf  of  a  Government 
Minister, in pursuance of powers conferred by or under another enactment 

a  company  where  the  majority  of  shares  are  held  by  or  on  behalf  of  a 
Government Minister.416 

Furthermore,  “any  other  person,  body,  organisation  or  group  financed  wholly  or  partly 
out of moneys provided by the Oireachtas, may, in the public interest, be prescribed as a 
public body by the Minister for Justice and Equality, following consultation with the Irish 
Human  Rights  and  Equality  Commission”. 417    To  date,  a  number  of  government 
departments  and  local  authorities  have  undertaken  measures  relating  to  the  public 
sector duty on human rights and equality, although as of yet it is not apparent that any 
State-owned  or  financed  companies  have  acknowledged  the  application  of  the  public 
sector  duty  or  taken  appropriate  measures  in  this  respect. 418  Semi-state  agencies, 
including  those  constituted  as  companies,  are  audited  by  the  Comptroller  and  Auditor 
General.419 No  reference  is  made  to  the  size  or  type  of  industries  covered,  or  to  the 
jurisdictional  extent  of  businesses  covered  in  the  Irish  Human  Rights  and  Equality 
Commission Act 2014. 

Regarding  the  use  of  the  terminology  of  human  rights,  the  Irish  Human  Rights  and 
Equality Commission Act 2014 refers to the elimination of discrimination, the promotion 
of  equality  of  opportunity  and  the  protection  of  human  rights  of  a  public  body’s 
“members,  staff,  and  persons  to  whom  it  provides  services”. 420  Human  rights  are 
understood in this legislation as meaning: 

(a)  the  rights,  liberties  and  freedoms  conferred  on,  or  guaranteed  to, 
persons by the Constitution, 

(b) the rights, liberties or freedoms conferred on, or guaranteed to, persons 
by any agreement, treaty or convention to which the State is a party, and 

(c) without prejudice to the generality of paragraphs (a) and (b), the rights, 
liberties and freedoms that may reasonably be inferred as being— 

(i) inherent in persons as human beings, and 
(ii)  necessary  to  enable  each  person  to  live  with  dignity  and  participate  in 
the economic, social or cultural life in the State;421 

No reference is made to environmental issues, such as climate change, to sustainability 
or to governance in this legislation, which reflects both the mandate of the Irish Human 
Rights and Equality Commission and the indirect way in which the requirements can be 
considered applicable to certain business enterprises. 

3. Content of Regulation 

Non-financial reporting 

The  European  Union  (Disclosure  of  Non-Financial  and  Diversity  Information  by  certain 
large  undertakings  and  groups)  Regulations  2017  require  the  directors  of  an  applicable 

416 Irish Human Rights and Equality Commission, Public Sector Equality and Human Rights Duty- FAQ, available at:  
https://www.ihrec.ie/our-work/public-sector-equality-and-human-rights-duty-faq/ 
417 Ibid. 
418 See generally Niall Crowley, ‘A duty to value: Implementing the public sector equality and human rights duty’, 65(3) 
Administration (2017) 141, pp. 156-158. 
419 For a list of Irish semi-state agencies, including companies, see: https://www.audit.gov.ie/en/About-Us/WHO-WE-
AUDIT/State-Bodies/. 
420 Irish Human Rights and Equality Commission Act 2014, s42(1). 
421 Ibid., s2(1). 

123 

 
 
 
 
 
 
 
                                                        
company to include a statement containing non-financial information within the directors’ 
report issued each financial year. Such a statement shall: 

(b)  contain  information,  to  the  extent  necessary  for  an  understanding  of  the 
development,  performance,  position  and  impact  of  its  activity  relating  to,  at 
least, the following matters: 

(i) environmental matters; 

(ii) social and employee matters; 

(iii) respect for human rights; 

(iv) bribery and corruption 

The non-financial statement shall also: 

(d) include a description of the policies pursued by the applicable company in 
relation  to  the  matters  referred  to  in  subparagraph  (b),  including  due 
diligence  processes  implemented  and  a  description  of  the  outcome  of  those 
policies, 

(e) include a description of the principal risks related to the matters referred 
to  in  subparagraph  (b),  linked  to  the  applicable  company’s  operations 
including, where relevant and proportionate— 

(i)  its  business  relationships,  products  or  services  which  are  likely  to  cause 
adverse impacts in those areas, and 

(ii) how the applicable company manages those risks.422 

Where  the  directors  of  a  company  do  not  pursue  policies  in  these  areas,  the  non-
financial statement should include “a clear and reasoned explanation for not so doing”.423 
Applicable  companies  can  rely  upon  national,  European  or  international  frameworks  in 
preparing  their  non-financial  statements. 424  In  addition  to  the  above  reporting 
requirements,  large  traded  companies  must  also  include  a  “diversity  report”  in  their 
corporate governance statement relating to the composition of the company’s board with 
regard to aspects of age, gender or educational and professional backgrounds.425 

The  Regulations  make  no  reference  to  any  external  control  or  evaluation  of  the  human 
rights or environmental policies as may be undertaken by a company, including any due 
diligence processes. 

Public sector duty 

Section 42 of the  Irish Human Rights and Equality Act 2014 requires  that public bodies 
undertake what can be considered as a soft form of human rights due diligence: 

For the purposes of giving effect to subsection (1), a public body shall, having 
regard  to  the  functions  and  purpose  of  the  body  and  to  its  size  and  the 
resources available to it— 

(a)  set  out  in  a  manner  that  is  accessible  to  the  public  in  its  strategic  plan 
(howsoever described) an assessment of the human rights and equality issues 
it  believes  to  be  relevant  to  the  functions  and  purpose  of  the  body  and  the 
policies, plans and actions in place or proposed to be put in place to address 
those issues, and 

422 Ibid., s5(2). 
423 Ibid., s5(3). 
424 Ibid., s5(7). 
425 Ibid., s6 (1)-(2). 

124 

 
 
 
 
                                                        
(b)  report  in  a  manner  that  is  accessible  to  the  public  on  developments  and 
achievements in that regard in its annual report (howsoever described).426 

The  legislation  establishing  these  requirements  for  relevant  public  bodies,  which  can 
include certain companies connected with the Irish State, does not address the issue of 
subsidiaries or business relationships in the supply chain, or grievance mechanisms. 

4. Monitoring, sanction and enforcement 

Non-financial reporting 

Failure to comply with the obligation under the 2017 Regulation constitutes an offence, 
for which an individual director “shall be liable on summary conviction to a class A fine or 
to  imprisonment  for  a  term  not  exceeding  6  months,  or  to  both”.427 A  class  A  fine  can 
range from €4,001 to €5,000.428 The Office of the Director of Corporate Enforcement, a 
statutory body which enforces and encourages compliance with the requirements of the 
Companies  Acts,  has  a  recognised  role  in  enforcement  under  the  2017  Regulations.429 
The Office of the Director of Corporate Enforcement may: 

(a) investigate instances of suspected offences under these Regulations, 

(b) enforce these Regulations, including by the prosecution of offences by way 
of summary proceedings, and 

(c)  do  all  such  acts  or  things  as  are  necessary  or  expedient  for  the 
performance of his or her functions under these Regulations.430 

There have been no reported offences of failure to comply with the Regulations on non-
financial reporting at the time of writing. 

Public sector duty 

The Irish Human Rights and Equality Commission, Ireland’s independent national human 
rights  institution,  has  a  particular  role  in  relation  to  the  public  sector  duty.  In  general, 
the  Commission,  as  one  of  its  strategic  priorities,  seeks  to  “[h]old  government,  public 
bodies, agencies and businesses to account”.431 In relation to the public sector duty, the 
Commission  can  assist  public  bodies  by  offering  guidance  and  encouragement  in 
developing  policies  and  exercising  good  practice  in  relation  to  human  rights  and 
equality. 432  It  can  also  prepare  guidelines  or  codes  of  practice  regarding  “the 
development  by  public  bodies  of  performance  measures,  operational  standards  and 
written preventative strategies” on human rights and equality.433 Where the Irish Human 
Rights  and  Equality  Commission  considers  that  a  public  body  has  failed  to  perform  its 
functions  consistent  with  the  public  sector  duty  on  human  rights  and  equality,  it  may 
invite  the  body  in  question  to  carry  out  a  review  if  its  performance  or  prepare  and 
implement an action plan in respect of its duty.434 

426 Ibid., s42(2). 
427 S.I. No. 360/2017, s8.  
428 Fines Act 2019, s4. 
429 See http://www.odce.ie/en-gb/abouttheodce/ourrole.aspx.  
430 Ibid., s9. 
431 Irish Human Rights and Equality Commission, Strategy Statement 2019-2021, 2019, p. 6, available at: 
https://www.ihrec.ie/app/uploads/2019/02/Final-Strategy-Statement-ENG-VERSION.pdf. 
432 Ibid., s42(3). 
433 Ibid., s42(4). See Irish Human Rights and Equality Commission, Implementing the Public Sector Equality and Human Rights 
Duty, March 2019, available at: https://www.ihrec.ie/app/uploads/2019/03/IHREC_Public_Sector_Duty_Final_Eng_WEB.pdf. 
434 Ibid., s42(5). 

125 

 
 
 
 
 
 
 
                                                        
5. Procedural Framework 

Neither  the  2017  Regulations  nor  Section  42  of  the  Irish  Human  Rights  and  Equality 
Commission  Act  2014  establish  a  procedural  framework  that  envisages  access  to  a 
specific court or body for victims of alleged violations of human rights or environmental 
harms by relevant companies. 

6. Available Remedies 

Non-financial reporting 

The  2017  Regulations  do  not  provide  for  remedies  for  victims,  providing  only  for 
sanctions  against  directors  that  fail  to  meet  their  obligations  under  the  legislation  to 
disclose  the  relevant  non-financial  information.  The  sanction  applies  to  the  failure  to 
meet  the  reporting  requirements,  as  opposed  to  causing  harm  to  human  rights  or  the 
environment. 

Public Sector Duty 

The Irish Human Rights and Equality Act 2014 seeks to preclude any liability on the part 
of the relevant public body for failing to fulfil the requirements of the public sector duty 
on human rights and equality. Section 11 of the Act states that “[n]othing in this section 
shall of itself operate to confer a cause of action on any person against a public body in 
respect  of  the  performance  by  it  of  its  functions  under  subsection  (1)”.  However,  the 
European Convention on Human Rights Act 2003 provides that “every organ of the State 
shall perform its functions in a manner compatible with the State's obligations under the 
Convention  provisions”,  and  sets  out  that  any  person  “who  has  suffered  injury,  loss  or 
damage  as  a  result  of  a  contravention  …  may,  if  no  other  remedy  in  damages  is 
available, institute proceedings to recover damages in respect of the contravention in the 
High  Court”.435 If  State-owned  or  financed  companies  are  considered  as  “organs  of  the 
State” under this legislation, then a possible cause of action before the High Court arises 
for breach of rights under the European Convention.436 

7. Costs of enforcement of regulation of standards per annum (a) to State and 
b)  to  companies,  either  individually  or  collectively)  (public  information, 
estimated opinion) 

Given  that  implementation  of  both  the  non-financial  reporting  requirements  under  the 
2017 Regulations and the public sector duty under the Irish Human Rights and Equality 
Commission Act 2014 remain at a nascent stage, it is not possible to determine the costs 
of  enforcement  to  either  the  State  or  the  relevant  companies  covered  by  the  non-
financial reporting requirements or the public sector duty. 

8. Impact of the Regulation 

435 European Convention on Human Rights Act 2003, s3, available at:  
http://www.irishstatutebook.ie/eli/2003/act/20/enacted/en/print#sec3.  
436 On the definition of organs of the State see Padraic Kenna, ‘Local Authorities and the European Convention on Human 
Rights Act 2003’, Irish Human Rights Law Review (2010) 1, pp. 8-10; Colin Scott, ‘Variety in Public Agencies’, UCD Geary 
Institute Discussion Paper Series, 4 February 2008, available at: 
http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200804.pdf.  See also Reid v. Industrial Development 
Agency (Ireland) & ors [2013] IEHC 433; Byrne & another v, National Asset Management Agency [2018] IEHC 526. 

126 

 
 
 
 
 
 
 
 
 
                                                        
Given  that  implementation  of  both  the  non-financial  reporting  requirements  under  the 
2017 Regulations and the public sector duty under the Irish Human Rights and Equality 
Commission  Act  2014  remain  at  a  nascent  stage,  and  in  light  of  the  narrow  set  of 
companies to which these apply, it is difficult to determine their impact at this time. That 
being  said,  most  of  the  largest  law  firms  in  Ireland  have  published  advice  on  the 
requirements for applicable companies under the 2017 Regulations, perhaps on account 
of the criminal sanctions which attached to directors for non-compliance.437 With regard 
to  the  potential  application  of  the  public  sector  duty  to  State-owned  or  financed 
companies, the seeming failure  of any such company to implement this duty suggest a 
limited impact of this legislation on those business enterprises, and by extension victims, 
workers and other stakeholders. 

III. COMPARATIVE ANALYSIS 

9. Comparisons between different regulations within the Member State 

Directors Duties 

The liability of companies and directors for violations or damage by EU or non-EU based 
subsidiaries or in the supply chain is underexplored in the Irish context. A corporate duty 
to  respect  human  rights  as  understood  in  the  United  Nations  Guiding  Principles  on 
Business and Human Rights has not been established in legislation, nor translated into a 
civil  law  obligation  entailing  a  duty  of  care  on  the  part  of  companies.  Under  Irish 
company law, the duties of directors are generally owed to the company itself, although 
in  the  performance  of  their  functions,  they  are  also  required  to  “have  regard”  for  “the 
interests  of  the  company’s  employees  in  general,  as  well  as  the  interests  of  its 
members”. 438  Efforts  to  follow  the  model  of  directors  duties  in  the  United  Kingdom 
Companies  Act  2006,  which  requires  directors  to  have  regard  to  the  interests  of  the 
company,  its  members,  and  its  employees,  as  well  as  “the  impact  of  the  company’s 
operations on communities and the environment, have been rejected.439  The Minister of 
State  at  the  Department  of  Jobs,  Enterprise  and  Innovation,  Sean  Sherlock,  explained 
why  it  was  not  considered  appropriate  to  establish  a  duty  towards  employees  as  had 
been proposed by way of an amendment to the bill: 

Under  existing  law,  directors  are  required  to  have  regard  to  the  interests  of 
employees.  This  amendment  would  change  it  to  a  duty  to  employees.  This 
may  mean  that  members  and  employees  would  have  a  directly  enforceable 
right  against  directors  where  they  act  contrary  to  their  respective  interests. 
This  would  compromise  the 
fundamental  structure  of  the  directors’ 
relationship  with  the  company,  which  is  described  to  be  fiduciary,  that  is  to 
say  it  requires  directors  to  prefer  the  interests  of  the  company  over  their 
interests or those of others, even where those others include some members 
of the company.440 

The  Companies  Act  2014  makes  it  clear  that  the  section  of  this  legislation  that  makes 
reference  to  directors  having  regard  for  the  interests  of  employees  imposes  a  duty  on 

437 See for example A&L Goodbody (https://www.algoodbody.com/insights-publications/new-non-financial-and-diversity-
disclosure-obligations-affecting-directors); McCann Fitzgerald (https://www.mccannfitzgerald.com/knowledge/company-
secretarial-and-compliance/new-mandatory-reporting-requirements-for-many-large-companies); Matheson 
(https://www.matheson.com/news-and-insights/article/new-non-financial-and-diversity-disclosure-obligations);  William Fry 
(https://www.williamfry.com/newsandinsights/news-article/2018/11/28/large-companies-preparing-to-disclose-non-financial-
and-diversity-information).  
438 Companies Act 2014, s224(1). 
439 Brian Conroy, The Companies Act 2014: An Annotation (Round Hall, 2015), pp. 330-331. 
440 Ibid., p. 331. 

127 

 
 
 
 
 
                                                        
 
directors  that  “shall  be  owed  by  them  to  the  company  (and  the  company  alone)”.441 It 
gives rise to a right “enforceable by the company or by derivative action; it does not fall 
properly to be construed as conferring a direct right of enforcement on employees”.442 

Environmental Regulation 

With  regard  to  environmental  due  diligence,  there  is  at  present  no  overarching 
regulatory framework requiring environmental due diligence of Irish companies in order 
to  identify,  prevent,  mitigate  and  account  for  the  impact  of  their  actives  on  the 
environment,  such  as  in  relation  to  climate  change.    Business  enterprises  operating  in 
Ireland are at risk of liability for certain environmental harms, although a defence of due 
diligence may be available (see further below).  Environmental impact assessments and 
audits are  required under  Irish planning law in particular instances:  for certain projects 
and  activities  requiring  a  permit,  “an  ongoing  environmental  auditing  procedure  will 
apply as part of an environmental management system and the monitoring and reporting 
procedure set out in the conditions of a permit”.443 An environmental impact assessment 
is  required  under  Irish  planning  law  and  relevant  EU  Directives  “at  the  development 
stage of all projects that are likely to have a significant impact on the environment”. 444 
Assessments  are  also  required  where  activities  may  impact  on  designated  protected 
areas  or  special  areas  of  conservation. 445 The  Supreme  Court  has  held  that  the  Irish 
Planning  Board  (An  Bord  Pleanála)  was  entitled  to  consider  the  possible  transboundary 
effects outside of the State of a proposed development.446 

Recent proposed legislation – the Climate Action and Low Carbon Development (Climate 
Change  Reporting)  Bill  2018  –  seeks  to  amend  the  Climate  Action  and  Low  Carbon 
Development  Act  2015  in  order  to  expand  the  responsibilities  of  the  Climate  Change 
Advisory Council to include the publication within two years of “guidelines for companies 
seeking  to  identify  and  include  climate-related  reporting  in  their  annual  directors’ 
reports”.447 The  envisaged  guidelines  may  include  the  development  of  key  performance 
indicators  and  assist  companies  to  identify  “the  financial  and  strategic  implications”  of 
climate change and transition to a low carbon economy, although no reference is made 
to a due diligence obligation for companies. 

Due Diligence 

The  concept  of  due  diligence  is  present  in  a  number  of  areas  of  regulation  in  Ireland, 
such as in relation to data protection, money laundering, terrorist financing, banking and 
the sale or transfer of certain products. Such legislation often gives domestic legal effect 
to European Union laws.448 Under Irish data protection laws, “a data controller or a data 
processor, shall, so far as regards the collection by him of personal data or information 
intended for inclusion in such data or his dealing with such data, owe a duty of care to 

441 Companies Act 2014, s224(2). 
442 O’Sullivan v. Conroy Gold and Natural Resources Plc. [2017] IEHC 543, 98. 
443 See Rachel Dolan and Sinéad Marten, ‘Ireland’ in The International Comparative Legal Guide to Environment and Climate 
Change Law 2018 (Global Legal Group, 2018) 97, p. 98, available at: 
https://www.mccannfitzgerald.com/uploads/ENV18_Chapter-14-Ireland.pdf. 
444 Ibid. See EU Directives 2011/92/EU amended by 2014/52/ EU. See also John Gore-Grimes, Planning and Environmental 
Law in Ireland (Bloomsbury 2011) pp. 903-996. 
445 Ibid. 
446 Keane v. An Bord Pleanála [1998] 2 ILRM 241 SC. 
447  Climate Action and Low Carbon Development (Climate Change Reporting) Bill 2018, available at: 
https://data.oireachtas.ie/ie/oireachtas/bill/2018/82/eng/initiated/b8218d.pdf. 
448 See for example S.I. No. 183 – European Communities (Control of Animal Remedies and their Residues) Regulations 2009, 
s27(1), available at: http://www.irishstatutebook.ie/eli/2009/si/183/made/en/print.  

128 

 
 
 
                                                        
the  data  subject  concerned”. 449  The  Office  of  the  Data  Protection  Commissioner has 
previously  “identified  issues  with  some  data  controllers  who  failed  to  carry  out  proper 
due  diligence”  prior  to  the  award  of  contracts.450 In  relation  to  the  use  of  big  data  and 
analytics, however, there are “no specific laws or binding guidance covering the precise 
due  diligence  required”. 451 In  relation  to  defence  products,  the  Cluster  Munitions  and 
Anti-Personnel  Mines  2008,  places  on  obligation  on  public  investors  to  “avoid  investing 
public  moneys  in  collective  investment  undertakings  or  investment  products  unless, 
having  exercised  due  diligence,  the  investor  is  satisfied  that  there  is  not  a  significant 
probability  that  the  public  moneys  will  be  invested  in  a  munitions  company”.452 Where 
public monies have been so invested, the investor 

(a)  establish  to  its  satisfaction  that  the  company  intends  to  cease  its 
involvement in the manufacture of prohibited munitions or components, or 

(b) divest itself of its investment in that company in an orderly manner.453 

With  regard  to  Ministerial  authorisation  for  the  transfer  of  certain  defence  related 
products  within  the  European  Union,  relevant  recipient  undertakings  must  make  a 
written commitment “to provide to the Minister, with due diligence, detailed information 
in response to requests and inquiries concerning the end-users or end-use of all products 
exported,  transferred  or  received  under  a  transfer  licence  from  another  Member 
State”.454 

Detailed  due  diligence  requirements  are  found  in  Irish  law  in  the  area  of  banking  and 
finance.  Such  legislation  often  gives  effect  to  relevant  international  or  EU  laws.  For 
example,  in  relation  to  money  laundering  and  terrorist  financing,  the  Criminal  Justice 
(Money  Laundering  and  Terrorist  Financing)  (Amendment)  Act  2018  sets  down 
requirements and modalities for due diligence to “manage and mitigate risk” in relation 
to  customers  who  may  be  implicated  in  such  activities. 455  The  Act  addresses  both 
“simplified”  and  “enhanced  due  diligence”,  with  the  latter  relating  to  customers  in  high 
risk  third  countries  or  those  of  heightened  risk.456   Group-wide  policies  and  procedures 
are  also  envisaged  for  carrying  out  customer  due  diligence  and  preventing  the  acts  in 
question.457   The  competent  authority  may  direct  a  group  to  not  enter  into  a  business 
relationship  or  to  terminate  an  existing  relationship  where  it  “is  not  satisfied  that  the 
additional  measures  applied  in  accordance  with  that  subsection  are  sufficient  for  the 
purposes  of  carrying  out  customer  due  diligence  and  preventing  and  detecting  the 
commission  of  money  laundering  and  terrorist  financing”. 458    There  are  also  specific 
obligations  set  down  in  Irish  law  for  the  legal  profession  to  undertake  due  diligence  in 
relation to clients or potential clients in order to prevent money laundering and terrorist 
financing.459 

449 Data Protection Act 1988, s7, available at: http://www.irishstatutebook.ie/eli/1988/act/25/enacted/en/print.  
450 Data Protection Commissioner - Ireland [2013] IEDPC 14 (2013). 
451 Anne-Marie Bohan and Andreas Carney, ‘Ireland’ in The International Comparative Legal Guide to Data Protection 2017, 4th 
Edition (Global Legal Group, 2017) 125, p. 134.  
452 Cluster Munitions and Anti-Personnel Mines 2008, s14(1), available at: 
http://www.irishstatutebook.ie/eli/2008/act/20/enacted/en/print.html.  
453 Ibid., s13(2) 
454 S.I. No. 346/2011 – European Communities (Intra-Community Transfers of Defence Related Products) Regulations 2011, 
s15(3)(d), available at: http://www.irishstatutebook.ie/eli/2011/si/346/made/en/print.  
455 Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018, s10 available at: 
http://www.irishstatutebook.ie/eli/2018/act/26/enacted/en/print.html.  
456 Ibid., s13, 18 and 19 
457 Ibid., s 29. 
458 Ibid., s 30. 
459 S.I. No. 33/2016, Solicitors (Money Laundering and Terrorist Financing Regulations) 2016, s13, 14, 18, available at: 
http://www.irishstatutebook.ie/eli/2016/si/533/made/en/print.  

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Credit institutions in Ireland, such as banks, are required to demonstrate to the Central 
Bank  that  they  have  undertaken  detailed  due  diligence  before  investing  in  certain 
securities.460 According the relevant legislation: 

(1)  Before  investing,  and  as  appropriate  thereafter,  a  credit  institution  is 
required  to  be  able  to  demonstrate  to  the  Bank,  for  each  of  its  individual 
securitisation positions, that— 

(a) it has a comprehensive and thorough understanding of, and 

(b)  it  has  implemented  formal  policies  and  procedures  appropriate  to  its 
trading book and non-trading book and commensurate with the risk profile of 
its  investments  in  securitised  positions  for  analysing  and  recording,  the 
following matters— 

(i) information disclosed under Regulation 64C by the originator or sponsor of 
the position to specify the net economic interest that the originator or sponsor 
maintains in the securitisation position, 

(ii) the risk characteristics of the individual securitisation position, 

(iii)  the  risk  characteristics  of  the  exposures  underlying  the  securitisation 
position, 

(iv)  the  reputation  and  loss  experience  in  earlier  securitisations  of  the 
originators  or  sponsors  in  the  relevant  exposure  classes  underlying  the 
securitisation position, 

(v)  the  statements  and  disclosures  made  by  the  originator  or  sponsor,  or  by 
any  agent  or  advisor  of  an  originator  or  sponsor,  about  the  due  diligence on 
the  securitised  exposures  and,  where  applicable,  on  the  quality  of  the 
collateral supporting the securitised exposures, 

(vi) where applicable, the methodologies and concepts on which the valuation 
of  collateral  supporting  the  securitised  exposures  is  based  and  the  policies 
adopted  by  the  originator  or  sponsor  to  ensure  the  independence  of  the 
valuer, and 

(vii)  all  the  structural  features  of  the  securitisation  that  can  materially  affect 
the performance of the securitisation position.461 

While  few  of  the  above  legislative  enactments  can  be  considered  as  directly  related  to 
human  rights  and  the  environment,  it  is  evident  that  the  concept  of  due  diligence  is 
widely  used  in  other  areas  of  domestic  regulation  in  Ireland  to  identify,  prevent,  and 
account for identified harmful activities. 

Due Diligence as a Defence 

The  defence  of  due  diligence  has  long  been  recognised  in  Irish  law,  and  has  been  set 
down  in  numerous  pieces  of  legislation  relating  to  a  variety  of  offences  and  upheld  by 

460 S.I. No. 627 of 2010 European Communities (Directive 2009/111/EC) Regulations 2010, available at: 
http://www.irishstatutebook.ie/eli/2010/si/627/made/en/print.  
461 Ibid., Regulation 61. 

130 

 
 
 
                                                        
the  courts  in  a  number  of  proceedings. 462 As  a  recent  example  of  primary  legislation 
enshrining  the  due  diligence  offence,  the  Criminal  Justice  (Corrupt  Offences)  Act  2018 
provides that “it shall be a defence for a body corporate against which such proceedings 
are brought to prove that it took all reasonable steps and exercised all due diligence to 
avoid the commission of the offence”.463 The Act provides for extraterritorial jurisdiction 
for offences of corruption committed outside the State by Irish citizens or companies. 464 
In the context of employment law, the Employment (Miscellaneous Provisions) Act 2018 
provides for a due diligence offence for employers: 

In proceedings for an offence under this section, it shall be a defence for the 
accused to prove that he or she exercised due diligence and took reasonable 
precautions to ensure that this Act was complied with by the accused and by 
any person under the control of the accused.465 

The  defence  of  due  diligence  is  applicable  under  Irish  law  therefore  to  both  natural  and 
legal persons, and has been deemed applicable to a range of offences.466 It has not been 
extended by legislation to offences consisting of serious violations of human rights, such 
as trafficking in persons.467 

IV. REGULATORY FRAMEWORK 

10. Overall Review of Regulatory framework 

In  Ireland,  there  has  been  limited  legislative  activity  or  proposed  legislation  specifically 
related  to  human  rights  and  environmental  due  diligence  by  business  enterprises. 
Notwithstanding  Ireland’s  commitment  to  the  United  Nations  Guiding  Principles  on 
Business and Human Rights and the OECD Guidelines for Multinational Enterprises, both 
of  which  advocate  the  exercise  of  human  rights  due  diligence  by  business  enterprises, 
there  has  been  negligible  progress  to  date  in  encouraging  Irish  business  enterprises, 
state-owned  or  private,  to  undertake  due  diligence  on  a  voluntary  basis.  Even  where  a 
statutory obligation can be said to exist for certain companies, as is arguable under the 
Irish  Human  Rights  and  Equality  Commission  Act  2014,  compliance  has  been  notably 
weak  to  date.  Narrowly  focused  due  diligence  obligations  for  companies  have  been 
mandated  under  a  limited  number  of  domestic  laws,  some  of  which  give  effect  to  EU 
Directives.  These have  enjoyed far greater  compliance, although as noted above, these 
legislated  requirements  have  largely  not  been  addressed  to  matters  concerning  human 
rights and the environment. The due diligence component of the requirements set down 
for  company  directors  under  the  European  Union  (Disclosure  of  Non-Financial  and 
Diversity  Information  by  certain  large  undertakings  and  groups)  Regulations  2017 
merely  serves  to  illustrate  how  a  company  might  seek  to  address  human  rights  and 
environmental  impacts  of  its  activities.  This  non-financial  reporting  legislation  only 
mandates the issuance of a “non-financial statement”, but leaves considerable discretion 
to applicable business enterprises as to whether policies are pursued for the purpose of 
addressing  environmental,  social  and  employee  matters,  human  rights,  bribery  and 
corruption. 

The  principal  regulations  examined  in  this  report  do  not  seek  to  provide  access  to 
remedy  for  individuals  whose  rights  have  been  affected  and  can  accordingly  be 

462 See for example Waxy O'Connors Ltd v. Judge Riordan & others [2016] IESC 30 (08 June 2016); Reilly v. Judge Patwell 
[2008] IEHC 446 (17 October 2008); C.C. v. Ireland & ors [2006] IESC 33 (23 May 2006). 
463 Criminal Justice (Corrupt Offences) Act 2018, s18(2), available at: 
http://www.irishstatutebook.ie/eli/2018/act/9/enacted/en/html.  
464 Ibid., s12. 
465 Employment (Miscellaneous Provisions) Act 2018, s10, available at: 
http://www.irishstatutebook.ie/eli/2018/act/38/enacted/en/html.  
466 See for example Criminal Justice (Offences Relating to Information Systems) Act 2017, s9(2); S.I. No. 290/2013 - 
European Union (Birds and Natural Habitats) (Sea-fisheries) Regulations 2013, s23; Consumer Protection Act 2007, s78; 
National Minimum Wage Act  2000, s38; S.I. No. 316/2014 – European Union (Timber and Timber Products) (Placing on the 
Market) Regulations 2014, (s4(3)). 
467 Criminal Law (Human Trafficking) Act 2008, available at: http://www.irishstatutebook.ie/eli/2008/act/8/enacted/en/html.  

131 

 
 
 
 
 
                                                        
considered  as  ineffective  in  this  regard.  While  legislative  enactments  can  be  read  as 
demonstrating  some  commitment  on  the  part  of  the  Irish  State  in  meeting  its 
fundamental human rights obligations, they suggest a minimalist approach to advancing 
business  respect  for  human  rights  by  way  of  regulation.  The  Irish  Human  Rights  and 
Equality  Commission  Act  2014  addresses  the  human  rights  responsibilities  of  certain 
companies almost inadvertently, while the non-financial reporting regulations ultimately 
arose  on  account  of  Ireland’s  obligations  as  a  member  of  the  European  Union.  Such 
legislation does not sufficiently advance the stated goal of putting “human rights at the 
heart  of  all  our  business  practices”,  as  espoused  by  Minister  for  Foreign  Affairs  and 
Trade,  Simon  Coveney.468 At  the  launch  of  the  National  Plan,  Minister  Coveney  stated 
that the plan sought to avoid a “hard-hitting legalistic approach” to business and human 
rights,  as  is  clearly  evidenced  by  the  promotional  approach  adopted  throughout  the 
document. 469  Since  the  endorsement  of  the  United  Nations  Guiding  Principles  on 
Business  and  Human  Rights,  successive  Irish  governments  have  demonstrated  little 
commitment to regulatory activity in this area, including in relation to due diligence. 

in  achieving  corporate 

Neither  of  the  two  regulatory  models  explored  in  detail  in  this  report  have  proven 
implementation  of  adequate  human  rights  or 
effective 
environmental  due  diligence  or  in  providing  victims  with  access  to  remedy.  The 
weaknesses  are  evident:  an  absence  of  any  mandatory  obligation  to  undertake  due 
diligence in the non-financial reporting regulations; limited scope of application, to large 
companies  in  the  case  of  the  non-financial  reporting  regulations,  and  to  companies 
owned  or  financed  by  the  Irish  State  under  the  Irish  Human  Rights  and  Equality 
Commission Act 2014 (which is weakened by the absence of any direct reference to such 
companies  in  the  legislation  itself);  an  underdeveloped  model  of  human  rights  due 
diligence  in  the  Irish  Human  Rights  and  Equality  Commission  Act  2014,  which  requires 
considerable  elaboration,  and  which  makes  no  mention  of  environmental  issues, 
including climate change; limited monitoring, sanction and enforcement; the purposeful 
exclusion  of  any  cause  of  action  for  victims  under  the  Irish  Human  Rights  and  Equality 
Commission  Act  2014.  Notwithstanding  these  shortcomings,  it  should  be  borne  in  mind 
that  it  was  not  the  specific  purpose  of  the  examined  legislation  to  require  business 
enterprises  to  undertake  due  diligence  in  their  operations  or  supply  chains  in  order  to 
prevent, mitigate and account for human rights or environmental impacts. 

Neither  the  Irish  government  nor  opposition  political  parties  have  formally  proposed 
legislation  to  bring  into  Irish  law  regulatory  regimes  requiring  human  rights  and/or 
environmental  due  diligence  by  business  enterprises.  Nonetheless,  as  noted  above,  the 
independently  prepared  Baseline  Assessment  commissioned  by  the  Department  of 
Foreign Affairs and Trade in furtherance of a commitment in the National Plan, suggested 
that the existing non-financial reporting regulations could serve as a basis for developing 
mandatory  human  rights  due  diligence  for  Irish  companies. 470  This  recommendation 
echoes  those  previously  made  by  a  number  of  Irish  civil  society  organisations  and 
statutory  bodies  calling  on  the  Irish  government  to  place  a  human  rights  due  diligence 
requirement for Irish business enterprises on a statutory footing. For example, the Irish 
Human Rights and Equality Commission recommended in 2015 that: 

The  Irish  Government  should  make  due  diligence  a  mandatory  requirement 
with  a  legislative  underpinning,  especially  where  the  State-business  nexus 
exists or where Irish companies operate in conflict-affected areas or countries 
with poor human rights records.471 

468 Foreword, National Plan on Business and Human Rights 2017-2020, p. 5. 
469 Shane Darcy, ‘Ireland’s national plan on business and human rights: some initial thoughts’, Business and Human Rights in 
Ireland, 15 November 2017, available at: https://businesshumanrightsireland.wordpress.com/2017/11/15/irelands-national-
plan-on-business-and-human-rights-some-initial-thoughts/.  
470 National Plan on Business and Human Rights; Baseline Assessment of Legislative and Regulatory Framework, p. 21.  
471 Irish Human Rights and Equality Commission, Submission on Ireland’s National Action Plan on Business and Human Rights, 
March 2015, p. 19 available at: 

132 

 
 
                                                        
One  of  Ireland’s  largest  civil  society  organisations  Trócaire,  has  similarly  called  for 
“mandatory  human  rights  due  diligence  and  environmental  impact  assessments  in 
order to avoid further violations of fundamental rights”.472  The Irish Congress of Trade 
Unions  has  recommended  that  the  Irish  government  introduce  human  rights  due 
diligence  in  all  its  interactions  with  business  “such  as  through  contracts,  investment 
policies,  procurement  processes,  legislation,  or  regulation”. 473 Amnesty  International 
made similar recommendations, and considered the national plan as an opportunity to 
consider how legislation could be developed on human rights due diligence.474 None of 
these organisations have prepared draft legislation on human rights (or environmental) 
due diligence. 

Business  representative  organisations  have  expressed  some  concern  at  the  potential 
burden  of  mandatory  human  rights  due  diligence  for  certain  enterprises,  particularly 
small  and  medium  size  enterprises.  Chambers  Ireland,  for  example,  considered  that 
human  rights  due  diligence  could  be  useful  “as  a  strategic  tool”  for  companies,  but 
expressed the view that it “must not be made mandatory”: 

The  additional  administrative  burden  that  would  be  imposed  on  Irish 
businesses  would  impede  competitiveness  and  drain  scarce  resources  and 
capacity.  Again,  there  is  the  issue  of  relative  burden,  as  larger  companies 
would  be  in  a  better  position  to  dedicate  resources  to  reporting  on  their 
policies.  Therefore  we  welcome  the  position  of  the  Department  […]  that 
companies  should  be  encouraged  to  carry  out  human  rights  due  diligence  as 
appropriate  to  their  size,  the  nature  and  context  of  operations  and  the 
severity of the risk of adverse human rights impacts.475 

The  role  of  proportionality  in  the  context  of  requirements  for  human  rights  due 
diligence was noted in the Baseline Assessment published in March 2019: 

The UNGPs and the OECD Guidelines envisage that the nature of due diligence 
ought to be appropriate to the size and scale of the business, and indeed the 
tailoring  of  requirements  to  reflect  the  size  and  type  of  businesses  may 
address  these  concerns.  Human  rights  due  diligence  of  a  mandatory  rather 
than  discretionary  character  can  therefore  be  developed  in  a  manner  that 
takes  account  of  the  size  of  businesses  and  also  serves  to  give  effect  to  the 
imperative to develop business in a human rights compliant manner.476 

In  this  respect,  the  focus  on  a  narrow  set  of  large  companies  as  under  the  2017  non-
financial  reporting  regulations  may  serve  to  assuage  the  stated  concerns  regarding  the 
impact  of  mandatory  human  rights  diligence  on  small  and  medium  sized  enterprises. 
Consideration  could  be  given  to  an  amendment  of  the  existing  regulations,  as  has 

https://www.dfa.ie/media/dfa/alldfawebsitemedia/ourrolesandpolicies/int-priorities/humanrights/nationalplanonbizandhr/Irish-
Human-Rights-and-Equality-Commission.pdf.   
472 Trócaire, Making a Killing: Holding corporations to account for land and human rights violations, March 2019, p. 47, 
available at: 
https://www.trocaire.org/sites/default/files/resources/policy/making_a_killing_holding_corporations_to_account_for_land_and
_human_rights_violations_1.pdf.   
473 Irish Congress of Trade Unions, Congress Submission on Ireland’s Proposed National Action Plan on UN Guiding Principles 
on Business and Human Rights, February 2015, available at: 
https://www.dfa.ie/media/dfa/alldfawebsitemedia/ourrolesandpolicies/int-
priorities/humanrights/nationalplanonbizandhr/ICTU.pdf.  
474 Amnesty International, Submission to the Department of Foreign Affairs and Trade on its preparation of a National Action 
Plan on Business and Human Rights, March 2015, p. 4, available at: 
https://www.dfa.ie/media/dfa/alldfawebsitemedia/ourrolesandpolicies/int-
priorities/humanrights/nationalplanonbizandhr/Amnesty-International.pdf.  
475 Chambers Ireland, Submission on the Working Outline of Ireland’s National Action Plan on Business and Human Rights, 
January 2016, available at: https://www.dfa.ie/media/dfa/alldfawebsitemedia/ourrolesandpolicies/int-
priorities/humanrights/nationalplanonbizandhr/Chambers-Ireland.pdf.  
476 National Plan on Business and Human Rights; Baseline Assessment of Legislative and Regulatory Framework, p. 21.  

133 

 
 
                                                                                                                                                                            
already  occurred  in  relation  to  other  matters,477 in  order  to  require  human  rights  and 
environmental due diligence by applicable companies. 

Although not broached in the Baseline Assessment, Section 42 of the Irish Human Rights 
and Equality Commission Act would also provide a foundation for developing mandatory 
human  rights  due  diligence  requirements,  specifically  for  State–owned  or  financed 
companies.  An  amendment  to  this  legislation  could  strengthen  its  presently  soft 
approach  by  acknowledging  more  explicitly  the  application  of  the  public  sector  duty  on 
human  rights  and  equality  to  such  companies  connected  with  the  State,  by  elaborating 
and  developing  the  requirements  under  Section  42  so  as  to  align  with  an  appropriate 
human  rights  and  environmental  due  diligence  standard,  and  by  providing  for  more 
robust  monitoring,  sanctions,  enforcement  and  remedies  for  affected  individuals  and 
communities.  Such  legislative  developments  seem  unlikely  in  the  Irish  context  in  the 
absence of the development of European Union laws requiring member states to have in 
place  regulatory  regimes  addressing  human  rights  and  environmental  due  diligence  at 
the national level. 

477 S.I. No. 410/2018 - European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings 
and groups)(Amendment) Regulations 2018, available at: https://dbei.gov.ie/en/Legislation/Legislation-Files/SI-No-410-of-
2018.pdf.  

134 

 
 
 
 
                                                        
ITALY COUNTRY REPORT 

Giacomo Maria Cremonesi478 

I.  OVERVIEW 

The  current  Italian  regulatory  framework  requires  business  enterprises  to  undertake 
certain  due  diligence  processes  to  prevent,  mitigate  and  account  for  specific  human 
rights violations and environmental impacts. Regulations concerning the impacts on the 
environment  derive  in  large  part  from  the  transposition  of  European  Directives  on  the 
subject. 

Most  of  the  norms  analysed  in  Section  II  relate  to  certain  due  diligence  processes 
concerning  alternatively  specific  human  rights  (such  as  health  and  safety)  or  specific 
impacts on the environment (such as decontamination). However it should be noted that 
the Legislative Decree 231 of 2001 introduced a due diligence process that covers both 
aspects and that to a certain extent coordinates the other regulations. 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

A) L.D. 8 June 2001, no. 231: Administrative Responsibility of Legal Entities 

B) L.D. 9 April 2008, n. 81 Consolidated Text on Health and Safety at Work 

C) L.D. no. 254/2016: Non-Financial Reporting implementing EU Directive 2014/95/EU 

D) L.D. n. 152/2006 (TUA) II Part: VIA VAS and AIA 

E) L.D. n. 152/2006 (TUA) Title V: Decontamination of polluted sites 

F) L.D. no 105/2015: Control of major-accident hazards 

1.  Area of Regulatory Framework 

A) Legislative Decree 8 June 2001, no. 231 

(hereinafter  L.D.  no.  231/2001),  Regulation  on  administrative  responsibility  of  legal 
entities,  companies  and  associations,  including  those  not  having  legal  personality, 
according to art. 11, Law 29 September 2000, no. 3001479. 

Covered areas of law: 

a.  Corporations law (including director’s liability) 

b.  Health, safety and regulatory law – Art. 25Septies 

c.  Environmental law (including on climate change) – Arts. 25ter and 25undecies 

d.  Human rights law (see the below) 

e.  Rights of the child and child law – Art. 25quinquies 

f.  Stock exchange listing and related regulations – Arts. 25sexies and 25octies 

478 Co-founder at Human Rights International Corner Ets (HRIC), Lawyer at Caiazza & Partners International Law Firm. 
479 The full text of the Legislative Decree is available in Italian language at  

https://www.normattiva.it/atto/caricaDettaglioAtto?atto.dataPubblicazioneGazzetta=2001-06-
19&atto.codiceRedazionale=001G0293&queryString=%3FmeseProvvedimento%3D%26formType%3Dricerca_semplice%26n
umeroArticolo%3D%26numeroProvvedimento%3D231%26testo%3D%26annoProvvedimento%3D2001%26giornoProvvedim
ento%3D&currentPage=1  

135 

 
 
 
 
 
 
 
                                                        
g.  Third State, EU and international regulation (since the Decree has been adopted to 

comply with EU and international obligations, as specified below). 

2.  Scope 

a.  Rationale given by the State for the regulation (or lack of regulation) 

Legislative  Decree  (L.D.)  no.  231/2001  has  been  introduced  to  comply  with  obligations 
deriving  from  EU  Law  and  international  conventions  among  which  one  of  the  most 
relevant  is  the  OECD  Anti-Bribery  Convention.  By  the  means  of  this  Decree,  Italy 
introduced  for  the  first  time  into  its  legal  system  direct  corporate  liability  for  crimes 
committed in the interest or to the benefit of a legal entity. The term used by the Italian 
legislator is “corporate administrative responsibility arising from a criminal offence”. 

Despite  the  administrative  “label”,  the  introduced  liability  is  substantially  of  a  punitive 
nature.  The  very  idea  behind  the  Decree  is  in  fact  the  principle  societas  delinquere 
potest:  crimes  committed  within  a  company  are  often  the  result  of  a  well-established 
corporate  policy  and  the  outcome  of  top  management  decisions 480 .  In  addition,  the 
administrative  sanctions  against  the  company  is  applied  by  the  criminal  judge  with  the 
jurisdiction to ascertain the crime committed by the physical person, following a criminal 
process. 

However,  taking  into  account  the  term  used  by  the  lawmakers  and  the  Government 
Report on the Decree, both scholars and the case law mostly opted for an intermediate 
interpretation,  considering  the  “231  liability”  as  a  tertium  genus  which  combines 
essential  elements  of  the  criminal  and  the  administrative  systems481.  Corporate  liability 
arises under L.D. no. 231/2001 when the following requirements are met: 

a)  one  of  the  crimes  listed  in  Art.  24  and  following  of  the  Decree  is  committed  in  its 
interest or to its benefit (Art. 5). The interest is the expected advantage deriving from 
the  crime  (to  be  evaluated  ex  ante,  before  the  commission  of  the  crime).  On  the 
contrary,  the  benefit  is  the  profit  that  concretely  derived  from  the  commission  of  the 
crime (to be evaluated ex post). However, in case of culpable crimes, such as crimes of 
murder and culpable personal injuries committed in violation of laws on the protection of 
health and safety on the workplace as well as environmental crimes, interest and benefit 
refer  to  the  (omitted)  behaviour.  Indeed  in  this  case,  the  event  is  not  intentional  and 
clearly  does  not  correspond  to  the  interest  and/or  the  benefit  of  the  corporation. 
Accordingly, corporate liability arises whether the omission of the proper behaviour is a 
benefit to the legal entity representing a cost saving482. 

b) the perpetrator of  the crime is connected to the corporation. The Decree (Art. 
5)  make  a  distinction  between  persons  who  hold  “representative,  or  administrative  or 
managerial positions within the legal entity or in one of its departments having financial 
and  organisational  autonomy”  (high-level  employees)  and  employees  “managed  or 
supervised” by the persons holding senior positions. 

c) the corporation was involved in an “organisational  fault” since it has not previously 
taken adequate measures to prevent offences of the type occurred, failing to adopt and 
effectively implement a suitable “compliance program” to this regard. 

2 See D. Pulitanò, Diritto Penale, 2017. 
481 On the issue see the Supreme Court decision in the ThyssenKrupp case (Cass. Penale, Sez. Unite, 24 April 2014, 

Espenhhahn, ThyssenKrupp Acciai Speciali Terni S.p.a, n. 38343, in CED Cass., n. 261112), available in Italian language at 
The full text of the ruling is also available at https://www.penalecontemporaneo.it/d/3292-caso-thyssenkrupp-depositate-le-
motivazioni-della-sentenza-delle-sezioni-unite-sulla-distinzione-tr  

482 See again the decision of the Supreme Court in the ThyssenKrupp case (Cass. Penale, Sez. Unite, 24 April 2014). 

136 

 
 
 
 
                                                        
 
b.  Size  and  type  of  business  covered,  including  level  of  turnover,  particular 
industry sectors and type of supply chain, and whether public procurement 
is included. 

According to Art. 1, L.D. no. 231/2001 applies to “corporate entities and companies and 
associations, regardless of whether they have legal personality”. Consequently, all types 
of business are covered. 

Exceptions are provided by par. 3 of Art. 1, which states that the Decree does not apply 
to the State, to territorial public bodies, to other non-economic public bodies or to bodies 
performing constitutionally significant functions. 

c.  Extent of human rights, environmental, climate change, sustainability and 
governance  matters  covered,  and  whether  the  regulation  uses  the 
terminology of human rights 

Following several amendments, the  scope  of  Legislative Decree no. 231/2001 has been 
extended  and  it  currently  includes  specific  human  rights  violations  and  environmental 
crimes.  Among  these  are:  crimes  connected  to  slavery  and  trafficking  in  human  beings 
(Art.  25quinquies,  introduced  in  2003);  crimes  of  child  prostitution,  child  pornography 
and child grooming (Art 25quinquies, introduced in 2003); mutilation of female genitals 
(Art  25quater  1,  introduced  in  2006);  manslaughter  or  serious  bodily  harm  committed 
with  breach  of  laws  governing  the  safeguarding  of  workplace  health  and  safety  (Art. 
25septies,  introduced  in  2007);  employment  of  illegally  staying  Third-Country  nationals 
in  2012);  and  environmental  crimes  (such  as 
(Art.  25duodecies 
environmental  disaster,  environmental  pollution,  failure  to  decontaminate,  etc.,  Arts. 
25Ter and 25undecies, introduced in 2011 and recently extended in 2015). 

introduced 

Following  the  extension  of  its  scope,  L.D.  no.231/2001  can  be  currently  considered  the 
most relevant Italian law with regard to Business and Human  Rights issues, even if the 
Decree  does  not  refer  to  “human  rights  terminology”.  Accordingly,  among  the  planned 
measures of the Italian NAP on Business and Human Rights, adopted in December 2016, 
there  is  the  commitment  to  “conduct  a  comprehensive  study  of  the  Law  231/2001  in 
order to  evaluate potential extension  of the scope and application  of the administrative 
liability of legal  entities”483 in order to assess the scope  of its implications in relation to 
the UNGPs. 

d.  Jurisdictional  extent  of  business  covered,  including  whether  it  includes 
activity by subsidiaries or business relations of corporate nationals located 
in a different State and operating outside the State of the regulation 

In  case  of  multinational  groups  or  corporations  that  conduct  part  of  their  business 
outside the Italian national borders the following scenarios are possible pursuant to L.D. 
no. 231/2001: 

- Crimes committed in Italy: 

Italian  criminal  law  applies  to  anyone  who  is  within  the  Italian  territory  (Art.  3  of  the 
Italian  Criminal  Code).  However,  Decree  no.  231/2001  does  not  specify  whether  and 
under  which  conditions  foreign  corporations  can  be  prosecuted  in  Italy  under  the 
Decree  in  case  of  a  crime  committed  within  the  Italian  territory  in  their  interest  or 
benefit by their employees. 

According  to  the  prevailing interpretation  among  scholars  and  to  the  case  law,  foreign 
companies  can  be  sanctioned  (and  subject  to  caution)  pursuant  to  L.D.  no. 

483 Italian National Action Plan on Business and Human Rights 2016-2021:  
https://cidu.esteri.it/ComitatoDirittiUmani/resource/doc/2018/11/all_2_-_nap_bhr_eng_2018_def_.pdf  

137 

 
 
 
 
                                                        
231/2001  for  offences  committed  in  Italy  by  their  top  managers  or  subordinates, 
regardless  of  whether  or  not  these  have  a  secondary  office  or  establishment  in  the 
national  territory  and,  therefore,  regardless  of  the  place  where  the  organizational  gap 
occurred 484. 

- Crimes committed abroad: 

In  specific  cases  corporate  liability  under  Legislative  Decree  n.  231/2001  could  be 
invoked also in relation to crimes committed by Italian and foreign enterprises operating 
abroad. To this regard, it is necessary to make a distinction: 

a) Cases where part of the violation occurred in Italy (e.g. when the crime is the result 
of a decision taken in Italy by the parent company), and partly abroad. According to the 
Italian Criminal Code (Art. 6), a crime is considered committed in Italy when part of the 
criminal action or omission happened within the national territory. Such situation occurs 
when part of the criminal activity takes place in Italy or the crime produces its effects in 
Italy or involves a multinational group operating also in Italy485. In these cases, it will be 
possible to prosecute in Italy both foreign companies (for example foreign subsidiaries of 
Italian  companies),  and  Italian  companies  operating  abroad  if  the  involvement  of  their 
corporate representatives or employees in committing the crime partially abroad will be 
demonstrated.  No  further  requirements  will  be  needed  to  affirm  the  Italian  jurisdiction 
over the crime. 

b)  Cases  where  the  violation  occurred  entirely  abroad.  According  to  Art.  4  of  L.D.  no. 
231/2001,  a  corporation  headquartered  in  Italy  can  be  prosecuted  and  sanctioned  for 
crimes  committed  entirely  abroad  in  its  interest  or  to  its  benefit,  under  the  following 
conditions:  I)  Italian  jurisdiction  can  be  invoked  on  the  basis  of  Art.  7  to  10  of  the 
Criminal  Code486;  II)  the  corporation  has  its  headquarter  in  the  Italian  territory487;  III) 
the State where the offence occurred did not yet proceed against it; IV) in specific cases, 
there’s  a  request  from  the  Ministry  of  Justice.  However,  when  the  crime  is  committed 
entirely abroad within a foreign corporation controlled by an Italian parent company, the 
company  located  in  Italy  can  be  held  liable  only  if  it  can  be  demonstrated  that  its 
representatives or employees took part in the crime committed abroad (see below point 
3, c) by subsidiaries and groups of companies). 

c)  Transnational  crimes.  According  to  Law  no.  146/2006,  which  ratified  the  United 
Nations  Convention  against  Transnational  Organized  Crime  adopted  by  the  UN  General 
Assembly  on  15  November  2000  (the  so-called  Palermo  Convention  or  TOC) 
corporations  can  be  prosecuted  and  sanctioned  in  Italy  regardless  of  the 
conditions  of  Art.  4,  L.D.  no.  231/2001  with  regard  to  specific  transnational 
organised crime. 

3.  Content of Regulation 

a.  Overview and description of the required measures for business 

In order to avoid incurring in corporate administrative liability under L.D. no. 231/2001, 
the  legal  entity  shall  firstly  demonstrate  that  it  has  adopted  a  model  of  organization, 

484 According to this case law “both foreign natural and legal persons, whenever working in Italy […] have the duty to comply 

to Italian laws and enforce them and this includes Legislative Decree no. 231 of 2001”. The leading case embracing this 
interpretation was the 2004 Siemens AG case(cfr. Tribunale di Milano Giudice per le indagini preliminari, April 27, 2004, 
"Siemens AG" case, published in Foro  it.,  2004, II,  434). Recently, see the judgement on the Viareggio train wreck case 
(Tribunale di Lucca, July 31 2017, n. 222 available at http://www.giurisprudenzapenale.com/2017/08/20/strage-di-
viareggio-depositate-le-motivazioni/). For a comment on the issue see M. Riccardi, L’internazionalizzazione della 
responsabilità “231” nel processo sulla strage di Viareggio: gli enti con sede all’estero rispondono per l’illecito da reato-
presupposto “nazionale”, in Giurisprudenza Penale Web, 2018, 1, http://www.giurisprudenzapenale.com/wp-
content/uploads/2018/01/Riccardi_gp_2018_1.pdf. 

485 On this issue see G. Di Paolo, Italian Report on Prosecuting Corporations for Violations of International Criminal Law, in S. 
Gless, S. Broniszewska-Edmin, Prosecuting Corporations for Violations of International Criminal Law: Jurisdictional Issues 
(International Colloquium Section 4, Basel, 21-23 June 2017). 

486 These provisions establish universal jurisdiction over a set of serious offences against national interest and according to 

specific conditions, as better specified below. 

487 Commercial law applies in order to determine where the head office is based. 

138 

 
 
 
                                                        
management and control designed to prevent crimes (so called “compliance programs”, 
in  Italian  language  “modelli  di  organizzazione  e  gestione”)  and  secondly,  that  it  has 
established  a  supervisory  body  (in  Italian  language  “organismo  di  vigilanza”  or  “ODV”) 
overseeing the respect of the model. 

L.D.  no.  231/2001  does  not  expressly  provide  for  the  mandatory  legal  obligation  to 
adopt  such  model.  However,  the  adoption  and  the  implementation  of  adequate 
compliance  programs  can  exonerate  a  company  from  corporate  administrative  liability. 
The adoption of the model is a necessary condition to this regard, even though it is not 
sufficient,  in  order  to  assert  that  the  corporation  has  not  facilitated  the  commission  of 
the offence.  In addition, when the adoption of  the model is subsequent to the  crime, it 
can mitigate the application of sanctions 488. 

In  details,  if  the  offence  is  committed  by  a  high-level  employee  there’s  a 
presumption of corporate liability, unless the corporation can demonstrate that (Art. 
6): 

a)  the  board  of  directors  adopted  and  efficiently  enacted,  prior  to  commission  of  the 
rime, “organisational and management models” which are capable of preventing offences 
of the type occurred; 

b)  the  corporation  entrusted  the  task  of  overseeing  the  observance  of  the  model  to  an 
independent body (so called supervisory body, “organismo di vigilanza” or “ODV”) and in 
the specific case there was no lack of vigilance on the part of the supervisory body; 

c)  the  perpetrator  committed  the  offence  by 
organisational and management models. 

fraudulently  circumventing  the 

On the contrary, if the offence is committed by an employee there is no presumption of 
guilt  of  the  corporation.  In  this  case,  the  legal  entity  is  considered  liable  only  if  the 
criminal  conduct  was  made  possible  by  means  of  non-compliance  with  managerial  and 
supervisory  obligations.  Moreover,  there  is  a  negative  presumption  since  the  Decree 
excludes  the  failure  to  comply  with  managerial  and  supervisory  obligations  when  the 
corporation,  before  commission  of  the  offence,  adopted  and  efficiently  implemented  an 
organisational,  management  and  control  model  which  is  capable  of  preventing  offences 
of the type occurring. 

b.  Key legal elements of the obligation 

Article  6,  paragraph  2,  L.D.  no.  231/2001  indicates  the  essential  characteristics  for  the 
construction of an adequate organization, management and control model. 

Models are adequate if they identify risky activities and provide for specific protocols and 
decision-making  processes  in  the  covered  fields  in  order  to  prevent  the  commission  of 
illicit activities. 

More specifically, the model must fulfil the following requirements: 

a) identify the activities in relation to which offences may be committed; 

b)  provide  for  specific  protocols  aimed  at  planning  decision  making  processes  and 
implementation of corporate decisions with regard to the offences to be prevented; 

c) identify procedures for managing financial resources which are suitable to prevent the 
commission of crimes; 

d) introduce information  duties, imposing all employees and other subjects within the 
company  to  promptly  inform  the  body  assigned  to  supervise  to  model  application  and 
operation (so called supervisory body); 

488 See Art. 17, L.D. no. 231/2001. 

139 

 
 
 
                                                        
e)  introduce  a  suitable  disciplinary  system  to  punish  non-compliance  with  the 
measures set out in the model. 

In  order  to  guarantee  that  the  previous  requirements  are  met,  corporations  may  adopt 
their  own  model  on  the  basis  of  codes  of  conduct  drawn  by  industry  associations  and 
declared  suitable  by  the  Justice  Ministry  (Art.  6,  par.  3).  On  the  basis  of  these 
provisions,  Confindustria,  the  main  association  representing  manufacturing  and  service 
companies in Italy, provided specific Guidelines for the adoption of proper organisational 
models489. 

The creation of the supervisory body (“organismo di vigilanza”, “ODV”) is, together with 
the  adoption  of  the  model,  a  necessary  (but  not  sufficient)  condition  to  exonerate  a 
company from corporate administrative liability. 

c.  Risk assessment requirements and risk mitigation measures 

Letters  a)  and  b)  of  Art.  6,  par.  2  mentioned  above  clearly  refer  to  some  activities 
related  to  a  process  of  sound  and  prudent  risk  assessment  and  definition  of  related 
mitigation measures. To this regard Confindustria Guidelines defined soft-law criteria for 
conducting proper risk assessment. 

The process recommended by the Guidelines is summarized below: 

I)  The  company  should  carry  out  risk  assessment  activities  with  the  purpose  of 
identifying the areas and the business activities in relation to which the  crimes foreseen 
by  the  Decree  could  be  committed,  causing  a  responsibility  for  the  company.  Risk 
assessment should be organized as follows: 

a) Preliminary analysis of the company structure and organization in order to identify all 
business  process  and  activities  carried  out  within  the  corporation.  The  result  of  this 
analysis  should  be  the  identification  of  so-called  “Sensitive  areas”  or  “Sensitive 
processes”, that is to say those business areas or processes within which the commission 
of the offences envisaged by L.D. no. 231/2001 could be abstractly possible, as well as 
the identification of potentially relevant crimes. 

b)  Specific  risk  analysis  for  each  of  the  identified  sensitive  area  or  process  in  order  to 
how the potentially relevant crimes could be committed and the inherent risk. 

II)  The  company should  develop  a  control  system  suitable to prevent the identified 
risks,  through  the  adoption  of  specific  protocols.  To  this  regard,  the  company  should 
start  from  an  evaluation  of  the  preventive  control  measures  already  existing  within  the 
company in relation to the sensitive areas and/or processes and evaluate their suitability 
for the purposes of crime prevention, amending and improving them when necessary. At 
the  end  of  this  process  the  risk  of  commission  of  crimes  within  the  sensitive  business 
areas  and/or  processes  should  be  reduced  to  an  “acceptable  level”.  According  to 
Confindustria  Guidelines  the  residual  risk  of  commission  of  231  crimes  is  acceptable 
when the control system is designed in a way that it cannot be bypassed in a non-
fraudulent way. 

d.  Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 
supply  chain,  including  the  legal  test  and  its  factors  used  to  ascribe 
liability to parent companies for the impacts of subsidiaries and suppliers 

L.D.  no.  231/2001  does  not  explicitly  refer  to  groups  of  companies.  Criminal  Law 
principles prevent any automatic application of the Decree to companies belonging to the 
same group. Indeed, according to the relevant case law of the Italian Supreme Court, a 

489 To this regard, see the Guidelines provided by Confindustria, available at https://www.confindustria.it/notizie/dettaglio-

notizie/linee-guida-confindustria-231-modelli-organizzativi  

140 

 
 
 
 
                                                        
company  belonging  to  a  group  –  and  in  particular  the  parent  company  –  may  be 
considered accountable for the crimes committed by other members of the same group, 
only when all the legal requirements provided by L.D. no. 231/2001 are met490. 

More specifically, the following conditions need to be met: 

a) a natural person acting on the behalf of the parent company or of another company of 
the group participated in the crime committed within a company belonging to the same 
group (case of aiding), 

and 

b) the crime has been committed also in the interests or to the advantage of the parent 
company or of another company of the group. 

With  regards  to  the  second  requirement  (b),  the  Italian  Supreme  Court  clarified  that 
simply indirect advantage (such  as the  economic gain deriving from  the corporate links 
and the incremental profitability of the subsidiary, so called “interesse di gruppo”) is not 
enough491. On the contrary, a direct, concrete economic advantage is necessary. 

Following such considerations, Confidustria Guidelines recommend that each company of 
a  group  adopt  its  own  organisational  and  management  model  and  entrusts  its  own 
supervisory  body  (“organismo  di  vigilanza”,  “ODV”).  At  the  same  time,  Confindustria 
recommends  that  the  model  of  the  parent  company  takes  into  account  processes  and 
activities  which  also  involves  its  subsidiaries  (for  example  in  case  of  outsourcing  of 
specific activities). 

e.  Requirements for an external control or evaluation of the human rights or 
environmental  due  diligence  exercise,  including  key  elements  of  a 
grievance mechanism or whistle blower mechanism 

L.D. no. 231/2001 does not provide for external control procedures. However, within the 
control  system  designed  by  the  organisational  and  management  model,  corporations 
should entrust the task of overseeing on the implementation of the model to an internal 
and  independent  supervisory  body  (“organismo  di  vigilanza”,  “ODV”)  and  guarantee 
proper internal whistle-blowing mechanisms (see below). 

f.  Implementation  of  internal  processes  by  business,  including  operational-

level grievance mechanisms 

An effective implementation of the model requires (Art. 7, par. 4): 

a)  periodic  verification  and,  where  appropriate,  amendments  to  its  content  when 
significant breaches of rules are discovered or otherwise when changes are made to the 
organisation or the activity of the corporation; 

b)  a  disciplinary  system  to  punish  non-compliance  with  the  measures  set  out  in  the 
model. 

The task of overseeing the effective implementation of the Model has to be entrusted to 
an internal – but independent – supervisory body (“organismo di vigilanza”, “ODV”). 

With  regard  to  grievance  and  whistle-blowing  mechanisms,  Law  no.  179/2017  492 
introduced  a  new  paragraph  to  Art.  6  of  the  Decree  (par.  2  bis)  specifying  that 

490 See Art. 2 of the Decree which refers to the Principle of Legality. 
491 Cass. Penale, Sez. 5, 18 January 2011, no. 24583, Tosinvest case. Full text of the judgement is available in Italian language 

at https://www.penalecontemporaneo.it/d/761-gruppi-d-imprese-e-responsabilita-ex-dlgs-n-2312001-prima-pronuncia-
della-cassazione. On the issue see G. Amato, L’attribuzione della responsabilità amministrativa ex D.Lgs. 231/2001 
all’interno dei fruppi di imprese, Rivista231 <http://www.rivista231.it/ >. 

492 Law November 30 2017, no. 179, on whistle-blowing ("Disposizioni  per  la  tutela  degli autori  di  segnalazioni  di  reati  o  
irregolarità  di  cui  siano  venuti  a  conoscenza  nell'ambito  di  un rapporto di lavoro pubblico o privato", full  text availble 
at https://www.normattiva.it/atto/caricaDettaglioAtto?atto.dataPubblicazioneGazzetta=2017-12-

141 

 
 
 
 
                                                        
organisational  models  must  establish  internal  channels  and  procedures  for  reporting 
unlawful  conducts  that  might  be  relevant  pursuant  to  the  Decree  and  are  based  on 
precise  and  consistent  facts,  or  other  violations  of  the  organization  and  management 
model,  of  which  they  have  become  aware  due  to  the  functions  performed.  The  internal 
channels  guarantee  the  confidentiality  of  the  identity  of  the  person  reporting.  The  Law 
also  forbid  the  adoption  of  retaliatory  or  discriminatory  measures  against  the  whistle-
blower.  In particular, the  retaliatory  or discriminatory dismissal of the whistle-blower is 
invalid,  as  well  as  any  change  of  duties  or  other  retaliatory  or  discriminatory  measure 
adopted  against  him/her.  In  case  of  disputes  related  to  the  imposition  of  disciplinary 
sanctions,  or  to  demotion,  dismissal,  transfer,  or  submission  of  the  reporter  to  other 
organizational  measures  having  negative  effects,  direct  or  indirect,  on  working 
conditions, following the whistle-blowing activity, it is employer's burden to demonstrate 
that these measures are based on reasons unrelated to the report. 

At the same time, the adoption of a disciplinary sanction system applicable in the event 
of violation of the Model, makes the action of the supervisory body more efficient. 

4.  Monitoring, sanction and enforcement 

a.  Monitoring body 

As laid down in Art. 6, par. 1 of the Decree, the task of monitoring the functioning and 
the  observance  of  the  model  and  of  overseeing  their  updating  has  to  be  entrust  to  a 
supervisory body (“organismo di vigilanza”, “ODV”) with proper powers of initiative and 
control. The creation of the supervisory body is, together with the adoption of the model, 
a  necessary  (but  not  sufficient)  condition  to  exonerate  a  company  from  corporate 
administrative liability. 

Confindustria Guidelines recommend that the supervisory body (ODV) has the following 
requirements: 

  autonomy in the powers of initiative and control – in the sense that there should 
be  no  correspondence  or  interference  between  who  carries  out  checks  with 
respect to the function being checked; 

  adequate professionalism and competence; 

 

continuity of action. 

In  case  of  small  and  medium-size  enterprises,  the  tasks  of  overseeing  the 
implementation of the model may be performed directly by the  executive board, while in 
case  of  capitalised  companies,  the  board  of  auditors,  the  supervisory  board  or  the 
management control committee can perform the functions of the supervisory body493. 

b.  Form  of  monitoring/evaluation,  timelines  for  investigating  complaints, 

procedures for review 

Except  for  the  provisions  on  whistle-blowing  mechanisms  mentioned  before,  L.D.  no 
231/2001  left  to  the  discretion  of  the  companies  on  how  to  organise  the  supervisory 
body’  monitoring  activities.  According  to  Confindustria  Guidelines  the  supervisory  body 
should have the following tasks: 

14&atto.codiceRedazionale=17G00193&queryString=%3FmeseProvvedimento%3D%26formType%3Dricerca_semplice%26n
umeroArticolo%3D%26numeroProvvedimento%3D179%26testo%3D%26annoProvvedimento%3D2017%26giornoProvvedim
ento%3D&currentPage=1 . 

493 Art. 6, par. 4 and 4 bis. 

142 

 
 
 
 
                                                                                                                                                                            
 

surveillance  on  the  effectiveness  of  the  model,  carried  out  through  periodical 
checks  on  sensitive  activities  and  processes  and  through  the  processing  of 
significant information flows; 

  examination  about  the  Model’s  efficacy,  namely  its  real  ability  to  prevent,  in 
principle,  the  unwanted  behaviours,  for  example  promoting  initiatives  the 
initiatives  for  disclosing  awareness  and  comprehension  of  the  model  among 
employees; 

  updating of the Model, in the event that adjustments became essential; 

  activation of the sanction system in case of violation of the measures provided by 

the Model. 

When  carrying  out  the  tasks  assigned,  the  supervisory  body  has  unlimited  access  to 
corporate information. 

c.  Form  of  sanction(s),  if  any  (In  particular,  whether  monetary  or  other 

sanctions) 

According  to  the  Decree  a  disciplinary  system  to  punish  non-compliance  with  the 
measures  set  out  in  the  model  is  necessary  for  an  effective  implementation  of  the  said 
model494.  This  disciplinary  system  is  internal  and  can  be  activated  by  the  supervisory 
body  in  any  case  of  infringement  of  the  measures  provided  by  the  model.  The  model 
should define the procedure and the criteria for the application of the sanctions. 

In addition to the internal sanction system, in the event that a criminal offence listed by 
the Decree is committed in the interest or to the benefit of the company, the Decree also 
provide for the following “administrative” sanctions to be enforced by the criminal judge 
with jurisdiction on the crime, within a criminal procedure: 

-  pecuniary fines (which always apply)495; 
-  disqualification sanctions496; 
- 

seizure of the proceeds or profit of crime, or an equivalent measure (which always 
applies); 
publication of the sentence497. 

- 
5.  Procedural Framework 

a.  Competent Court or other body 

In  the  event  of  commission  of  a  crime  listed  by  the  Decree  in  the  interest  or  to  the 
benefit  of  a  corporation,  the  administrative  sanctions  against  the  corporation  should  be 
applied  by  the  criminal  judge  with  the  jurisdiction  to  ascertain  the  crime  committed  by 
the physical person. 

494 Art. 7, par. 4. 
495 The amounts of pecuniary fines are determined in a rather articulated manner, in summary art. 10 and art. 11 of the 
Decree clarify that pecuniary fines are applied for “quotas” that are determined by the judge on the basis of the company’s 
economic condition and its assets in order to ensure that the penalty is effective. The amount of each quota ranges from no 
less than 258,00 Euro to a maximum amount of 1.549,00 Euro. The number of quotas is provided by articles 24 and followings 
of the Decree for each of the listed crimes. 
496 The disqualification sanctions, identified in art.  9,  paragraph  2, LD. No. 231/2001, could be enforced for some kinds of 

offences: debarment from trading or exercising business activities; suspension  or  revocation  of  authorizations,  licenses  
or  concessions  useful  for the commission of the offence; ban  on  contracting  with  Public  Administration  Agencies,  
unless  this  is  so  as  to obtain the provision of a public service; exclusion  from   concessions,   loans,   grants   and   
subsidies,  as  well   as   the withdrawal of those which may have already been granted; ban on advertising goods or 
services. When a corporation has gained a significant profit and has already been convicted three times in seven years, or 
when a corporation (or one of its departments) is regularly used for the sole or main purpose of allowing or facilitating the 
commission of crimes, disqualification is definitive (Art. 16, L.D. no. 231/2001). 

497 The publication of the judgment against the corporation can be ordered when a disqualification sanction is applied. 

143 

 
 
 
 
                                                        
b.  Jurisdictional  restrictions  (including  forum  non  conveniens,  place  of 

business incorporation) 

See above point 2, d). 

c.  Main  procedural  rules  and  challenges  (formalities,  deadlines,  expediency, 
in  court  settlement  options,  evidence/discovery  rules,  multi-stage 
process, etc.) 

L.D. 231/2001 also set down the rules to establish the corporation’s liability. In principle 
and to the extent to which they are compatible, the provisions of the Criminal Procedure 
Code  apply  to  corporations.  The  corporation  is  usually  prosecuted  within  the  same 
criminal trial of the physical person to whom the crime is attributed. Special procedural 
arrangements are established for corporations by L.D. 231/2001. 

Concerning the burden of proof, it might be challenging with regard to crimes committed 
abroad or within a subsidiary or within the supply chain to prove aiding. In addition, with 
regard to culpable crimes it might be challenging to prove the causal link. 

Admissibility  of  a  civil  action  (“costituzione  di  parte  civile”)  against  the  corporation  for 
damages  caused  directly  by  the  corporate  administrative  offence  is  controversial  (see 
below). 

6.  Available Remedies 

a.  Civil, criminal and administrative remedies 

See  point  2,  a)  on  hybrid  nature  of  corporate  liability  provided  by  L.D.  no.  231/2001 
(criminal and administrative). 

b.  Whether sanctions include compensation (see 4(c) above) 

Administrative sanctions provided by L.D. no. 231/2001 does not include  compensation. 
However before the criminal trial is declared open, the corporation can request that the 
trail is suspended in order to pay damages that are consequences of the crime498. 

c.  Redress  for  victims  including  type  and  allocation  of  damages  between 

claimants 

L.D.  no.  231/2001  does  not  specify  if  victims  have  the  right  to  bring  a  civil  action  for 
damages directly caused by the corporation within the criminal procedure. The Supreme 
Court  excluded  this  right499.  However,  recently  the  right  of  victims  to  bring  civil  action 
and  claim  compensation  against  corporation  within  231  criminal  procedures  has  been 
recognized in the well-known ILVA case on environmental crimes (discussed below) 

7.  Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
individually  or  collectively)  (public 

and  b)  to  companies,  either 
information, estimated opinion) 

The  cost  for  adopting  a  model  depends  on  the  size  and  activity  of  the  company.  A 
certain budget can be allocated for the ODV. 

498 Art. 65 and 17 of the Decree. 
499 Cass. sez. VI, 5 October 2010, O.M.S. salieri s.p.a, confirmed by ECJ, Maurizio Giovanardi and others, Case C-79/11, 12 

July 2012. The Court has ruled out the admissibility of the civil party in the trial established for the liability of a corporation 
pursuant to L.D. 231 as it was not expressly envisaged by the Decree as a consequence of a “conscious and legitimate 
choice made by the legislator”. 

144 

 
 
 
 
 
 
                                                        
8.  Impact of the Regulation 

a.  Impact of the national regulation on behaviour/ policy of businesses (both 

direct and indirect) 

The  voluntary  adherence  to  the  regulatory  system  outlined  by  L.D.  no.  231/2001 
contributed to create a non-homogeneous scenario. 

However, L.D. no. 231/2001 has helped the growth of a compliance culture within legal 
entities, where the organizational model increasingly represents evidence of an effective 
corporate governance system. 

b.  Impact  of  the  regulation  on  environmental  rights  (including  biodiversity) 

and climate change 

With regard to workers’ rights see the Thyssenkrupp case, concerning manslaughter and 
serious  injuries  committed  with  violation  of  the  rules  on  the  protection  of  health  and 
safety  at  work  following  the  2007  terrible  fire  in  the  company’s  plant  in  Turin  in  which 
seven workers died as a result of the very serious burns reported500. 

With regard to workers' rights and to environmental rights the case involving ILVA, the 
biggest steel company in Italy, has to be cited. The case is relevant particularly because 
the  Tribunal  of  Taranto  ordered  the  seizure  of  the  plants  blast  furnaces501.  In  addition, 
the  Taranto  Criminal  Court  of  Appeal  also  recognized  the  right  of  victims  to  become  a 
civil party and claim compensation in the 231 proceedings against ILVA. 

In addition, the provisions contained in Legislative Decree 231/2001 on the prevention of 
environmental  crimes  may 
lead  more  companies  to  adopt  an  environmental 
management system such as ISO 14001 or EMAS502 in order to be compliant. 

c.  Impact of the regulation on the rights of the child 

L.D.  no  231/2001  covers  the  crimes  of  child  prostitution,  pornography  and  child 
grooming (art. 25-quinques). 

d.  Impact of the regulation on other human rights 

-  See  the  ILVA  case  concerning  environmental  crimes:  the  judicial  order  issued  by 
the Tribunal of Taranto concerning the seizure of ILVA furnaces stated clearly that 
the plant had caused and continued to cause sickness and death503. 

-  Rights  to  freedom  from  slavery  and  freedom  from  interference  with  privacy  are 

covered by L.D. no. 231/2001. 

- 

500 Cass. Penale, Sez. Unite, 24 April 2014, Espenhhahn, ThyssenKrupp Acciai Speciali Terni S.p.a, n. 38343, in CED Cass., n. 

261112, available in Italian language at The full text of the ruling is also available at 
https://www.penalecontemporaneo.it/d/3292-caso-thyssenkrupp-depositate-le-motivazioni-della-sentenza-delle-sezioni-
unite-sulla-distinzione-tr 

501 For the analysis of the ILVA case see the Report "The Environmental Disaster and Human Rights  violations of the ILVA steel 

plant in Italy" published in April 2018 by HRIC, FIDH, Unione Forense per la Tutela dei Diritti Umani and Peacelink, 
available at https://www.humanrightsic.com/single-post/2018/04/17/Available-now-the-English-version-of-the-Report-
The-Environmental-Disaster-and-Human-Rights-Violations-of-the-ILVA-steel-plant-in-Italy. 

502 See Il Sistema di Gestione ISO 14001 ed EMAS nella prevenzione dei reati ambientali ex d.lgs. n. 231/2001, Maggio 2013 

https://www.assolombarda.it/servizi/ambiente/monografie/dispensa-il-sistema-di-gestione-iso-14001-ed-emas-nella-
prevenzione-dei-reati-ambientali-ex-d.lgs.-n.-231-2001-maggio-2013 

503 See again the Report "The Environmental Disaster and Human Rights  violations of the ILVA steel plant in Italy”, op cit note 

23. 

145 

 
 
 
 
 
 
 
                                                        
e.  Public responses of stakeholders to regulation 

According  to  NGOs  the  provision  raised  awareness  among  companies  about  the  idea  of 
preventing  eventual  offences,  in  accordance  with  the  objectives  of  Human  Rights  Due 
Diligence504. 

1.   Area of Regulatory Framework 

B)  Legislative  Decree  9  April  2008,  n.  81  Consolidated  Text  on  Health  and 

Safety at Work 

a.  Health, safety and regulatory law 

b.   

2.  Scope 

The consolidated text on health and safety in the workplace (also known by the acronym 
TUSL)  is  a  set  of  rules  of  the  Italian  Republic,  concerning  health  and  safety  at  work, 
issued with the Legislative Decree 9 April 2008, n. 81. Art. 1 refers to EU regulations and 
international  conventions  on  the  subject,  guaranteeing  uniformity  in  the  protection  of 
workers on the national territory by respecting the essential levels of services concerning 
civil  and  social  rights,  also  with  regard  to  gender,  age  and  the  condition  of  migrant 
workers. 

One  of  the  main  obligations  for  employers  is  to  carry  out  a  risk  assessment  in  writing, 
drafting a document called the "Risk Assessment Document" (Documento di Valutazione 
dei  Rischi  –  DVR)505.  In  order  to  assess  the  risks  of  a  work  situation, it is  necessary  to 
carry out a sort of due diligence that identifies all the dangers connected with the activity 
carried out and quantifies the risk, that is the probability that each danger turns into an 
adverse event, taking into account the entity of the potential damage. 

The  Risk  Assessment  Document  is  mandatory  for  all  companies  that  have  at  least  one 
employee or one collaborator506 and must be drawn up within 90 days for a new activity. 
The  employer  may  not  delegate  the  assessment  of  the  risks  in  the  workplace  and  the 
subsequent adoption of the Risks Assessment Document. 

The  obligation  does  not  include  the  activity  of  subsidiaries  located  in  a  different  State 
and operating outside the State of the regulation. 

In the  case of assignment of works and/or  supplies to a contractor within the company 
premises, the employer evaluates the specific risks existing  in the working environment 
and  indicates  the  measures  taken  to  eliminate  or  minimize  the  risks  from  interference 
between  the  activities  entrusted  to  contractors  (and  any  subcontractors)  and  the 
activities carried out by the employer in the same workplace507. A single risk assessment 
document  is  then  prepared  (Documento  Unico  Valutazione  Rischi  da  Interferenze  - 
DUVRI) 

3.  Content of Regulation 

The Risk Assessment Document must contain the following elements: 

  a  report  concerning  all  the  potential  risks  to  safety  and  health  that  exist  at  the 

workplace, indicating the ways in which they have been identified; 

504 See Human Rights International Corner (HRIC) overview on Legislative Decree 231/2001 and its implications in relation to 
B&HR https://www.humanrightsic.com/single-post/2017/07/25/HRIC-overview-on-Legislative-Decree-2312001-and-its-
implications-in-relation-to-BHR 

505 See D.Lgs 81/08 art. 17, 28 and 29 
506 According to Legislative Decree 81/08 Art.4 are exempted from the obligation to draft the DVR the companies that do not 
have employees, namely: freelancers, family businesses, sole proprietorships, companies with a single worker member.  

507 See D.Lgs 81/08 art. 26 

146 

 
 
 
 
                                                        
 
 

 

 

 

the  specification  of  prevention  and  protection  measures  aimed  at  eliminating  or 
reducing these risks; 
the  description  of  the  procedures  aimed  at  implementing  the  aforementioned 
measures, with an indication of which professional figures should deal with them; 
the  identification  of  those  who  collaborated  in  the  risk  assessment,  that  are 
usually the Head of the Prevention and Protection Service, the competent doctor 
and  the  Workers'  Safety  Representative  (Rappresentante  dei  Lavoratori  per  la 
Sicurezza - RLS); 
the  identification  of  tasks  from  which  risks  may  arise  and  which  require  specific 
skills and professional training; 

  a specific assessment related to the risks related to any pregnant workers as well 

as those related to gender differences, age, origin from other countries 

  a mention and assessment of stress related to specific work; 
 

the date on which the assessment was made and the document itself was drawn 
up508. 

The  risk  assessment  must  be  immediately  revised,  on  the  occasion  of  changes  to  the 
production process or work organization that are significant for the health and safety of 
the workers, or in relation to the degree of technical, prevention or protection evolution, 
following  accidents,  or  when  the  results  of  health  surveillance  highlight  the  need  for  it. 
Following this revision, the preventive measures must be updated509. 

In all companies, or production units in accordance with the procedures set forth in art. 
47, are elected one or more Workers' Safety Representatives (RLS). 

According to art. 50 the RLS is consulted in advance and in a timely manner with regards 
to  risk  assessment, 
identification,  planning,  implementation  and  verification  of 
prevention in the company or production unit. Moreover: 

  He/she  monitors  the  risk  conditions  in  the  company  and  in  the  event  of 
changes in the risk conditions it asks the Employer to call a specific meeting; 
  He/she  promotes  health  and  safety  activities  such  as  the  development, 
identification  and  implementation  of  appropriate  preventive  measures  to 
protect the health and physical integrity of workers and makes some proposals 
and initiatives related to the prevention activity. 

  RLS  Appeals  to  the  competent  authorities  if  the  measures  adopted  by  the 
company for the prevention and protection from risks and the means employed 
are not suitable to guarantee the safety and health of the workers. 

  RLS  takes  part  in  the  visits  and  verifications  of  the  competent  authorities  by 

making his own observations. 

After  conducting  a  health  and  safety  risk  assessment  and  identifying  unacceptable  risk 
situations,  the  employer  must  put  safety  measures  in  place  (such  as  implementing  a 
compliance  programme)  to  offset  the  identified  risks.  The  final  goal  is  to  lower  the 
residual  risk  to  a  level  that  is  considered  acceptable.  To  avoid  liability,  the  employer 
must demonstrate that all the measures required by the law have been taken to protect 
employees at the workplace. 

4.  Monitoring, sanction and enforcement 

The supervisory body of the Decree 231 (ODV) exercises a second level control on health 
and safety: in this perspective, it does not coincide with the' control system 'pursuant to 

508 See D.Lgs 81/08 art. 28.  
509 See D.Lgs 81/08 art. 29. 

147 

 
 
 
 
 
                                                        
art.  30,  paragraph  4,  legislative  decree  n.  81/2008,  but  verifies  its  suitability  and 
implementation  limited  to  its  own  functions,  as  established  by  Legislative  Decree  n. 
231/2001, and within the scope defined by the same, with the consequent need for two-
way information flows510. 

The external bodies that can carry out the checks are the following: the ASL (local health 
authority; the INPS (pension institute); the INAIL (state body providing sickness benefit 
to people injured at work); the Vigili del fuoco (Firemen). 

In  the  event  of  failures  or  non-compliance  regarding  the  preparation  of  the  DVR,  the 
supervisory bodies and the bodies responsible for the verification can impose criminal511 
and administrative sanctions, and prison sentences of up to a maximum of eight months. 
Furthermore,  in  the  event  that  the  failure  to  draft  is  repeated  and  other  severe 
violations, the business activity can be suspended. 

5.  Procedural Framework 

The trade unions and the associations of the families of the victims of accidents at work 
have the right to exercise the rights and the faculties of the offended  person referred to 
in  articles  91  and  92  of  the  Code  of  criminal  procedure,  with  reference  to  the  crimes 
committed  with  violation  of  the  norms  for  the  prevention  of  accidents  at  work  or 
occupational hygiene or which have led to an occupational disease512. 

6.  Available Remedies 

Civil and criminal513 remedies are available to victims. 

Right  to  compensation  in  favour  of  the  worker:  art.  2087  of  the  civil  code  requires  the 
employer to adopt all the measures that  - considering the specific characteristics of the 
working  activity  -  are  necessary  to  avoid  damage  to  the  physical  and  psychological 
integrity of the worker. Failing this, the worker is entitled to compensation.514 

In  labour  disputes,  even  in  the  case  of  an  accident  at  work,  the  judge  has  ample 
instructing  powers  that  facilitate  access  to  justice  for  victims.  In  fact,  according  to  art. 
420 and 421 of Code of Civil Procedure the Judge may at any time on its own initiative 
order  the  admission  of  any  type  of  evidence,  even  beyond  the  limits  set  by  the  Civil 
Code, and also provides for the free questioning of the parties during the hearing on the 
case 

1. Area of Regulatory Framework 

C) The L.D. no. 254/2016 on non-financial reporting implementing EU Directive 
2014/95/EU 

The  Legislative  Decree  no.  254  of    30  December  2016  in  force  since  25  January  2017 
introduces the  requirement for public interest entities (PIEs) to provide a ‘dichiarazione 

510 See on relationship between ODV of L.D. 231 and control system of L.D. n. 81/2008 https://www.puntosicuro.it/sicurezza-
sul-lavoro-C-1/tipologie-di-contenuto-C-6/sgsl-mog-dlgs-231/01-C-58/dlgs-81-dlgs-231-sistema-di-controllo-organismo-di-
vigilanza-AR-16683/ 

511 See D.L. 81/2008 Art. 55 
512 See D.L. 81/2008 Art. 61, however the right to constitute as a civil party and ask for damages is not envisaged. 
513 The following offences are listed in the Criminal Code: 

Article 437: removal or wilful omission of precautions against accidents in the workplace. 
Article 451: negligent omissions of precautions or protection against disasters or accidents in the workplace. 
Article 589: involuntary manslaughter. 
Article 590: personal injury through negligence. 

514 The damage is established according to the ordinary criteria of Italian Law. For the biological damage the “Tabelle of the 
Court of Milan” are used throughout all Italy  
https://www.tribunale.milano.it/files/news/TABELLE%20MILANO%20EDIZIONE%202018.pdf. 

148 

 
 
 
 
 
                                                        
di  carattere non finanziario’ (non-financial statement). It falls under the following areas 
of law: 

1.  Corporation law; 
2.  Italian Civil law; 
3.  European law; 
4.  International law. 

Relevant EU Directive: 

-  DIRECTIVE  2014/95/EU  on  disclosure  of  non-financial  and  diversity  information 

by certain large undertakings and groups 

2. Scope 

The  Decree 256/2016 came into  force  on the  1st  of  January 2017, and it is mandatory 
for public interest entities515 that fall within the dimensional parameters set by art. 2: 

(i) companies with more than 500 employees on average; 

(ii)  companies  that  exceeded  even  one  of  the  two  following  parameters  of  their 
consolidated  financial  statements:  20  million  euros  of  total  assets  from  the  balance 
sheet, and/or 40 million euros from revenues net sales; 

PIEs  that  are  parent  companies  of  a  group  that  meets  (on  a  consolidated  basis)  the 
same  criteria  set  for  large  PIEs  (i.e.  a  large  public-interest  group)  must  prepare  on  an 
annual basis a consolidated non-financial statement containing information necessary for 
an  understanding  of  the  group’s  development,  performance,  position  and  the  impact  of 
its activity. 

The  Decree  also  provides  that  other  companies  not  subject  to  the  obligation  can 
voluntarily  submit  a  non-financial  statement  on  the  areas  indicated  in  article  3  of  the 
Decree,  providing  simplified  forms  for  SMEs.  In  fact,  the  statements  of  companies  with 
less  than  250  employees,  unlike  the  others,  can  be  considered  in  compliance  with  the 
regulations without being subject to the provisions on verification. 

Companies  during  the  financial  year  shall  include  in  the  management  report  a  non-
financial statement containing information to the extent necessary for an understanding 
of  the  undertaking's  development,  performance,  position  and  impact  of  its  activity, 
relating  to,  as  a  minimum,  environmental,  social  and  employee  matters,  respect  for 
human rights, anti-corruption and bribery matters. 

Public interest entities subject to the obligation to draft the non-financial statement that 
they do not practice policies in relation to one or more of the areas referred to, provide 
within  the  same  declaration,  for  each  of  these  areas,  the  reasons  for  this  choice, 
indicating the reasons in clear and articulated manner516. 

3. 

Content 

The  non-financial  statement  must  contain 517  information  relating  to  environmental 
matters,  social  and  employee  matters,  respect  for  human  rights,  as  well  as  anti-
corruption  and  bribery  matters.  In  relation  to  these  ESG  factors,  the  statement  must 
contain, as a minimum, a description of: 

515 According to art. 16, comma 1, L. D. 27 gennaio 2010, n. 39 PIEs are: 

i. 

ii. 
iii. 
iv. 

italian companies admitted to trade on Italian regulated markets or on regulated markets of any other EU Member 
State; 
banks; 
Italian insurance companies; and 
reinsurance companies having registered office or a secondary office in Italy 

516 Art. 3 par. 6 Decree 256/2016. 
517 Art. 3 par. 1 Decree 256/2016. 

149 

 
 
 
 
                                                        
i. 

ii. 

iii. 

the  company’s  business  model,  including  the  compliance  model  of  the  L.D. 
231/2001 with reference to the ESG factors that are being reported on; 
the company’s policies, including any internal due diligence process implemented, 
the results achieved by the policies, and the related KPIs; 
the principal risks, including the methods for managing them518 deriving from the 
company’s  activities,  products,  services  or  business  relationships,  including, 
where relevant, supply chains and subcontractors. 

According  to  Art.  3  par.  2  in  relation  to  the  environmental,  social  and  governance 
factors, information by companies must be provided on, at least: 

i. 

ii. 
iii. 

iv. 

v. 

the  use  of  energy  resources  (distinguishing  between  renewable  and  non-
renewable energy) and water use; 
greenhouse gas emissions and air pollution; 
the  impact  of  the  principal  risks  linked  to  the  company’s  operations  on  the 
environment  and  on  health  and  safety,  measured  where  possible  on  realistic 
medium-term prospects; 
social  and  employee-related  matters,  together  with  the  actions  taken  to  ensure 
gender  equality,  implementation  of  relevant  conventions  of  supranational  and 
international organisations, and dialogue with social partners; 
respect for human rights, measures implemented to prevent violations of human 
rights and actions taken to prevent forms of discrimination; 

vi.  measures taken to fight corruption (both active and passive) and bribery. 

The  information  must  be  compared  to  that  given  in  the  previous  financial  years 
(although for the first year of application (2017) the comparison may be given in general 
terms only). Moreover, if a company wishes to adopt its own standards and KPIs (rather 
than  those  generally  used  in  its  industry)  -  or  different  ones  compared  to  the  previous 
financial  years  -  the  company  must  describe  them  and  clearly  explain  the  reason  for 
their adoption in the non-financial statement. 

In  addition  to  the  non-financial  statement  requirement,  the  Decree  implements  the 
Directive’s requirements in relation to diversity. 

Companies  are  now  required  to  include  in  their  annual  corporate  governance  report  a 
description  of  the  diversity  policy  applied  in  relation  to  the  composition  of  the 
management and control bodies with regard to aspects such as age, gender, educational 
and professional background, the objectives of the diversity policy and its results in the 
reporting  period.  If  no  such  policy  is  applied,  the  company  must  provide  a  clear  and 
detailed explanation as to why this is the case. 

It is evident from the above that the Italian legislator has used the discretion left to EU 
Member States by the Directive and implemented more stringent requirements. 

4. 

Monitoring, sanction and enforcement 

The company’s directors519 are responsible for ensuring that the non-financial statement 
is prepared and published in accordance with the Decree and must act with due diligence 
and professionalism. 

Any  director  who  (1)  omits  to  file  the  non-financial  statement  with  the  company’s 
registry;  (2)  omits  to  attach  the  report  issued  by  the  auditors  to  the  non-financial 
statement;  or  (3)  files  a  non-financial  statement  that  is  not  in  compliance  with  the 
Decree; can incur administrative monetary penalties ranging from €20,000 to €100,000 
imposed by the Italian Securities Commission (Commissione Nazionale per le Società e la 
Borsa - CONSOB). 

518 As recently modified by law 30 December 2018 n. 145. 
519 Art. 3 par. 7 Decree 256/2016. 

150 

 
 
 
 
                                                        
Moreover,  if  the  director  omits  material  information  and/or  includes  false  material 
information in the non-financial statement, the applicable penalties range from €50,000 
to €150,000.29 

The  company’s  board  of  statutory  auditors  (or  the  different  internal  control  corporate 
body)  is  responsible  for  overseeing  compliance  with  the  Decree  and  reporting  on  its 
control activities to the general shareholders’  meeting in its annual report520. The same 
sanctions  applicable  to  the  directors  are  applicable  to  the  statutory  auditors/internal 
control body should they: (a) omit to report on the non-conformity of the non-financial 
statement at the shareholders’ meeting or (b) the non-financial statement filed with the 
registry omits material information and/or includes false material information. 

Finally,  the  independent  auditors  appointed  to  audit  the  financial  statement  of  the 
company  are  required  to  (1)  verify  the  effective  preparation  of  the  non-financial 
statement  by  the  directors  and  (2)  issue  a  dedicated  report  (separate  from  the  one  on 
the financial statements and published together with the non-financial statement) on the 
conformity of the ESG information provided with the provisions of the Decree as well as 
the methodology and key indicators adopted by the company. Should they fail to do this, 
they  are  liable  for  penalties  ranging  from  €20,000  to  €50,000  and  from  €20,000  to 
€100,000 respectively521. 

Notably,  these  provisions  go  much  further  than  the  requirements  of  the  Directive, 
whereby  auditors  are  only  entrusted  with  the  responsibility  of  checking  that  the  non-
financial information has been provided522. 

5. 

Procedural Framework 

Consob  is  the  competent  authority  for  ascertaining  and  imposing  the  aforementioned 
administrative pecuniary sanctions, the provisions set forth in articles 194-bis, 195, 195-
bis  and  196-bis  of  the  TUF  concerning  the  criteria  for  determining  sanctions  are 
observed, the sanctioning procedure and the procedures for publication of the sanctions. 

Moreover,  Consob  is  also  the  authority  which,  pursuant  to  Article  6  of  the  Decree,  is 
responsible for examining the non-financial information carried out on a sample basis, as 
is  the  case  for  financial  reporting.  In  particular,  the  non-financial  statements  subjected 
to control are selected  annually on the basis of the findings, which may be relevant for 
the matters covered by the non-financial declaration, emerged from the reports received 
by Consob from the control body or from the auditor appointed to perform the statutory 
audit of the financial statements, by other public administrations or interested parties, or 
that  have  been  acquired,  with  reference  to  the  issuers  disclosed  and  listed,  due  to  the 
control  carried  out  by  the  Authority  on  financial  reporting  pursuant  to  Article  89-quater 
of the Regulation Issuers. 

In  the  circumstance  in  which  Consob  recognizes  the  incompleteness  or  discrepancy  of 
the  declaration,  it  asks  the  interested  parties  for  the  necessary  modifications  and/or 
additions and sets the deadline for the adjustment. In the event of failure to comply, the 
aforementioned penalties will apply. 

Moreover  Consob  has  established,  with  Resolution  number  20267  of  2018,  a  new 
Regulation with regard to the implementation of the Non-financial Reporting. 

6.. 

Impact of the Regulation 

Under  the  Decree  256/2016  Italian  companies  are  required  by  law  to  disclose  their 
human rights and environmental risks, impacts and due diligence in their annual reports. 

520 Art. 8 Decree 256/2016. 
521 See art. 8 Decree 256/2016. 
522 See Comparing the implementation of the EU Non-Financial Reporting Directive in the UK, Germany, France and Italy Frank 

Bold 2017 

151 

 
 
 
 
                                                        
However  there  remains  a  problem:  it  is  not  specified  how  companies  are  meant  to  do 
this. 

According to a study523,  in the year 2018, 205 Italian companies have processed  a non-
financial  report.  Of  these  only  three  companies  issued  a  non-financial  report  on  a 
voluntary basis. 

The  most  relevant  topics  identified  by  the  205  reports  were:  companies  staff  (75% 
health  and  safety,  72%  human  capital  development  and  65%  promotion  of  diversity 
65%),  environmental  issues  (58%  climate  change,  57%  energy  efficiency,  43%  waste 
management),  anti-corruption  (62%),  relations  with  the  community  (60%)  and 
protection of human rights (52%). 

Most  of  companies  have  chosen  the  Global  reporting  initiative  (GRI)  as  standard  of 
reference in their reporting. Civil societies recommend companies to use the UN Guiding 
Principles  reporting  framework  in  the  drafting  of  the  non-financial  report  instead  of  the 
GRI.  This  is  because  it  provides  the  clearest  and  most  sophisticated  common  standard 
for  companies  as  to  how  to  undertake  and  report  on  their  human  rights  risks,  impacts 
and  due  diligence 524 .    The  use  of  a  common  reporting  framework  will  also  help  to 
compare the results through a common standard. 

1. Area of Regulatory Framework 

D)  The  Environmental  Impact  Assessment  Procedure  -  Valutazione  di  Impatto 
Ambientale  (VIA), 
the  Environmental  Strategic  Environmental 
Assessment  Procedure  -  Valutazione  Ambientale  Strategica  (VAS)  and  the 
Integrata 
Integrated  Environmental  Authorization 
Ambientale (AIA) 

-  Autorizzazione 

  and 

These  administrative  proceedings  aiming  at  assessing  and  mitigating  environmental 

effects of business activities. 

- Relevant Provisions of Italian Law: 

  L.D.  n.  152/2006  (TUA)  II  Part,  concerns  the  Environmental  Impact 
the  Strategic  Environmental 
Assessment  Procedure  (VIA)  and 
Assessment  Procedure  (VAS)  as  well  as  the  Integrated  Environmental 
Authorization (AIA) 
  Law n. 114/2015 art. 4 
  L.D. n. 104/2017 

- Relevant European Directives: 

  2014/52/EU amending Directive 2011/92/EU on the assessment of the effects of 

certain public and private projects on the environment 

  2011/92/EU  on  the  assessment  of  the  effects  of  certain  public  and  private 

projects on the environment 

  2010/75/EU on industrial emissions (integrated pollution prevention and control) 
  2001/42/EC on the assessment of the effects of certain plans and programmes 

on the environment 

  96/61/EC concerning integrated pollution prevention and control (IPPC) 
Area of Law: 

Environmental law (including on climate change) 

Administrative law 

523 KPMG, Informativa extra finanziaria (ESG): survey sull’applicazione del D.lgs. 254/2016.  

https://home.kpmg/content/dam/kpmg/it/pdf/2018/10/Survey-informativa-non-finanziaria.pdf 
524A Human Rights Review of the EU Non-Financial Reporting Directive, ECCJ 

http://corporatejustice.org/eccj_ccc_nfrd_report_2019_final.pdf 

152 

 
 
 
                                                        
Enforcement of EU Directives 

2.  Scope 
a)  VIA is an administrative procedure aimed at assessing in advance the effects of a 
project likely to have significant effects on the environment by virtue, inter alia, of 
their  nature,  size  or  location.  The  legislation  indicates  the  construction  works  or 
other installations that must be submitted to the procedure (for example Crude-oil, 
refineries, Thermal power station, Waste disposal installations, Dams, Oil Pipelines 
etc525). The procedure assesses in an integrated way all the impacts deriving from 
the realization of works and installations on the environment (Dir. N. 2011/92 / UE, 
art.  3),  including  impacts  on  human  beings,  fauna  and  flora;  soil,  water,  air, 
climate  and  the  landscape;  material  assets  and  the  cultural  heritage;  and  the 
interaction of all these elements combined together. 

b)  The  VAS  is  an  administrative  procedure  that  stands  at  a  stage  prior  to  the  VIA 
when  other  alternatives  are  still  viable.  The  VAS  does  not  concern  single  projects 
but general plans and programs526 and guarantees the integration of environmental 
considerations  in  order  to  ensure  "a  high  level  of  environmental  protection"  and 
"promote  sustainable development"527. This kind of procedure is more likely to be 
promoted  by  public  entities  and  therefore  this  report  will  contain  less  information 
on it. 

c)  The  Integrated  Environmental  Authorization  (AIA)  is  the  measure  that  authorizes 
the operation of an installation under certain conditions that provide for compliance 
with  IPPC  requirements  relating  to  industrial  emissions  (Integrated  Pollution 
Prevention and Control), as well as to the environmental performances associated 
with Best Available Techniques (BAT). The installations carrying out activities listed 
in Annex VIII Part Two of the Legislative Decree 152/2006 are subject to the state 
AIA procedure  (for ex. large combustion plants, pumped storage power stations to 
gas, refineries, steelworks, large chemical plants, plants at sea). 

3.Content of Regulation 

a/b)    VIA528 and VAS procedures are articulated in different phases. 

A  Business  that  is  engaging  in  a  VIA  is  required  to  provide  a  study  on  the 
environmental impact that have to contain among others529 the following elements: 
-  a  description  of  the  likely  significant  effects  on  the  environment,  during 
construction, operation and disposal phase; 
- a description of the measures envisaged to avoid, prevent or reduce and, possibly, 
compensate for the probable significant and negative environmental impacts; 
-  a  description  of  the  reasonable  alternatives  considered  by  the  proponent  that  is 
appropriate  to  the  project  and  its  specific  characteristics,  including  the  alternative 
zero; 

525 See Annexes I and II of Dir. N. 2011/92/EU. 
526See Art. 3 par 2 Directive 2001/42/EC  Subject to paragraph 3, an environmental assessment shall be carried out for all 
plans and programmes, (a) which are prepared for agriculture, forestry, fisheries, energy, industry, transport, waste 
management, water management, telecommunications, tourism, town and country planning or land use and which set the 
framework for future development consent of projects listed in Annexes I and II to Directive 85/337/EEC, or (b) which, in 
view of the likely effect on sites, have been determined to require an assessment pursuant to Article 6 or 7 of Directive 
92/43/EEC. 

527 Pag 161 Ambiente 2018 Erica Blasizza Ipsoa. 
528 VIA includes, according to the Italian regulatory provisions: 1. conducting a verification of suitability to VIA (screening); 2. 

the definition of the contents of the environmental impact study (scoping); 3. the presentation and publication of the project; 
4. consultations; 5. evaluation of the environmental study and results of the consultations; 6. the decision phase; 7. 
information on the decision; 8. monitoring. 
529 Art. 22, comma 2, D.Lgs. n. 15 21 2006. 

153 

 
 
 
 
 
 
                                                        
- the project to monitor the potential significant and negative environmental impacts 
deriving  from  the  realization  and  operation  of  the  project,  which  includes  the 
responsibilities  and 
implementation  and 
management of the monitoring. 
The competent authority in matters of state VIA is the Ministry of the Environment. 

the  resources  necessary 

the 

for 

c)        When  presenting  the  AIA  application,  the  company  identifies  its  environmental 
impact by describing the measures adopted to mitigate the impact and by providing 
the  appropriate  documentation530.  The  law  mentions  expressly531 that  the  relevant 
information contained in the norm UNI EN ISO 14001 or in the EU Eco-Management 
and Audit Scheme (EMAS)532 can be provided in the application. 

The  AIA  legislation  goes  beyond  the  concept  of  a  default  authorization  duration 533 by 
establishing  when  the  competent  authority 534  re-examines  the  authorization 
conditions and, if necessary, updates them to ensure compliance with the objectives 
of  preventing  and  reducing  pollution,  therefore  a  company  should,  at  least  in 
principle continue to monitor its performance in relation to the BAT standards. If an 
installation is certified according to UNI EN ISO 14001 or Emas-registered, the term 
of  the  review  is  extended  respectively  to  12  or  16  years  from  the  10  normally 
provided535. 

The public affected or likely to be affected by VIA VAS or AIA, or having an interest 
in the environmental decision-making procedures can participate536 and have access 
to the documents537. 
"Non-governmental  organizations  that  promote  environmental  protection  and  that 
meet  the  requirements  of  current  state  legislation,  as  well  as  the  most 
representative  trade  union  organizations"  are  considered  to  be  of  interest  in  the 
proceedings. The Ministry of Environment created a special model form for citizens' 
observations in VIA, VAS and AIA procedures538. 
Application  and  related  documentation  are  online  on  the  website  of  the  competent 
authority. 

4.Monitoring, sanction and enforcement 
a)  The company is required to comply with the environmental conditions contained in 
the  VIA  decision.  The  competent  authority  is  in  charge  of  verifying  compliance 
with  environmental  conditions 
identify  significant 
environmental  impacts  and  unexpected  negative  ones  and  to  adopt  the 
appropriate corrective measures. 

to  promptly 

in  order 

In cases where violations of the environmental conditions of the "VIA" provision are 
ascertained, the competent authority proceeds according to the seriousness of the 
infringements: 

- to issue a warning, assigning a term to eliminate non-compliance; 

530 See https://va.minambiente.it/it-IT/ps/Comunicazione/IndicazioniOperativeAIA 
531 See art. 29 ter comma 3  D.Lgs 152/2006. 
532 See these interviews to Vincenzo Parrini EMAS responsible for ISPRA on the relations between AIA and EMAS by Daniela 
Patrucco https://www.scienzainrete.it/contenuto/articolo/daniela-patrucco-intervista-vincenzo-parrini/comunicazione-
ambientale-emas-tra 

533 Pag. 215 Ambiente 2018 Erica Blasizza Ipsoa. 
534 The competent authority at the state level is the Ministry of the Environment and the Protection of the Territory and the Sea 

(MATTM) - General Directorate for Environmental Evaluations and Authorizations (DVA). The Preliminary Investigation 
Commission for Integrated Environmental Authorization - IPPC (CIPPC) carries out the technical investigation aimed at 
expressing the opinion on the basis of which the AIA provision is issued. The decision is also based on the proposal of the 
Higher Institute for Environmental Protection and Research (ISPRA) on the Monitoring and Control Plan (PMC) and on the 
opinions and determinations made by the administrations participating in the Services Conference (CdS). 

535 See Art. 29-octies D.lgs 152/2006. 
536 See Art. 24 D.lgs 152/2006. 
537 Documents can be viewed free of charge at the offices of the Public Administration after making an appointment with the 
competent offices, however the extraction of copies of documents is subject to the payment of the costs for the issue and 
extraction of copies, pursuant to art. 25 of the aforementioned Law 241/1990, and in the manner established by the 
individual Administrations. https://va.minambiente.it/it-IT/Comunicazione/Cittadino 
538 Ministry of Environment: http://www.va.minambiente.it/it-IT/Comunicazione/Cittadino 

154 

 
 
 
 
 
                                                        
- to issue a warning and the simultaneous suspension of the activity,  in the cases 
in which risks "of significant and negative environmental impacts" are ascertained; 

- revocation of the  "VIA" provision, if the violations imposed with the warning are 
repeated and in the  cases in which the repeated  violations give rise to "situations 
of danger or damage to the environment". 

Law  provides  also  administrative  sanctions 539  in  the  hypothesis  of  works  even 
partially  realized in  the  absence  of  the  "VIA"  and in  cases  of  violations  of  the  VIA 
conditions. 

d)  For AIA, the company is required to comply with the conditions contained in the 
authorization.  The  competent  authority,  the  control  bodies 540 (ISPRA  /  ARPA  / 
APPA) and the company itself, which must provide assistance in carrying out the 
technical inspections, are responsible for controls. In case of non-compliance the 
competent  authority  proceeds  according  to  the  seriousness  of  the  infringements 
with  warnings  that  can  lead  to  suspension  of  the  activity  or  the  closing  of  the 
activity,  administrative  and  even  criminal  sanction  for  the  most  serious 
violations541are also provided by law. 

5.  Procedural Framework 

Administrative  Courts  have  competence  over  these  administrative  procedures.  The 
administrative  judge  can  only  perform  a  "weak"  appreciation  on  the  technical 
assessments  on  environmental  matters 542  considered  during  the  procedures, 
because  the  technical  knowledge  must  be  used  only  to  carry  out  a  control  of  the 
reasonableness  and 
the  administrative  decision. 
Environmental NGOs have legal standing543. 

technical  coherence  of 

6.  Available Remedies 

In  case  of  failure  to  acquire  the  environmental  compatibility  ruling,  the  VIA 
authorization or the adopted approval measures can be annulled for violation of the 
law544. 

Civil and criminal remedies may be available at a different stages in case individual 
rights are violated or in case an environmental crime is committed. 

7.  Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
individually  or  collectively)  (public 

and  b)  to  companies,  either 
information, estimated opinion) 

The following rates apply to VIA: 
0.5 per thousand of the value of the works to be carried out for the VIA procedures; 
0.25  per  thousand  of  the  value  of  the  work  to  be  carried  out  and,  in  any  case, 
within  the  maximum  limit  of  the  amount  of  €  10,000  for  the  procedures  for 
verifying that a project  is subject to VIA; 
25% of the amount already paid as 0.5 per thousand, during the review. 
With regard to the VAS the charges are as follows: 

539 See Article 29, paragraphs 4 and ss. Legislative Decree 3 April 2006, n. 152. Sanctions are in a range from 20.000 up to 

100.000 Euro. 

540 http://www.isprambiente.gov.it/it/controlli-e-ispezioni-ambientali 
541 Art. 29 quaterdecies D.lgs. n. 152/2006. 
542 http://www.giuristiambientali.it/documenti/VIA_AM_tec_sind.pdf 
543 See https://www.giurdanella.it/2018/06/06/tutela-dellambiente-legittimazione-ad-agire-delle-associazioni-ambientaliste-e-
materia-ambientale-in-senso-lato/ 
544 Art. 29, comma 1, D.Lgs. n. 152/2006. 

155 

 
 
 
 
 
 
                                                        
€ 15,000 for VAS procedures 
€ 10,000 for the VAS procedures preceded by a VAS verification procedure relating 
to the same plan or program; 
€  5,000  for  the  VAS  verification  procedures,  pursuant  to  art.  12  of  the  legislative 
decree 3 April 2006, n. 152; 
€ 3,000 for the review545. 
The  Ministry  of  the  Environment  with  the  Decree  of  March  6,  2017,  n.  58  has 
defined  the  costs  for  the  issue  of  the  renewal  or  updating  of  the  Integrated 
Environmental Authorization (AIA). 

8.  Impact of the Regulation 

Confindustria,  the  main  association  representing  manufacturing  and  service 
companies  in  Italy,  has  positively  considered  the  introduction  of  a  single 
environmental authorization (Integrated Environmental Authorization - AIA) and the 
application  of  the  best  available  technologies  (BAT),  although  expressing  some 
reservations on the implementation of the EU legislation546. 

The  reunification  into  a  single  authorization  of  the  various  environmental 
authorizations  previously  envisaged  is  also  positive  for  the  process  of  citizen 
participation. However in this regard it has to be noted the difficulty often faced by 
the committees and self-organized citizens to identify the correct public interlocutor 
in case of an environmental issue. 

For  environmental  associations,  following  these  administrative  procedures  can  be 
prohibitive  due  to  the  amount  of  information  and  the  complexity  of  the  same. 
Moreover, it is worth noting the difficulty of the institutions to respond adequately 
to  the  requests  made  by  the  stakeholders 547 that  report  little  attention  to  their 
legitimate observations. 

In  relation  to  the  AIA,  it  should  be  noted  that  the  environmental  impact  of  the 
procedure must be improved in consideration of major scandals such as the one of 
ILVA548 in  relation  to  which  Italy  has  recently  been  condemned  by  the  European 
Court of Human Rights549 or considering that the 2017 SNPA Environmental Control 
Report  on  AIA  has  identified  that  out  of  2,400  inspections  1,300  non-conformities 
were detected 550. 

1. Area of Regulatory Framework 

E) Decontamination of polluted sites - Bonifica di siti contaminati 

- Relevant Provisions of Italian Law: 

 

L.D. n. 152/2006 (TUA) Title V 

- Relevant European Directives: 

 
 

96/61/EC concerning integrated pollution prevention and control 
2004/35/CE of on environmental liability with regard to the prevention and 

remedying of environmental damage 

Area of Law: 

545 See https://www.ambientesicurezzaweb.it/via-e-vas/ 
546 See https://www.confindustria.benevento.it/wp-content/uploads/2014/01/osservazioni-schema-dlgs-cdm-1-2014.pdf 
547 See Page 59 L’applicazione della direttiva sulla prevenzione e riduzione dall’inquinamento in Italia di Marco Caldiroli: 

http://www.ancorafischiailvento.org/2017/08/11/valutazione-impatto-ambientale-tutele-al-minimo-storico/ 

548 See “The Environmental Disaster and Human Rights Violations of the ILVA steel plant in Italy, FIDH, PEACELINK, UFTDU, 
Human rights International Corner (HRIC)”: https://www.humanrightsic.com/single-post/2018/04/17/Available-now-the-
English-version-of-the-Report-The-Environmental-Disaster-and-Human-Rights-Violations-of-the-ILVA-steel-plant-in-Italy 

549 See Cordella and Others v. Italy (ECtHR: nos. 54414/13 and 54264/15) 
550 See COMUNICATO STAMPA 19 April 2018, ISPRA: http://www.isprambiente.gov.it/files2018/area-stampa/comunicati-

stampa/COMUNICATO_AIA_SEVESO_ISPRACC.pdf 

156 

 
 
 
 
                                                        
Environmental law (including on climate change) 

Administrative law 

Enforcement of EU Directives 

2.  Scope 
The  law  regulates  decontamination  and  environmental  restoration  and  defines  the 
procedures,  criteria  and  methods  for  carrying  out  operations  to  comply  with  EU 
principles and EU norms, with particular reference to the polluter pays principle. When 
an  incident  takes  place  that  has  the  potential  to  contaminate  a  site,  the  natural  or 
legal person responsible for the pollution must initiate the procedure described in this 
law.  In  addition,  the  owner  of  a  site  who  detects  substances  in  concentrations 
exceeding  the  contamination  threshold  must  implement  the  prevention  measures 
described in the law.551 

3.  Content of Regulation 
The decontamination procedure is articulated in different phases. 
The  environmental  characterization  is  intended  as  the  set  of  activities  that  allow  to 
reconstruct  the  phenomena  of  contamination  on  environmental  matrices,  in  order  to 
obtain basic information on which to make  feasible and  sustainable decisions for the 
safety of the site and / or decontamination552 . 
The  environmental  characterization  is  eventually  followed  by  the  "site-specific 
environmental  risk  assessment",  which  is  used  to  define  the  objectives  of  the 
decontamination. 
This  risk  assessment  can  be  used  before  during  and  after  decontamination 
operations553. 
It  should  be  noted  that  in  Italy  the  risk  assessment  is  aimed  exclusively  at  human 
health,  while  in  other  countries  such  as  the  Netherlands,  Spain  and  Germany,  the 
ecotoxic effects are also taken into consideration554. 

4.  Monitoring, sanction and enforcement 

If  the  person  who  committed  the  pollution  does  not  provide  for  the  decontamination 
in accordance with the project approved by the competent authority, he/she commits 
the crime referred to in art. Art. 257 - Legislative Decree n. 152/2006555. 

1.  Area of Regulatory Framework 

F) Legislative Decree no 105/2015 control of major-accident hazards involving 
dangerous substances 

- Relevant Provisions of Italian Law: 

 
 

L.D. n. 105/2015 
L.D. n. 238/2005 

551 See Tar Lombardia Milano, nn. 1914/15 and 1915/15. 
552 Annex 2 to Title V, Part Four of Legislative Decree 152/06 and subsequent amendments 
553 The documents "Methodological criteria for the application of absolute risk analysis to contaminated sites" and 

"Methodological criteria for the application of absolute risk analysis to landfills" have been prepared by the ARPA / APPA, ISS, 
ISPESL working group, ICRAM established and coordinated by ISPRA. The objective is the elaboration and revision of 
technical documents containing the theoretical and applicative indications for technicians of Public Administrations, 
researchers, professionals and operators of the sector who draw up and / or evaluate reclamation projects of contaminated 
sites containing risk analysis processing health and environmental. The approach used in the manuals refers to the RBCA 
standard of the ASTM (E 1739-95, E 2081-00). See http://www.isprambiente.gov.it/it/temi/siti-contaminati/analisi-di-rischio 
554 “In Italia la valutazione del rischio è mirata esclusivamente alla salute umana, mentre in altri paese come Olanda, Spagna, 
Germania e Svezia vengono presi in considerazione anche gli effetti ecotossicologici”.See Pag. 343 Ambiente 2018, Erica 
Blasizza, Ed. Ipsoa and the summary table at page 344 343 Ambiente 2018, Erica Blasizza, Ed. Ipsoa 

555 https://www.brocardi.it/codice-dell-ambiente/parte-quarta/titolo-vi/capo-i/art257.html 

157 

 
 
 
 
 
 
                                                        
- Relevant European Directives: 

 

2012/18/EU on the control of major-accident hazards involving dangerous 

substances 

 

96/61/EC  on  the  control  of  major-accident  hazards  involving  dangerous 

substances 
Area of Law: 

Environmental law 

Administrative law 

Enforcement of EU Directives 

Health and safety 

2.  Scope 

The  law  lays  down  rules  for  the  prevention  of  major  accidents  involving  dangerous 
substances  and  for  the  limitation  of  their  consequences  for  human  health  and  the 
environment.  The  operator  of  an  establishment 556  is  obliged  to  take  all  necessary 
measures to prevent major accidents and to limit their consequences for human health 
and the environment. 

3.  Content of Regulation 

According to art. 12 the operator is obliged to take all necessary measures to prevent 
major accidents and to limit their consequences for human health and the environment 
and to demonstrate at any time to the competent and control authorities, in particular 
for  the  purposes  of  inspections  and  controls,  the  adoption  of  all  the  necessary 
measures envisaged by the legislative decree. 

The  operator has to send a detailed notification to the  competent  authority giving the 
information that allows to identify the dangers present in the activity557. 

According  to  art.  14  operatosr  draw  up  and  keep  in  the  establishment  a  document  in 
writing setting out the major accident prevention policy, attaching the program for the 
implementation of the safety management system (Sistema Gestione della Sicurezza  - 
SGS). 

The operator of an upper-tier establishment has to produce also a safety report558 and 
an  internal  emergency  plan  for  the  measures  to  be  taken  inside  the  establishment. 
Moreover  the  operator  supplies  the  necessary  information  to  the  Prefettura,  to  enable 
the latter to draw up external emergency plans. 

According to art. 23 the information held by the competent authorities in application of 
this  decree  is  made  available  to  the  public  upon  request.  The  municipality  where  the 
establishment  is  located  promptly  makes  available  to  the  public,  also  in  electronic 

556 See the definition in art. 3 of Directive 2012/18/EU:  

‘establishment’ means the whole location under the control of an operator where dangerous substances are present in one 
or more installations, including common or related infrastructures or activities; establishments are either lower-tier 
establishments or upper-tier establishments; 
‘lower-tier establishment’ means an establishment where dangerous substances are present in quantities equal to or in 
excess of the quantities listed in Column 2 of Part 1 or in Column 2 of Part 2 of Annex I, but less than the quantities listed in 
Column 3 of Part 1 or in Column 3 of Part 2 of Annex I, where applicable using the summation rule laid down in note 4 to 
Annex I; 
‘upper-tier establishment’ means an establishment where dangerous substances are present in quantities equal to or in 
excess of the quantities listed in Column 3 of Part 1 or in Column 3 of Part 2 of Annex I, where applicable using the 
summation rule laid down in note 4 to Annex I; 

557 See Art. 7of Directive 2012/18/EU. 
558 With modalities of D.P.C.M 31.3.1989. For Details of safety report see art. 15 – 17 of the L.D. no 105/2015. 

158 

 
 
 
 
                                                        
 
format  and  through  publication  on  its  website,  the  information  provided  by  the 
operator. 

4.  Monitoring, sanction and enforcement 

For  the  performance  of  the  functions  referred  to  in  the  decree,  the  Ministry  of  the 
Interior establishes, within each Region, a Regional Technical Committee (CTR). 

The CTR in relation to the upper-tier establishment has the following responsbilities: 
a)  carry  out  the  preliminary  investigations  on  security  reports  and  adopt  the  final 
provisions; 
b) plan and carry out the ordinary inspections referred to in Article 27 and adopt the 
measures descending from the relevant outcomes; 
c)  applies,  through  the  Regional  or  Interregional  Directorate  of  Fire  Brigades,  the 
pecuniary administrative sanctions referred to in Article 28; 
d) provides the Ministry of the Environment with the necessary information. 

Each Region is in charge of inspections of lower-tier establishment559. 

Each Municipality exercises the functions: 
a)  relating  to  the  control  of  urbanization  in  relation  to  the  presence  of 
establishments; 
b)  relating  to  information,  consultation  and  participation  in  decision-making 
processes of the public560. 

The law provides for administrative and criminal sanctions and in certain case also for 
the suspension of the activity. 

III. COMPARATIVE ANALYSIS 

9.  Comparisons between different regulations within the Member State 

a.  Corporate  and  directors’  liability  regime  in  case  of  violations  or  damage 
caused  by  operators  in  the  EU  parent  company’s  supply  chain,  including 
relevant  jurisprudence,  even  in  the  absence  of  legislation  on  due 
diligence 

There  is  no  single  regime  concerning  corporate  and  directors’  liability  in  case  of 
violations  or  damage  caused  by  operators  in  the  EU  parent  company’s  supply  chain. 
However liability can arise in certain circumstances in relation to specific provisions. 

As  a  general  rule  tort  law  establishes  the  rights  of  victims  of  torts  to  obtain 
compensation for damage if they can demonstrate a causal link between the corporate 
activity  and  the  damages  they  have  suffered.  Article  2043  of  the  Civil  Code  provides 
that any intentional or negligent act that causes an unjustified injury to another obliges 
the person who has committed the act to pay damages. 

Pursuant  to  L.D.  no.  231/2001  the  parent  company  or  another  company  of  the  group 
may  be  liable  of  the  crime  committed  by  a  subsidiary  belonging  to  the  same  group 
provided  that  the  unlawful  act  was  committed  also  pursuing  the  interest  or  for  the 
benefit  of  the  parent  company  or  of  the  other  company  of  the  group  (interest  or 
advantage  to  be  verified  in  practice)  and  that  a  natural  person  who  acts  on  behalf  of 

559 Art. 7 of L.D. no 105/2015. 
560 Art. 8 of L.D. no 105/2015. 

159 

 
 
 
 
 
 
 
 
                                                        
the parent company or of the other company belonging to the group has contributed to 
the offence (case of aiding)561. 

One  relevant  case  to  the  application  of  L.D.  no.  231/2001  in  this  context  of  the  EU 
supply  chain  is  the  case  of  Siemens  AG,  concerning  a  bribery  committed  in  Italy  to 
obtain  contracts  for  the  installation  of  gas  turbines  in  Enelpower  plants.  The  Court  of 
Milan ordered the prohibition of contracting with the Public Administration for a period 
of  one  year  against  Siemens  AG  based  in  Monaco  (Germany)  which  operated  in  Italy 
through a temporary association of companies562. 

A responsibility of the parent company pursuant to art. 2497 of the civil code towards 
the  subsidiary  company  of  the  group  can  arise  if  the  parent  company  undertakes  a 
course  of  conduct  that  is  detrimental  to  the  assets  of  the  subsidiary,  if  certain 
additional requirements are satisfied.563 

The regulation of public and private tenders provides for several specific responsibilities 
of the contractor towards subcontractors. 

Concerning  rights  of  consumer  and  defective  products,  the  manufacturer  is  the  prime 
liable subject564. The importer, supplier or distributor of the allegedly defective product 
may also be held liable when the manufacturer is unidentified; or the supplier does not 
provide  the  injured  party  with  the  identity  of  the  manufacturer  within  three  months 
from receiving a request from the injured party; or service of the writ of summons. 

b.  The  extent  to  which  the  legal  regime  translates  a  corporate  duty  to 
respect human rights and abstain from other abuse(s) and from causing 
damage  into  a  civil  law  obligation  by  requiring  a  standard  of  reasonable 
care from the directors; 

As explained in the legal analysis  concerning L.D. no. 231/2001, the nature of liability 
is labelled  as  administrative.  However  it  can  be  inferred  that  directors  are  required  to 
adopt  appropriate  measures  to  prevent  certain  specific  crimes  and  shield  the 
corporation  from  liability.  In  particular,  as  clarified  in  Section  II  regarding  L.D.  no. 
231/2001, when one of the crimes listed by the Decree is committed by a corporation’s 
employees,  the  corporation  incurs  an  “organisational  fault”  if  it  has  failed  to  take 
adequate  measures  to  prevent  its  employees  from  committing  such  an  offence  by 
neglecting  to  adopt  or  effectively  implement  a  suitable  “compliance  program.”  The 
compliance  program  is  considered  adequate  if  designed  in  a  way  that  it  cannot  be 
bypassed in a non-fraudulent way. 

561 A person working for the defendant company must have aided/abetted the crime See above point 3, d), section II, on L.D. 

no. 231/2001. 

562 Trib.di Milano – ordinanza Gip Salvini (27 aprile 2004) Trib. di Milano – riesame (28.10.2004), see Siemens «paga» lo 

scandalo Enelpower, https://www.ilsole24ore.com/fc?cmd=art&artId=402700&am and LA RESPONSABILITÀ 
“AMMINISTRATIVA” DEGLI ENTI CON SEDE ALL’ESTERO di Elisabetta Stampacchia 
https://www.penalecontemporaneo.it/upload/1380098797STAMPACCHIA%202013a.pdf 

563 The additional requirements are: management and coordination by one company of another; an unlawful course of conduct, 
or conduct of business to one's own or others' advantage and therefore unrelated to the interests of the company subject to 
management and coordination and in violation of the principles of proper corporate and business management of the 
subsidiaries; a damaging event or a prejudice caused to the company under management; and a causal link between the 
conduct and the event or prejudice. 

564 To exclude its liability, a product manufacturer must prove that: 

it did not put the product into circulation; 
the defect did not exist when the product was put into circulation; 
the product was neither manufactured for sale nor manufactured or distributed in connection to the manufacturer’s 
professional activity; 
the defect is a consequence of complying with a binding law or provision; 
the state of the art and the scientific knowledge on the date that the product was put into circulation prevented the defect 
from being identified; or the defect was entirely due to: the design of the product in which the raw material or component 
was incorporated; or compliance with the instructions provided by the manufacturer for incorporation of the raw material or 
component into the final product. (This defence applies in cases where the manufacturer or the supplier provided only the 
raw material or a product component.) 
Further, liability can be excluded or reduced if the injured party adopted negligent conduct (eg, wrongful use of the product) 
which contributed to the cause of the damage. See The product liability regime in Italy 
Hogan Lovells link https://www.lexology.com/gtdt/tool/workareas/report/product-liability/chapter/italy 

160 

 
 
                                                        
c.  The level of “duty of care”/”due diligence” required of the business or its 
administrative  organs,  in  order  to  fulfil  their  obligations,  and  the  key 
elements of this legal “duty of care” 

See the previous answer. 

In general, under  Italian Civil law, directors are  required to act in the best interest of 
the  company,  with  a  degree  of  diligence  reflecting  the  specific  knowledge  and  skills 
required  by  their  office  and  within  the  powers  granted  to  them  by  law  and  by  the 
company's by-laws for the achievement of the company's object565. 

d.  How directors’ responsibility can be engaged 

Normally  the  proceedings  relating  to  the  liability  of  the  company  under  L.D.  no. 
231/2001  are  joined  with  criminal  proceedings  brought  against  the  individual 
perpetrator of the related crime (possibly a director) and his/her liability is identified by 
criminal law. 

Under Italian Civil Law directors are jointly and severally liable toward the company 566, 
the shareholders, and third parties567 in general for damages suffered by each of them 
as a direct result of the directors' negligence in fulfilling their fiduciary duties according 
to law, articles of incorporation and by-laws. 

In the context of tort law, victims may be able to initiate proceedings based upon the 
director’s failure to exercise his or her obligations toward the company. Victims have to 
prove  the  causal  link  between  the  violation  of  an  obligation  of  the  director  and  the 
damage suffered568. 

Whether  the  concept  of  due  diligence  is  used  in  the  domestic 
regulation of other areas of corporate governance, and if so, what the 
legal  elements  are  to  establish  a  duty  and/or  liability  (including,  if 
any, for subsidiaries and in the supply chain). 

EU Regulation569 2016/679 (GDPR) art. 24 provides that taking into account the nature, 
scope,  context  and  purposes  of  processing,  as  well  as  the  risks  of  varying  likelihood 
and  severity  for  the  rights  and  freedoms  of  natural  persons,  the  controller  shall 
implement appropriate technical and organisational measures to ensure and to be able 
to demonstrate that processing is performed in accordance with this Regulation. Those 
measures shall be reviewed and updated where necessary. 

According  to  the  GDPR  a  Controller  can  be  responsible  for  a  data  breach  occurring 
down the supply chain if the supplier acts as a data Processor in the following cases: 

the processor was not  suitable according to Art. 28 GDPR, i.e. not providing sufficient 
guarantees  to  implement  appropriate  technical  and  organisational  measures  in  such  a 
manner  that  the  processing  will  meet  the  requirements  of  GDPR  and  ensure  the 
protection of the rights of the data subject; 

the processor is placed in a third country and the provisions of Art. 44-49 GDPR have 
not been observed. 

- 

- 

565 See art. 2392 of the Italian Civil Code. 
566  In particular, directors are liable if they carry out detrimental acts, or if, being aware of detrimental acts, they do not act to 
prevent their occurrence or to eliminate or reduce their harmful effects or if they fail to supervise the general management. 
De facto directors can be held liable as well. See art. 2392 Civil Code. 

567 The responsibility of the directors towards the shareholders and third parties, means that the shareholders and third parties 
can ask the administrators for compensation for damages only in the event that the performance of an unlawful act by the 
directors in the exercise of their office has caused direct damage to the assets of the individual shareholder or of the single 
third party. See art. 2392 Civil Code. 
568 See art. 2043 of the Italian Civil Code. 
569 See Italian D.Lgs. 10 august 2018, n. 101. 

161 

 
 
 
                                                        
Moreover art. 35 requires a Data Protection Impact Assessment (DPIA) for certain type 
of  processing570.  A  DPIA  is  a  process  designed  to  describe  the  processing,  assess  its 
necessity and proportionality, and help manage the risks to the rights and freedoms of 
natural persons resulting from the processing of personal data by assessing them and 
for 
determining  the  measures  to  address  them.  DPIAs  are 
accountability,  as  they  help  controllers  not  only  to  comply  with  requirements  of  the 
GDPR, but also to demonstrate that  appropriate measures have been taken to  ensure 
compliance  with  the  Regulation.  In  other  words,  a  DPIA  is  a  process  for  building  and 
demonstrating compliance571.Under the GDPR, non-compliance with DPIA requirements 
can lead to fines imposed by the competent supervisory authority. 

important  tools 

In general, in case  of infringements  of  certain provisions of the  GDPR the supervisory 
authority  shall  ensure  that  the  imposition  of  administrative  fines  taking  into  account 
inter alia: the nature, gravity and duration of the infringement taking into account the 
nature  scope  or  purpose  of  the  processing  concerned  as  well  as  the  number  of  data 
subjects  affected  and  the  level  of  damage  suffered  by  them;  any  action  taken  by  the 
controller  or  processor  to  mitigate  the  damage  suffered  by  data  subjects;  and  the 
degree of responsibility of the controller or processor taking into account technical and 
organisational measures572. 

The Italian legislature has also provided for specific types of crime on data privacy573. 

e.  How  parent  companies  can  be  held  liable  in  the  Member  States  for  the 
impacts  of  their  subsidiaries,  including  non-EU  based  subsidiaries 
(including  in  comparative  areas  of  corporate  governance  such  as  anti-
bribery  and  corruption,  anti-money  laundering,  taxation,  competition, 
health and safety) 

As  a  general  rule  tort  law  establishes  the  rights  of  victims  of  torts  to  obtain 
compensation for damage if they can demonstrate a causal link between the corporate 
activity  and  the  damages  they  have  suffered.  Article  2043  of  the  Civil  Code  provides 
that any intentional or negligent act that causes an unjustified injury to another obliges 
the person who has committed the act to pay damages 

In this context, it is interesting to mention the civil proceeding against ENI (the Italian 
State-owned  energy  company)  and  NAOC  (its  Nigerian  subsidiary)  that  is  currently 
pending before the Tribunal of Milan. The action filed by Ododo Francis Timi, the legal 
representative  of  the  Nigerian  Ikebiri  community,  addresses  the  defendants’  tort 
liability  arising  from  the  alleged  environmental  damages  and  the  connected  human 
rights violations that the defendants allegedly caused in 2010 through their extractive 
activities in Nigeria574. 

In  the  case  of  multinational  corporations  or  corporations  that  conduct  part  of  their 
business outside the national borders (for example by outsourcing production, or taking 

570 Where a type of processing in particular using new technologies, and taking into account the nature, scope, context and 

purposes of the processing, is likely to result in a high risk to the rights and freedoms of natural persons, the controller shall, 
prior to the processing, carry out an assessment of the impact of the envisaged processing operations on the protection of 
personal data. See art. 35 Regulation 2016/679 (GDPR). 

571 See Guidelines on Data Protection Impact Assessment (DPIA) and determining whether processing is “likely to result in a 
high risk” for the purposes of Regulation 2016/679 link: https://ec.europa.eu/newsroom/document.cfm?doc_id=47711 

572 See art. 83 Regulation 2016/679 (GDPR) 
573 See articles 43 – 44 – 45 and 46 of L.D. 18 May 2018, n. 51. 
574 The legal proceedings against the parent company were filed in Italy on  the  basis  of the Brussels  I  Recast Regulation. 
Since Eni has its statutory seat in Italy, the claimants sustained that Italian courts have  jurisdiction  to  hear  the  claims.  
However,  the  scope  of  application  of  the  Brussels  I  Regulation is limited to EU domiciled defendants, therefore 
excluding the Nigerian subsidiary as its statutory  seat  is  in  Nigeria.  The  claimants  invoked  Italian  law on connected 
lawsuits  as  a  basis  for  adding  the Nigerian subsidiary as a co-defendant. The  defendants  contested  the  jurisdiction  of  
the  Italian  courts  and  contended  that  the proceedings  against  the  parent  company  were  instrumentally  filed  solely  
to  bring  the  Nigerian  subsidiary  under  Italian  jurisdiction,  thereby  constituting  an  abuse  of  procedural  law. Court 
has not taken position on the point yet and the case is still pending. 

   See from page 56, Access to legal remedies for victims of corporate human rights abuses in third countries, European 

parliament, Policy Department for External Relations, Dr. Claire BRIGHT, 
http://www.europarl.europa.eu/RegData/etudes/STUD/2019/603475/EXPO_STU(2019)603475_EN.pdf 

162 

 
 
                                                        
part  in  foreign  calls  for  tenders)  the  following  scenarios  are  possible  under  Italian 
criminal law and Decree 231: 

Italian corporation operating abroad: 

1. Crime committed partly in Italy, partly abroad: the corporation can be called upon to 
appear before an Italian court if the crime was committed in Italy, in its interest or to 
its benefit, according to the territoriality principle; 

2. Crime committed entirely abroad: a corporation headquartered in Italy can be called 
upon to appear before an Italian court if the crime was committed in its interest or to 
its benefit, under the conditions indicated in art 4 Decree 231/2001575. 

3. Crime committed entirely abroad within a foreign corporation controlled by a parent 
company located in Italy: the company located in Italy will be held responsible (under 
the  conditions  outlined  in  point  2)  only  if  it  can  be  proven  that  an  employee  or 
representative of the corporation took part in the offence committed abroad576. 

4.  Transnational  organised  crime  covered  by  the  United  Nations  Convention  against 
Transnational Organized Crime adopted by the UN General Assembly on 15 November 
2000 (the so-called Palermo Convention or TOC): corporations can be prosecuted and 
sanctioned in Italy regardless of the conditions of Art. 4, L.D. no. 231/2001. 

In any case, the Italian Supreme Court clarified that simply indirect advantage (such as 
the economic gain deriving from the corporate links and the incremental profitability of 
the  subsidiary,  so  called  “interesse  di  gruppo”)  is  not  enough.  On  the  contrary,  a 
direct, concrete economic advantage is necessary577. 

With reference to scenario 1) the case  of a  crime committed partly in Italy and partly 
abroad, it is relevant to mention the OPL 245 case against Eni and Shell, now pending. 
The trial began hearing evidence in Milan in September 2018. Eni’s current CEO Claudio 
Descalzi,  and  former  Royal  Dutch  Shell  Executive  Director  for  Upstream,  Malcolm 
Brinded CBE are currently under trial before the Tribunal of Milan for the international 
corruption allegedly committed in Nigeria, paying briberies amounting to 1.3 billion US 
dollars for the 2011 acquisition of a Nigerian oil block known as OPL 245578. 

f.  How  companies  in  Member  State  can  be  held  liable  for  the  impacts  of 
their  supply  chain,  including  non-EU  based  suppliers,  and  including 
suppliers beyond the first tier of the supply chain579 

As  a  general  rule  tort  law  establishes  the  rights  of  victims  of  torts  to  obtain 
compensation  for  damage  if  they  can  demonstrate  a  causal  link  between  the  corporate 
activity and the damages they have suffered. Article 2043 of the Civil Code provides that 
any  intentional  or  negligent  act  that  causes  an  unjustified  injury  to  another  obliges  the 
person who has committed the act to pay damages. 

Another  interesting  issue  from  the  tort  law  perspective  concerns  the  legal  value  and 
enforceability  of  corporate  codes  of  conduct.  In  fact,  pursuant  to  the  Italian  Consumer 
Code, the lack of compliance by a professional with the standards set forth pursuant to 
his/her code of conduct shall be considered as misleading advertising, if the commitment 
can be ascertained and referred as binding, in accordance with the professional usages. 

575 i. if, based on art 7, 8, 9, 10 there is jurisdiction with regard to the perpetrator (physical person); 

ii. if the corporation is headquartered in Italy; 
iii. if the State in which the crime was committed has not already 
prosecuted the corporation; 
iv. for certain types of crime, if there is a request from the Minister of 
Justice. 

576 See page 264, the Conclusions of the article ITALIAN REPORT ON PROSECUTING CORPORATIONS FOR VIOLATIONS OF 

INTERNATIONAL CRIMINAL LAW, Author Professor Gabriella Di Paolo, Sabine Gless. 

577 See Cass. Pen., sez. II, 27/09/2016, n. 52316. 
578 For public available documents and the point of view of NGOs (The Corner House, Global Witness, Heda, Re:Common) See 

website https://shellandenitrial.org/intro/ 

579 First tier suppliers are understood as those suppliers with which the company does not have a direct contractual 

relationship. 

163 

 
 
                                                        
If  this  condition  is  met,  the  consumers  can  claim  the  lack  of  respect  of  the  code  of 
conduct  before  the  Autorità  garante  della  concorrenza  e  del  mercato  or  file  a  collective 
civil  action  (class  action)  before  the  competent  tribunal 580 .  This  can  happen  if  the 
company define its product as ethical or complying with human rights protection,  but at 
the  same  time  human  rights  violations  occur  down  the  supply  chain  even  beyond  the 
first tier. 

In  case  the  violation  of  the  supplier  also  involves  employees  of  the  Italian  company 
(case of aiding), L.D. no. 231/2001 can be applied under the conditions specified above 
in point f). 

g.  Whether  any  other  area  of  law  requires  due  diligence  for  cross-border 
corporate  impacts,  such  as  cross-border  pollution  or  environmental 
hazards. 

In  the  case  of  VIA  and  VAS  that  may  have  significant  impacts  on  the  territory  of 
another  State581 or  at  the  request  of  another  state,  the  Ministry  of  the  Environment 
together with the Ministry of Foreign Affairs notifies the project and the documentation 
and  sets  a  deadline  for  the  expression  of  interest  in  participating  in  the  procedure582 
that  is  published  on  the  website  of  the  competent  authority.  In  the  event  of  interest, 
the  competent  authority  and  the  public  participate  in  the  procedure  with  methods 
agreed between the states concerned. 

h.  Whether due diligence over own operations or the supply chain is a legal 
requirement in other areas of law regulating business, including whether 
due diligence is available as a defence 

Concerning L.D. no. 231/2001 due diligence is available for the company as a defence 
in case of a crime committed by its representatives or employees. In particular: 

a)  if  the  offence  is  committed  by  a  representative  or  high-level  employee  there’s  a 
presumption  of  corporate  liability,  unless  the  corporation  can  demonstrate  that  it 
adopted and effectively implemented, prior to commission of the crime, “organisational 
and  management  models”  which  are  capable  of  preventing  offences  of  the  type 
occurred; 

b) if the offence is committed by an low-level employee there is no presumption of guilt 
of  the  corporation  since  the  Decree  excludes  liability  in  case  of  adoption  of  a  suitable 
organisational model. 

With  regards  to  groups  of  companies  and  subsidiaries,  the  model  of  the  parent 
company  should  take  into  account  processes  and  activities  that  also  involves  its 
subsidiaries (for example in case of outsourcing of specific activities). 

i.  The  burden  of  proof  to  hold  a  business  or  its  board/director  liable  for 
human rights or other impacts, including which regulations are the most 
efficient for victims in this respect 

In  general,  in  the  Italian  Civil  Procedure  the  burden  of  proof  is  governed  by  the 
principles set out in art. 2697 of the Civil Code, which provides that: “Those intending to 
enforce a right before a court shall provide evidence of the facts supporting the claim. A 
party challenging the validity of those facts, or claiming that the right has changed or is 
exhausted, shall provide evidence of the facts supporting such objection.” 
Therefore, the applicant is required to prove the facts on which the claim is based. The 
defendant, on the other hand, must provide evidence of facts precluding liability. 

580 See pag. 171 CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE ACCOUNTABILITY: THE ITALIAN PRIVATE 

INTERNATIONAL LAW PERSPECTIVE, Author Professor Angelica Bonfanti. 

581 See The Convention on Environmental Impact Assessment in a Transboundary Context (informally called the Espoo 

Convention) is a United Nations Economic Commission for Europe (UNECE) convention signed in Espoo, Finland, in 1991 that 
entered into force in 1997. 

582 See D.Lgs. 2006/152 Art. 32 on cross-border consultations. 

164 

 
 
                                                        
However,  if  the  applicant  is  unable  to  fulfil  the  burden  of  proof,  the  application  is 
dismissed,  irrespective  of  whether  the  defendant  submits  argument  and  supporting 
evidence. 
The burden of proof on the applicant is mitigated in the case of "presumptions"583. 
With  regard  to  causation  of  the  damage  from  a  certain  event,  there  is  no  statutory 
definition  of  ‘causal  link’.  Therefore,  Italian  case  law  has  developed  and  consistently 
applies the ‘more probable than not’ standard584, whereby causation is established if it is 
more  probable  than  not  that  the  damage  has  been  caused  by  the  alleged  event  rather 
than by any alternative events585. 

Directors are liable for any damage caused through a deliberate act of malicious intent or 
gross negligence. However, directors and auditors can only be held liable if the violation 
of a legal or contractual obligation, as well as the cause of damages can be proven. The 
damages  claimed  have  to  be  allocated  directly  to  a  specific  misconduct  of  a  single 
director.  In  this  context,  demonstration  of  a  causal  link  between  the  violation  of  an 
obligation and the damage caused is crucial. In the context of tort law, third parties may 
be  able  to  initiate  proceedings  based  upon  the  director’s  failure  to  exercise  his  or  her 
obligations toward the company. 

With  regard  to  the  auditors’  liability,  it  is  further  required  to  demonstrate  that  the 
auditors exercised insufficient supervision and that the damage could have been avoided 
had the auditors properly performed their supervisory duties586. 

The  Italian  Criminal  Procedure  is  an  adversarial  system  and  is  governed  by  the 
presumption of innocence. The burden of proof falls on the Public Prosecutor, who must 
prove  the  guilt  of  an  accused  person.  The  standard  of  proof  required  is  "beyond  a 
reasonable  doubt".  Unless  this  standard  is  met  the  defendant  must  be  acquitted.  The 
court must consider and evaluate any doubt a reasonable person could have. 
In  event-related  offences,  the  causal  link  has  to  be  proved  on  the  basis  of  universal 
scientific laws or statistical laws with probabilistic coefficient close to certainty587. 

With  regard  to  L.D.  no.  231/2001,  see  Section  II  part  3,  a),  in  respect  to  the 
presumptions  in  case  of  adoption  or  failure  to  adopt  the  organisational  models.  In  any 
case, it’s necessary to consider that the commission of a crime is the first condition to be 
met in order to make a corporation liable under L.D. no. 231/2001. Accordingly, Criminal 
Law also applies in this regard. 

Legislation  on  health  and  safety  for  workers  could  be  considered  the  most  efficient  for 
victims in order to obtain compensation in case of an accident at work, considering that 
art.  2087  of  the  civil  code  requires  the  employer  to  adopt  all  the  measures  that  - 
considering  the  specific  characteristics  of  the  working  activity  -  are  necessary  to  avoid 
damage to the physical and psychological integrity of the worker. Failing this, the worker 
is entitled to compensation. 

583 Presumptions are divided into: 

legal presumptions, those established by law, which may be rebuttable (iuris tantum), meaning that they may be overthrown 
if evidence is produced to the contrary, or irrebuttable (iuris et de iure), meaning that they cannot be overthrown by seeking 
to produce contrary evidence in court; 
simple presumptions, which the court must assess in its discretion, accepting only serious, precise and consistent 
presumptions; simple presumptions are not admitted in relation to facts in respect of which the law does not allow witness 
evidence (Section 2729 of the Civil Code); 
well‑known facts (fatti notori), i.e. facts which are generally known at the time and place of the ruling, so that they are not 
open to doubt (Section 115 of the Code of Civil Procedure); 
uncontested or admitted facts, i.e. facts put forward by both parties or admitted – even tacitly – by the party that might 
have an interest in challenging them (Section 115(1) of the Code of Civil Procedure). 

584 It should not be understood in a statistical sense, but in a logical sense according to Case-Law. 
585 See Cass. SU, 11 gennaio 2008, n. 581 
586 See Directors’ and Officers’ liability in Italy, pg legal, http://www.pglegal.it/attachment.ashx?uid=0371926c-c57c-463b-

8c12-72451acdc1e3 

587 See Cass. SU, 12 July 2002, Franzese. 

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IV. REGULATORY FRAMEWORK 

10. Overall Review of Regulatory Framework 

a.  To  what  extent  the  regulations  are  effective  in  terms  of  a)  providing 
individuals whose rights are affected access remedy and b) adherence by 
Member States to their fundamental human rights obligations 

In  principle  Italian  regulations  are  in  line  with  the  duty  of  the  State  to  protect  victims 
against  human  rights  abuses  by  third  parties,  including  business  enterprises  within 
Italian territory. For violations occurring in the supply chain outside Italy, there is much 
room for improvement. 

Generally  speaking,  in  terms  of  effectiveness  in  providing  access  to  remedy  to  victims, 
there  are  important  critical  issues  concerning  particular  procedural  hurdles  in  the  civil 
litigation system and the well-known problem of the excessive length of criminal and civil 
proceedings.588 

In particular, Italy has been criticized for its failure to address the serious environmental 
impacts of industrial activities within Italian territory and the European Court of Human 
Rights found violations of Art. 8 of the ECHR in relation to environmental pollution589. 

In the recent case concerning the pollution at ILVA’s Taranto plant, the European Court 
of Human Rights found that Italy had violated Articles 8 and 13 of the ECHR. The Court  
concluded  that  the  entire  population  is  living  in  an  area  at  risk  and  that  the  applicants 
had  not  had  available  an  effective  remedy  enabling  them  to  raise  with  the  national 
authorities  their  complaints  concerning  the  fact  that  it  was  impossible  to  obtain 
measures to secure decontamination of the relevant areas590. 

b.  What are the main obstacles and difficulties 

Victims  of  human  rights  violations  can  hold  a  Member  State  parent  company  or  its 
subsidiary  liable  under  tort  law  if  they  can  demonstrate  the  causal  link  between  the 
corporate activity and the damages suffered by them. This kind of law suits face several 
problems concerning limited liability within corporate groups (i.e. corporate veil), limited 
access  to  evidence,  difficulty  to  fulfil  the  burden  of  proof,  financial  and  procedural 
burdens.  Jurisdiction  over  subsidiaries  located  outside  Italy  and  applicable  law  are  also 
an  issue  in  the  context  of  transnational  litigation.  These  obstacles  as  well  as  possible 
solutions are well described in the legal Opinion of the FRA Improving access to remedy 
in the area of business and human rights at the EU level591. 

Apart from the excessive length of proceedings in the context of Italian Civil Proceedings 
victims  may  find  particularly  difficult  to  fulfil  their  burden  of  proof.  In  particular,  the 
capability  of  victims  to  access  evidence  is  crucial  to  support  their  claims.  Such 
information  is,  however,  rarely  publicly  available  and  in  most  situations,  it  is  in  the 
possession of the defendant. Limited rules of discovery or disclosure of information have 
a  direct  impact  on  admissibility  and  reliability  of  evidence 592 ,  thus  making  it  more 
difficult for victims to obtain adequate evidence593. 

588 For more on the excessive length of proceedings, see European Court of Human Rights, Press Country Profile: Italy (last 

updated March 2019), pp. 2 & 9, at https://www.echr.coe.int/Documents/CP_Italy_ENG.pdf.  

589 See Di Sarno and Others v. Italy 10.01.2012 ECHR, or Guerra and Ors. v. Italy or Application No. 14967/89; (1998) ECHR  
590 Cordella and Others v. Italy (applications nos. 54414/13 and 54264/15) ECHR (2019)  
591 See https://fra.europa.eu/en/opinion/2017/business-human-rights 
592 A victim cannot testify in its own proceeding and there is no cross examination in civil law proceedings. 
593 In particular, the order of exhibition of evidence provided by Art. 210 of the code of civil procedure (c.p.c.), and especially 
the strict way in which it has been interpreted by the Case Law of the Corte di Cassazione, makes this provision inadequate 
in the context of transnational litigation (as well as national). In fact, such order of exhibition of evidence cannot obviate to 
the burden of proof on the claimant, it can concern only a specific existent document that must be specifically indicated by 
the claimant, and it is subject to the discretionary power of the judge. Moreover, eventual costs should be anticipated by the 
claimant according to Art. 210 comma 3 c.p.c. 

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In case of human rights and environmental violations that constitute one of the offences 
listed in L.D. no. 231/2001, victims could lodge a criminal complaint against the author 
of  the  crime  as  well  as  against  the  involved  corporations.  The  public prosecutor  carries 
out  investigations  and  has  the  power  to  access  evidence  according  to  Criminal  Law 
Procedure.  Extraterritorial  violations  might  be  prosecuted  in  Italy  under  the  condition 
already  specified  above  also  basing  on  the  relation  between  parent  company  and 
subsidiary594. 

The main obstacles with regard to L.D. no. 231/2001 are: 

a)  lack  of  an  express  provision  for  victims’  right  to  bring  a  civil  action  for  damages 
(“costituzione  di  parte  civile”)  directly  against  the  corporation.  Within  the  criminal 
procedure victims can claim compensation against the physical person who is the author 
of the crime under the conditions set out in the code of criminal procedure (Art. 74 and 
following).  Admissibility  of  a  civil  action  (“costituzione  di  parte  civile”)  against  the 
corporation  for  damages  caused  directly  by  the  corporate  administrative  offence  is 
controversial 595. 

b)  the  burden  of  proof  typical  for  Criminal  Law,  since  the  commission  of  a  crime  is  the 
first condition to be met in order to make a corporation liable under L.D. no. 231/2001. 
Indeed,  it  might  be  challenging  for  the  prosecution  to  satisfy  the  burden  of  proof  with 
regard to crimes committed abroad or to prove aiding and abetting for crimes committed 
within a subsidiary or within the supply chain. In addition, with regard to culpable crimes 
it might be challenging to prove the causal link. 

c.  Which  regulatory  model 

is  most  effective 

in  achieving  corporate 

implementation of adequate due diligence 

Legislative  Decree  no.  231/2001  represents  the  most  effective  model  in  achieving 
corporate implementation of adequate due diligence, even if the adoption of compliance 
programs  currently  remains  a  voluntary  choice  of  the  company 596 .  In  order  to  be 
adequate and prevent corporate liability under L.D. no. 231/2001, compliance programs 
already  require  companies  to  undergo  a  due  diligence  process  to  identify  and  prevent 
potential  risks  of  specific  crimes,  among  which  environmental  crimes  and  some  serious 
human rights violations (i.e. forced labour, human trafficking, etc.). 

d.  Which regulatory model is most effective in providing victims with access 

to remedy 

Legislation  on  health  and  safety  for  workers  could  be  considered  the  most  efficient  for 
victims in order to obtain compensation in case of an accident at work, considering that 
art.  2087  of  the  Civil  Code  requires  the  employer  to  adopt  all  the  measures  that  - 
considering  the  specific  characteristics  of  the  working  activity  -  are  necessary  to  avoid 
damage to the physical and psychological integrity of the worker. Failing this, the worker 
is entitled to compensation. 

In  labour  disputes,  even  in  the  case  of  an  accident  at  work,  the  judge  has  ample 
instructing powers that facilitate access to justice for victims. In fact, arts. 420 and 421 
of Code of Civil Procedure allow the Judge at any time on his own initiative to order the 
admission of any type of evidence, even beyond the limits set by the Civil Code, and also 
provide for the free questioning of the parties during the hearing on the case. 

See The UNGPs Third Pillar in the Italian Action Plan: an assessment of the existing NAPs and of the barriers to the Italian 

judicial system by Giacomo Maria Cremonesi and Marta Bordignon 
http://media.wix.com/ugd/6c779a_23632619d7fd456aaaa4434551f1ef54.pdf 

594 See before Section II, point 2, d) and point 3, d) and Section III, point 1, f) of this report. 
595 See before Section II, point 6, c) of this report. 
596 An amendment proposal to this regard has been submitted to the Parliament in September 2018 and is now pending: see 

DDL 726/2018 at http://www.senato.it/service/PDF/PDFServer/DF/339575.pdf   

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e.  An overall  assessment of the main strengths  and weaknesses (risks  and 
opportunities)  of  the  examined  legislative  regimes,  providing  a  detailed 
comparative analysis, including whether they are effective to address the 
most  important  potential  harms  and  negative  impact  of  companies  in 
their operation and in their supply chain 

The model of organization, management and control provided by L.D. 231 2001 has the 
potential to provide companies with the opportunity to manage in an integrated way at 
least the most important risks of the other legislative provisions indicated in this report. 

In  particular,  the  supervisory  body  of  L.D.  no.  231/2001  (“organismo  di  vigilanza”  or 
“ODV”)  exercises  a  second  level  control  on  health  and  safety  that  does  not  coincide 
exactly with the “control system” pursuant to Legislative Decree n. 81/2008, but verifies 
its  suitability  and  implementation  limited  to  its  own  functions  and  within  the  scope 
defined by the same, with the consequent need for two-way information flows. 

In addition, the provisions contained in Legislative Decree 231/2001 on the prevention of 
environmental  crimes  may 
lead  more  companies  to  adopt  an  environmental 
management system such as ISO 14001 or EMAS597 to be compliant. 

Moreover,  the  disclosure  on  risks,  protocols  and  procedures  on  the  subject  of  231 
compliance,  which  until  now  was  the  exclusive  prerogative  of  the  Supervisory  Body 
(ODV)  which  conveyed  it  to  the  administrative  body  of  the  company,  can  now  be 
incorporated  into  the  consolidated  management  report  according  to  the  Legislative 
Decree number 254 of the 30 December 2016 adopting Directive 2014/95 / EU on non-
financial reporting598. 

Despite these advantages of coordination of other legislations and the fact that corporate 
liability under L.D. no. 231/2001 is substantially punitive599, the fact that the liability of 
the  entity  is  connected  solely  to  the  commission  of  criminal  offences  is  a  major 
limitation. 

Moreover, the analysis of relevant case law and implementation practices over the years 
shows  some  enforcement  deficiencies  that  should  be  redressed  in  order  to  extend  the 
scope  of  L.D.  no.  231/2001.  In  particular,  difficulties  arise  with  regard  to  transnational 
cases and violations in the supply chain committed outside the Italian territory as well as 
with regard to corporate groups. 

11. Review of Proposals for Regulation 

a.  How  would  new  or  planned  legislative  regimes  have  changed/would 

change this situation 

Access to evidence, especially in the context of civil litigation, remains a critical issue in 
the  Italian system  and  the recommendation from the Fundamental Rights Agency in its 
Legal Opinion “Improving access to remedy in the area of business and human rights at 

597 See Il Sistema di Gestione ISO 14001 ed EMAS nella prevenzione dei reati ambientali ex d.lgs. n. 231/2001, Maggio 2013 

https://www.assolombarda.it/servizi/ambiente/monografie/dispensa-il-sistema-di-gestione-iso-14001-ed-emas-nella-
prevenzione-dei-reati-ambientali-ex-d.lgs.-n.-231-2001-maggio-2013 

598 In other words, previously the ODV reported confidentially to the Board of Directors on 231 compliance, but now the 

company is expected to include certain information in its consolidated management report thanks to the implementation of 
the EU Directive on non-financial reporting. 

599 This is in accordance with 2016 UN guidance requirement to assess corporate criminal liability for severe impact on human 

rights. See FRA Opinion 1/2017, p. 41, https://fra.europa.eu/sites/default/files/fra_uploads/fra-2017-opinion-01-2017-
business-human-rights_en.pdf. 

168 

 
 
                                                        
the EU level” 600 should be enforced by  EU  or the  Italian legislator in order to make the 
legal provisions examined above in section II of this report effective for victims. 

To this regard, it’s worth mentioning a new law, that the Parliament recently adopted601, 
extending class action against companies. Class action is now available to all those who 
make  claims  for  damages  in  relation  to  the  infringement  of  "homogeneous  individual 
rights”602. 

The law includes a disclosure regime603 that can facilitate access to evidence for victims 
of  corporate  abuses.  These  provisions  should  be  extended  in  all  cases  of  litigation 
against corporations also outside the context of class actions. 

Within the Italian NAP on Business and Human Rights, adopted in December 2016, there 
is the commitment to “conduct a comprehensive study of the Law 231/2001 in order to 
evaluate potential extension of the scope and application of the administrative liability of 
legal entities” 604 in order to assess the scope of its implications in relation to the United 
Nations Guiding Principles on Business and Human Rights (UNGPs). 

A draft proposal introducing mandatory organisational, management and control models 
under  L.D.  no.  231/2001  for  all  limited  companies  with  a  certain  annual  profit  is 
currently pending in the Italian Parliament605. 

Proper amendments should be introduced to L.D. no. 231/2001, in order to redress the 
enforcement deficiencies observed above and extend its scope in relation  to the UNGPs, 
such as: 

-  introduction  of  a  legal  requirement  to  publish  compliance  programs,  or  at  least  those 
specific protocols adopted by the company to mitigate the risk of offences that are also 
human rights and environmental violations; 

-  introduction  of  explicit  reference  to  multinational  corporations  and  clarification  of  the 
legal  requirements  to  be  met  in  order  to  hold  parent  companies  or  their  subsidiaries 
liable  in  case  of  crimes  and/or  serious  human  rights  abuses  and  environmental 
violations caused within the supply chain; 

- explicit regulation of victims’ rights, particularly with regard to the right to bring a civil 
action for damages directly caused by the corporation within the criminal/231 process. 

600 In its Opinion, Fundamental Rights Agency of the European Union (FRA) recommended that: The EU should assess how, 

what and when evidence can be accessed from business in cases of business-related human rights abuse in the EU Member 
States. The EU should also facilitate the development of clear minimum standards on how, what and when business should 
share information with plaintiffs. The EU could also encourage the Member States to ensure a rebuttable presumption 
requiring a certain level of evidence. In this case, the burden of proof would be shifted from a victim to a company to prove 
that a company did not have control over a business entity involved in the human rights abuse. See 
https://fra.europa.eu/en/opinion/2017/business-human-rights 

601 Disegno di legge n. 844 recante "Disposizioni in materia di azione di classe"  approvato in via definitiva il 3 aprile 2019 
https://www.altalex.com/documents/news/2019/04/03/azione-di-classe. The Italian National Action Plan (see below) 
provided for the introduction of a general class action against corporation. The main reason is that the applications 
introduced with the “old” class action dedicated only to consumer rights were very often declared inadmissible. 

602 Concept to be further clarified by the case-law. 
603 Art. 840 - quinques Upon a motivated request of the paintiff, containing indicating the facts and evidence reasonably 

expected to be available from the other party, with sufficient basis to support the plausibility of the request, the judge can 
order the defendant to show relevant evidence that is available to him. 
604 Italian National Action Plan on Business and Human Rights 2016-2021:  

https://cidu.esteri.it/ComitatoDirittiUmani/resource/doc/2018/11/all_2_-_nap_bhr_eng_2018_def_.pdf . This review has 
been commissioned and is due to report in October 2019. 

605 To this regard see the current proposal in DDL 726/2018 http://www.senato.it/service/PDF/PDFServer/DF/339575.pdf . The 
draft proposal provides the following reasons: “spreading the culture of legality, combating crime, preventing corruption and 
reducing the huge costs they entail for the entire economic system and, in general, in terms of increasing the 
competitiveness and efficiency of institutions and national companies”. 

169 

 
 
 
                                                        
THE NETHERLANDS COUNTRY REPORT 

Prof.dr. L.F.H. (Liesbeth) Enneking606 

I.  OVERVIEW607 

The  Dutch  parliamentary  dossier  on  the  topic  of  socially  responsible  business  conduct 
(maatschappelijk  verantwoord  ondernemen  or  MVO),  which  literally  translates  as 
‘corporate  social  responsibility’  or  ‘CSR’)  dates  back  to  1999.608 Over  time,  the  dossier 
has  become  increasingly  focused  on  the  international  dimension  of  the  topic,  i.e.  on 
human  rights  violations  and  environmental  harm  related  to  business  activities  in  the 
global supply chains of Netherlands-based internationally operating business enterprises. 
The term that has in recent years become associated with this international dimension is 
that of international responsible business conduct (IRBC) (internationaal maatschappelijk 
verantwoord ondernemen or IMVO). 

In  November  2014,  the  Dutch  government  presented  the  results  of  a  Sector  Risk 
Analysis in which thirteen sectors of Dutch industry were identified as involving relatively 
high risks of adverse impacts on human rights and the environment.609 The government 
indicated  that  it  expected  companies  in  these  sectors  to  both  take  steps  aimed  at 
preventing  and  mitigating  the  CSR-related  risks  in  their  value  chains,  and  engage  with 
other companies and stakeholders to come to concrete agreements on the ways in which 
these risks could be dealt with in a structural manner.610 Those agreements were to  be 
laid  down,  preferably,  in  so-called  covenants:  agreements  between  the  Dutch 
government  and  one  or  more  societal  parties  aimed  at  realizing  certain  policy  aims, 
which typically take the form of a written document setting out the actions that each of 
the  parties  is  expected  to  take  in  furtherance  of  those  aims. 611 These  covenants  on 
International  Responsible  Business  Conduct  (IRBC-covenants)  were  to  be  drafted  along 
the lines set out in a 2014 report by the Dutch Social and Economic Council (SER) on the 
same topic.612 

At the time of writing (May 2019), nine IRBC-covenants are operational, with two more 
covenants  in  the  process  of  being  developed. 613  The  existing  covenants  relate  to 
garments  and  textile,  banking,  the  gold  sector,  sustainable  forestry,  the  food  products 
sector,  insurance,  pension  funds,  the  metals  sector,  and  natural  stone.  The  parties  to 
these  covenants  voluntarily  commit  themselves  to  making  certain  efforts  and/or 
implementing  certain  measures  (notably  due  diligence  procedures)  with  the  aim  of 
enhancing  responsible  business  conduct  in  their  global  value  chains.  The  different 
covenants  differ  in  scope  somewhat,  with  some  focusing  on  human  rights  impacts  only 
(like the Banking Covenant) and others focusing on a broader palette of issues, including 

606  Liesbeth Enneking is Endowed Professor on the Legal Aspects of International Corporate Social Responsibility at Erasmus 

School of Law, Erasmus University Rotterdam, the Netherlands (enneking@law.eur.nl). This country report was completed 
on May 22 2019 and, with a few exceptions, incorporates relevant developments only up to that date. All web references 
were accurate on the date of completion.  

607  This paragraph is largely based on: L.F.H. Enneking & M.W. Scheltema, ‘The Netherlands’, in: C. Kessedjian & H. Cantú 
Rivera (eds.), Private International Law Aspects of Corporate Social Responsibility, Cham: Springer 2019 (forthcoming) 
(hereinafter: Enneking & Scheltema 2019 (forthcoming)); L.F.H. Enneking, ‘Corporate duties of care in relation to 
responsible business conduct in global value chains’, in: L.F.H. Enneking et al. (eds.), Accountability, International 
Business Operations and the Law: Providing Justice for Corporate Human Rights Violations in Global Value Chains, London: 
Routledge 2019 (forthcoming) (hereinafter: Enneking 2019 (forthcoming) I) .  

608  See Parliamentary Dossier 26485 at zoek.officielebekendmakingen.nl/dossier/26485.   
609  These include construction, chemicals, retail, energy, financial services, wholesale, wood and paper, agriculture and 

horticulture, oil and gas, garments and textile, food, electronics, and metal. See KPMG, ‘MVO Sector Risico Analyse – 
Aandachtspunten voor dialoog’, report for the Dutch Minister of Foreign Trade and Development Cooperation and the Dutch 
Minister of Economic Affairs (September 2014), available at rijksoverheid.nl/documenten/rapporten/2014/09/01/mvo-
sector-risico-analyse.  

610  See Kamerstukken II, 2013/14, 26 485, no. 197.  
611  See, for a definition of and more information on covenants by the Dutch Ministry of Justice and Security: 

kcwj.nl/node/13707/convenant?cookie=no.1545150904990-2057775079.  

612  SER, ‘IMVO-Convenanten’, formal notice to the Dutch Minister of Foreign Trade and Development Cooperation and the 
Dutch Minister of Economic Affairs, nr. 4 (April 2014), available at ser.nl/-/media/ser/downloads/adviezen/2014/imvo-
convenanten.pdf.  

613  See, for an overview and more information: https://www.imvoconvenanten.nl/agreements?sc_lang=en.  

170 

 
 
 
 
                                                        
not only human rights impacts but also for instance impacts on the environment, health 
& safety, living wage and animal welfare (like the Garments and Textile Covenant). The 
covenants that are currently under development relate to floriculture and the agricultural 
sector.  A  covenant  relating  to  vegetable  proteins  was  terminated  in  April  2019,  two 
years  after  its  conclusion,  upon  joint  agreement  by  the  adhering  parties  following  the 
liquidation  of  the  branch  organization  that  represented  most  of  the  sector  of  industry 
involved.614 

A  number  of  the  existing  covenants  (including  garments  and  textile,  banking,  gold  and 
insurance)  are  administered  by  the  SER  and  share  the  same  basic  features.  Those 
include:  (i)  a  due  diligence  requirement  that  builds  on  the  UNGPs  and  the  OECD 
Guidelines, (ii) access to remedy if a company causes or contributes to human rights (or 
environmental)  violations  and  (iii)  a  reporting  requirement  on  due  diligence  (policies) 
and  (where  relevant)  access  to  remedy.  Each  of  these  covenants  has  a  Steering 
Committee,  which  is  responsible  for  dealing  with  day-to-day  governance  issues  for  the 
implementation  of  the  agreement.615 Furthermore,  progress  by  the  parties  involved  in 
these  covenants  as  regards  the  aims  set  out  in  them  is  monitored  by  independent 
Monitoring  Committees,  which  submit  yearly  reports  to  the  respective  Steering 
Committees on the progress made by the parties in carrying out the activities as agreed 
upon; a summary of these reports may be made public.616 The remaining covenants vary 
quite widely in set-up and content. 

Since membership to most covenants is voluntary, members may unilaterally decide, in 
principle,  to  terminate  their  membership  to  the  covenant,  following  which  their 
commitments  to  the  agreement  will  cease  to  apply. 617  There  are  exceptions  to  this 
general  principle,  like  the  Insurance  Covenant,  which  has  been  concluded  between  the 
two  branch  organizations  in  the  Dutch  insurance  sector,  the  Dutch  government  and  a 
number of NGOs, and is thus automatically binding on all of the members of the branch 
organizations  involved.618 At  the  same  time,  most  of  the  existing  covenants  include  a 
provision stating that the agreement is not legally enforceable and that disputes between 
the parties about the implementation of the agreement shall be dealt with in accordance 
with the agreement itself.619 In most cases, this means that they are resolved bilaterally 
or, failing that, by the agreement’s Steering Committee, which may as a last resort expel 
the  non-adhering  party.620 An  exception  is  the  Garments  and  Textile  Covenant,  which 
includes  an  independent  mechanism  for  operational  complaints  and  disputes  that  may 
deal  not  only  with  disputes  between  the  covenant’s  Steering  Committee  and  adhering 
companies  over  (the  quality  of)  their  action  plans,  but  also  with  complaints  by 
stakeholders  who  claim  to  have  suffered  injury,  loss  or  damage  caused  by  adhering 
companies in relation to the topics set out in the covenant.621 

The Dutch government’s focus on concluding covenants – a regulatory instrument that is 
in essence consensus-driven – in its policy with respect to responsible business conduct 
in global value chains has so far largely put off debate on the possibility of more binding 
regulation in this context. In this sense, developments in the Netherlands are moving in 
a  somewhat  different  direction  than  those  in  countries  like  the  UK,  France  and 
Switzerland,  where  over  the  past  few  years  specific  legislation  on  certain  key  issues  in 

614  See, for the notice of termination, 

mvonederland.nl/system/files/media/190419%20Kennisgeving%20beeindiging%20IMVO%20Convenant%20Plantaardige%
20Eiwitten.pdf. 

615  See, for instance, section 13.1 of the Dutch Banking Sector Agreement on international responsible business conduct 
regarding human rights, available at ser.nl/-/media/ser/downloads/overige-publicaties/2016/dutch-banking-sector-
agreement.pdf. 
616  Ibid., section 13.2.  
617  Ibid., section 14(5)   
618  See consideration 8 in the Preamble of Agreement on Responsible Investment in the Insurance Sector (July 2018), 

available at imvoconvenanten.nl/~/media/files/imvo/verzekeringssector/agreement-insurance-sector.ashx 

619  See, for instance, section 14(11) of the Dutch Banking Sector Agreement on international responsible business conduct 
regarding human rights, available at ser.nl/-/media/ser/downloads/overige-publicaties/2016/dutch-banking-sector-
agreement.pdf. 
620  Ibid., section 13.3.  
621  See section 1.3 of the Agreement on Sustainable Garment and Textile, available at ser.nl/-

/media/ser/downloads/engels/2016/agreement-sustainable-garment-textile.pdf.  

171 

 
 
                                                        
the IRBC-context has either been realized or is being discussed. The Dutch government’s 
IRBC-policy,  including  the  covenants,  is  currently  under  evaluation;  the  results  of  this 
evaluation  will  likely  become  public  in  the  summer  of  2019.  According  to  the  Dutch 
government’s  2017  Coalition  Agreement,  2019  will  also  be  the  year  in  which  it  will 
consider  whether  more  binding  measures  should  be  introduced  and,  if  so,  in  what 
form.622 A development that runs counter to the Dutch government’s cautious approach 
to adopting binding legislation in the IRBC-context took place in May 2019, as a majority 
in the Dutch Senate voted in favour of a Private Member’s bill seeking to introduce a due 
diligence  obligation with respect to the use  of child labour in the supply chain. The bill, 
which  had  been  adopted  by  the  Dutch  House  of  Representatives  in  February  2017  but 
faced strong(er) opposition in the Dutch Senate, will enter into force at a date that is yet 
to be determined, but no sooner than January 1st, 2020.623 

Apart  from  these  legislative  and  policy  developments,  Dutch  courts  have  been 
confronted with a variety of cases in which Dutch companies (sometimes along with their 
foreign  subsidiaries)  have  been  held  to  account  for  irresponsible  business  conduct  in 
global value chains using existing legal bases in civil law or criminal law.624 

One  of  the  most  high-profile  civil  liability  cases  with  respect  to  IRBC-issues  is  the  one 
that  has  been  brought  by  a  number  of  Nigerian  farmers  and  the  Dutch  NGO 
Milieudefensie  against  Royal  Dutch  Shell  (RDS)  and  its  Nigerian  subsidiary  Shell 
Petroleum  Development  Company  of  Nigeria  (SPDC)  in  relation  to  various  oil  spill 
incidents  from  SPDC-operated  pipelines  in  the  Niger  Delta. 625  Others  include  claims 
brought  by  citizens  from  the  Ivory  Coast  against  the  Anglo-Dutch  petroleum  trading 
company  Trafigura  for  its  involvement  in  the  Probo  Koala  waste  dumping-incident  in 
Abidjan  in  2006626,  and  claims  brought  by  widows  of  Nigerian  environmental  activists 
against  RDS  and  SPDC  for  their  alleged  involvement  in  human  rights  violations 
perpetrated  in  Nigeria  in  the  mid-1990s627.  Cases  in  the  field  of  criminal  law  include, 
among others, the criminal prosecution of Trafigura, one of its directors and the captain 
of the Probo Koala for their involvement in a number of crimes that took place on Dutch 
soil  prior  to  the  aforementioned  waste-dumping  incident  (including  the  illegal  transport 
of  the  waste  out  of  the  EU).628 More  recently,  a  criminal  complaint  was  filed  against  a 
Dutch  ship  building  company  that  has  allegedly  profited  from  the  exploitation  of  North 
Korean workers at the Polish shipyards where it had its ships built.629 

II. GENERAL REGULATORY FRAMEWORK WITH REGARD TO HUMAN RIGHTS DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

The following regulatory instruments will be discussed in more detail below: 

A) The Dutch Child Labour Due Diligence Act 

B) IRBC Agreement on Sustainable Garment and Textile 

622  Regeerakkoord ‘Vertrouwen in de toekomst’ (10 October 2017), available at 

kabinetsformatie2017.nl/documenten/publicaties/2017/10/10/regeerakkoord-vertrouwen-in-de-toekomst, p. 49.  

623  See for the latest developments: Eerste Kamer der Staten Generaal, Initiatiefvoorstel-Kuiken Wet zorgplicht kinderarbeid. 

Available at eerstekamer.nl/wetsvoorstel/34506_initiatiefvoorstel_kuiken.  

624  See, for an overview: L.F.H. Enneking et al., Zorgplichten van Nederlandse ondernemingen inzake internationaal 

maatschappelijk verantwoord ondernemen, report for the Dutch Ministries of Foreign Affairs and Security & Justice, Den 
Haag: Boomjuridisch 2016 (hereinafter: Enneking et al. 2016), p. 89-102.  

625  See, in more detail: L.F.H. Enneking, ‘Transnational Human Rights and Environmental Litigation: A Study of Case Law 

Relating to Shell in Nigeria’, in: I. Feichtner, M. Krajewski & R. Roesch (eds.), Human Rights in the Extractive Industries – 
Transparency, Participation, Resistance, Cham: Springer 2019 (forthcoming) (hereinafter: Enneking 2019 (forthcoming) 
II).  

626  See, in more detail: Enneking et al. 2016, p. 93-99.  
627  See, in more detail: Enneking 2019 (forthcoming) I.  
628  See, in more detail: Enneking et al. 2016, p. 93-99. 
629  See, for example: N. Smith, ’North Korean worker sues Dutch shipbuilder over slave labour claims’, The Telegraph 15 
February 2019, telegraph.co.uk/news/2019/02/15/north-korean-worker-sues-dutch-shipbuilder-slave-labour-claims/. 

172 

 
 
 
 
 
                                                        
A) The Dutch Child Labour Due Diligence Act (hereinafter: CLDD Act)630 

Voorstel  van  wet  van  het  lid  Van  Laar  houdende  de  invoering  van  een  zorgplicht  ter 
voorkoming van de levering van goederen en diensten die met behulp van kinderarbeid 
tot stand zijn gekomen (Wet Zorgplicht Kinderarbeid)631 

1. 

Area of Regulatory Framework 

Legislation in relation to rights of the child and child law 

2. 

a. 

Scope 

Rationale given by the MP for the regulation (or lack of regulation) 

The CLDD bill was introduced in June 2016 as a Private Member’s bill in the Dutch House 
of Representatives, by an MP from the Dutch Labour Party. It was adopted by the Dutch 
House  of  Representatives  in  February  2017  and  by  the  Dutch  Senate  in  May  2019. 
Essentially,  the  CLDD  Act  seeks  to  introduce  a  due  diligence  obligation  for  companies 
bringing goods or services onto the Dutch market to prevent the use  of  child labour.  It 
however  connects  (or  better  perhaps:  rephrases)  this  aim  to  that  of  consumer 
protection. The original bill’s preamble stated in this respect: 

“[…] that it is desirable to prevent people in the Netherlands from purchasing goods and 
services that have been produced using child labour and that it is therefore desirable to 
provide a statutory basis for the corporate duty to take due care [zorgplicht] to prevent 
the supply of goods and services that have been produced using child labour”.632 

In the most recent version of the bill, which is the version the Dutch Senate adopted in 
May 2019, this has been (slightly) altered to: 

“[…] a statutory basis for the requirement that companies selling goods and services on 
the Dutch market take all reasonable measures to prevent the use of child labour in the 
production  of  those  goods  and  services  is  desirable  in  order  to  ensure  that  consumers 
can purchase those goods and services in good conscience”.633 

Size and type of business covered, including level of turnover, particular 
b. 
industry  sectors  and  type  of  supply  chain,  and  whether  public  procurement  is 
included 

The  CLDD  Act  pertains  to  every  company  (whether  domiciled  in  the  Netherlands  or 
abroad) that supplies goods or services to Dutch end-users. It defines end-users as ‘the 
natural or legal persons that use or use up the goods or make use of the services’. 634 It 
defines company as ‘a company in the sense of art. 5 of the Dutch Commercial Register 
Act 2007 or any  other  entity that engages in economic activities, regardless of its legal 
form and the way in which it is financed’.635 Art. 5 of the Dutch Commercial Register Act 
2007  sets  out  the  categories  of  companies  that  should  be  registered  in  the  Dutch 
Commercial Register. These include all businesses and legal entities in the Netherlands, 
such as private and public limited companies (BVs and NVs), sole traders, associations, 
foundations,  professionals,  and  owners’  associations. 636  Also  included  are  foreign 
companies that have a branch or structurally conduct business in the Netherlands.637 

630  This section is largely based on Enneking 2019 (forthcoming) I. 
631  See for the current version: Kamerstukken I, 2016/17, 34 506, A. Available at zoek.officielebekendmakingen.nl/kst-34506-

A.html. See for the original version: Kamerstukken II, 2015/16, 34 506, nr. 2. Available at 
zoek.officielebekendmakingen.nl/kst-34506-2.html. 

632  Preamble CLDD Bill (original version).  
633  Preamble CLDD Act.  
634  Id. 
635  Art. 1(b) CLDD Act. 
636  Art. 5a Dutch Commercial Register Act 2007 (Handelsregisterwet 2007). See also e-
justice.europa.eu/content_business_registers_in_member_states-106-nl-en.do. 

637  Art. 5d Dutch Commercial Register Act 2007 (Handelsregisterwet 2007). See also https://www.kvk.nl/english/registration/. 

173 

 
 
 
 
                                                        
The Act contains a number of exemptions. First of all, it is evident from the description 
of its scope that companies that do not supply goods or services to Dutch end-users are 
not  bound  by  the  obligations  set  out  in  it.  Secondly,  it  provides  that  companies  that 
merely transport the goods that are to be supplied are exempted from compliance with 
the  Act.638 Furthermore,  it  leaves  open  the  possibility  that  certain  other  categories  of 
companies  can  also  be  exempted  by  General  Administrative  Order. 639  These  other 
categories of companies may include for instance small companies and companies from 
low risk sectors. 

Extent  of  human  rights,  environmental,  climate  change,  sustainability 
c. 
and  governance  matters  covered,  and  whether  the  regulation  uses  the 
terminology of human rights (see above) 

The CDLL Act pertains to child labour specifically.  It defines child labour  along the lines 
of  ILO  Conventions  C138  (the  Minimum  Age  Convention  1973)  and  C182  (the  Worst 
Forms of Child Labour Convention 1999).640 

d. 
Jurisdictional  extent  of  business  covered,  including  whether  it  includes 
activity by subsidiaries or business relations of corporate nationals located in a 
different State and operating outside the State of the regulation 

The CLDD Act pertains to every company that supplies goods or services to Dutch end-
users  (see  also  under  2b).  As  such,  it  may  pertain  not  only  to  companies  that  are 
registered in the Netherlands, but also to companies that are registered abroad. The due 
diligence  requirement  that  is  the  focal  point  of  the  Act  requires  these  companies  to 
conduct due diligence throughout the supply chain to find out whether the production of 
the  goods  and  services  to  be  supplied  has  involved  child  labour  (see  also  under  3).  As 
such, it may pertain to the activities of any natural or legal person throughout the supply 
chain,  even  though  the  actual  obligation  (and  enforcement  thereof)  is  aimed  at  the 
company that supplies the goods or services to Dutch end-users. 

e. 

Civil, criminal and administrative scope 

A public supervisor, which will have to be appointed by General Administrative Order, 641 
is  to  monitor  and  enforce  compliance  with  the  provisions  set  out  in  the  CLDD  Act  (see 
also  under  4). 642  Additionally,  criminal  sanctions  can  be  imposed  on  (officers  of) 
companies that are repeat offenders (see also under 4).643 

3. 

a. 

Content of Regulation 

Overview and description of the required measures for business 

1) 
The CLDD Act requires  every  company (whether domiciled in the Netherlands or 
not)  that  supplies  goods  or  services  to  Dutch  end-users  to  issue  a  declaration  that  it 
conducts  due  diligence  with  a  view  to  preventing  child  labour  from  being  used  in  the 
production of those goods and services.644 

In  tandem  with  the  declaration  requirement,  the  Act  contains  an  (implicit) 
2) 
requirement 
to  conduct  due  diligence  (gepaste 
zorgvuldigheid) with a view to preventing child labour from being used in the production 
of the goods and services they supply to Dutch end-users.645 

the  companies 

involved 

for 

638  Art. 4(4) CLDD Act. 
639  Ibid., art. 6. 
640  Ibid., art. 2. 
641   Ibid., art. 1(d). 
642  Ibid., art. 3 and art. 1(b). 
643  Ibid., art. 9. 
644  Ibid., art. 4. 
645  Ibid., art. 5. 

174 

 
 
 
                                                        
Note that due to the way in which these two requirements are  set  out in the CLDD Act 
(see  below),  it  is  in  essence  an  example  of  due  diligence  legislation  rather  than  of 
transparency legislation (contrary to first appearances, perhaps). 

b. 

Key legal elements of the obligation 

1) 
The  declaration  has  to  be  submitted  with  the  aforementioned  public  supervisor, 
which  would  publish  the  declarations  in  an  online  registry  on  its  website. 646  Said 
declaration  have  to  be  sent  promptly  after  a  company  has  become  registered  in  the 
Dutch  Commercial  Register.  Companies  that  are  already  registered  would have  to  send 
in their declarations no later than six months after entry into force of the proposed act. 
Companies  that  are  not  domiciled  in  the  European  part  of  the  Netherlands647 and  that 
are  not  registered  in  the  Dutch  Commercial  Register  have  to  send  in  their  declarations 
within six months of supplying goods or services to Dutch end-users for the second time 
in a year. 

The  Act  contains  no  further  requirements  as  to  the  form  and  contents  of  such 
declarations, but does provide that further requirements on these issues  may be set by 
General Administrative Order.648 It has been noted during the parliamentary discussions 
that  under  the  Act’s  current  wording,  if  a  General  Administrative  Order  setting  out 
further requirements stays out, a one-sentence declaration would suffice. 

Companies  that  only  buy  goods  or  services  from  suppliers  that  have  submitted 
declarations with respect to those goods or services along the lines set out in the Act are 
not required to issue a declaration themselves.649 

2) 
According  to  the  Act,  “[t]he  company  that  […]  investigates  whether  there  is  a 
reasonable presumption that the goods and services to be supplied have been produced 
using child labour, and that draws up and carries out an action plan in case there is such 
a  reasonable  presumption,  conducts  due  diligence  [gepaste  zorgvuldigheid]  [translation 
by the author]”.650 The Act follows up by providing that companies that buy goods or use 
services from a supplier that has submitted a declaration with respect to those goods or 
services  along  the  lines  set  out  in  the  Act,  are  also  assumed  to  have  conducted  due 
diligence  with  respect  to  those  goods  or  services.  Moreover,  companies  that  only  buy 
such goods or services are not required to issue a declaration themselves.651 

The due diligence requirement is not defined further in the Act, save for the fact that it 
also mentions that more detailed requirements with respect to both the investigation and 
the  action  plan  will  be  set  by  General  Administrative  Order,  taking  account  of  the 
existing  ILO-IOE  Child  Labour  Guidance  Tool  for  Business. 652  With  respect  to  the 
investigation,  the  Act  provides  that  it  will  need  to  be  based  on  sources  that  can 
reasonably be known to and accessed by the company.653 

According to the Act, the Dutch Minister for Foreign Trade and Development Companies 
can  approve  a  joint  action  plan  that  is  concluded  between  one  or  more  civil  society 
organizations, trade unions and/or  employers’  organizations and that aims to make the 
participating companies conduct due diligence in order to prevent the use of child labour 
in  the  production  of  goods  and  services.  Any  company  that  conducts  its  business  in 
accordance with such a joint action plan is assumed to conduct due diligence along the 
lines set out in the Act.654 

646   Ibid., art. 4(1) and 4(5). 
647  The phrase ‘the European part of the Netherlands’ excludes the overseas regions of the Kingdom of the Netherlands, i.e. 

Bonaire, Saba and Sint-Eustatius. 

648   Art. 4(3) CLDD Act. 
649   Ibid., art. 5(1)-5(3). 
650   Ibid., art. 5(1). 
651   Id.  
652   Art. 5(2) CLDD Act. 
653   Ibid., art. 5(1). 
654  Ibid., art. 5(4). 

175 

 
 
                                                        
Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 
c. 
supply chain,  including the  legal test  and its factors used to  ascribe  liability to 
parent companies for the impacts of subsidiaries and suppliers (if any) 

The  CLDD  Act’s  obligations  (declaration  and  due  diligence)  address  companies  that 
deliver  goods  or  services  to  Dutch  end-users.  As  such,  they  specifically  target  the  last 
tier  in  the  supply  chain,  i.e.  the  tier  closest  to  the  Dutch  end-users  of  the  goods  and 
services  supplied.  The  scope  of  the  obligations  imposed  on  these  companies  under  the 
Act  is  not  limited  to  certain  tiers  of  the  supply  chain,  however,  as  the  companies 
involved are expected to investigate whether there is a reasonable presumption that the 
goods  and  services  to  be  supplied  have  been  produced  using  child  labour.  This 
essentially means that they will have to cover the entire supply chain. It is important to 
note  that  the  last  tier  companies  that  are  the  primary  addressees  of  the  Act  can  fulfill 
their obligations by purchasing the goods or services they mean to supply to Dutch end-
users  from  companies  that  have  issued  a  declaration  with  respect  to  those  goods  or 
services along the lines set  out in the Act (see under 3b). The  reasoning behind  this is 
that  this  provision  will  incentivize  the  last  tier  companies  addressed  to  deal  only  with 
lower tier companies that also live up to the obligations set out in the Act, which will in 
practice have the effect of ‘pushing’ the Act’s obligations ‘down’ the supply chain. 

d. 
Requirements  for  an  external  control  or  evaluation  of  the  human  rights 
or environmental due diligence exercise, including key elements of a grievance 
mechanism or whistle blower mechanism 

Any  natural  or  legal  person  whose  interests  have  been  affected  by  the  (in)actions  of  a 
company in complying with the provisions as set out in the Act, can file a complaint with 
the  aforementioned  public  supervisor,  but  only  if  and  insofar  as  there  are  specific 
indications of non-compliance by a specific company.655 

Implementation of internal processes by business, including operational-

e. 
level grievance mechanisms 

The public supervisor will only respond to complaints that have first been filed with the 
company,  but  that  have  not  been  dealt  with  by  the  company  within  6  months  or  have 
not been dealt with satisfactorily.656 

4. 

a. 

Monitoring, sanction and enforcement 

Monitoring body 

A public supervisor, which will have to be appointed by General Administrative Order, is 
to monitor and enforce compliance with the provisions set out in the CLDD Act.657 

Form  of  monitoring/evaluation,  timelines  for  investigating  complaints, 

b. 
procedures for review 

Any  natural  or  legal  person  whose  interests  have  been  affected  by  the  (in)actions  of  a 
company  in  complying  with  the  provisions  as  set  out  in  it  can  file  a  complaint  with  the 
supervisor, but only if and insofar as there are specific indications of non-compliance by 
a  specific  actor  (see  above  under  3e).  The  supervisor  will  only  respond  to  complaints 
that  have  first  been  filed  with  the  company,  but  that  have  not  been  dealt  with  by  the 
company  within  6  months  or  have  not  been  dealt  with  satisfactorily  (see  above  under 
3g). The supervisor can in response to a complaint issue a binding order to a company 
that  fails  to  comply  with  the  provisions  set  out  in the  proposed  act,  and  can  also  set  a 
deadline for compliance with that order.658 

c. 

Form of sanctions 

655   Ibid., art. 3(2) and 3(3). 
656   Ibid., art. 3(4). 
657   Ibid., art. 1(d) and art. 3(1). 
658   Ibid., art. 7(4) 

176 

 
 
 
                                                        
If the company does not comply with the supervisor’s order, the supervisor can impose a 
administrative  fines:  1)  of  up  to  €4,100  for  non-compliance  with  the  duty  to  file  a 
declaration (or, if this amount is not considered appropriate, a fine of up to €8,200); and 
2)  of up to €820,000 for non-compliance with the duty to conduct due diligence along 
the lines set out in the bill (or, if this amount is not considered appropriate, a fine of up 
to  10%  of  the  company’s  annual  turnover). 659 Additionally,  criminal  sanctions  can  be 
imposed  on  (officers  of)  companies  that  are  repeat  offenders.  If,  within  5  years  of 
imposition  of  an  administrative  fine,  a  similar  transgression  is  committed  by  the 
company  by  order  or  under  supervision  of  the  same  (de  facto)  director,  this  is 
considered a criminal offence. If this second transgression was committed without intent, 
it is considered a misdemeanor, punishable by a maximum of 6 months’ detention and a 
€20,500 fine.  If the  second transgression  was  committed with intent, it is considered a 
crime, punishable by a maximum of 2 years’ imprisonment and a €20,500 fine.660 

Incentives  or  implications,  such  as  link  to  procurement,  licensing  or 

d. 
export credit 

The  CLDD  Act  contains  an  implicit  link  to  the  Dutch  IRBC-covenants.  According  to  the 
Act,  the  Dutch  Minister  for  Foreign  Trade  and  Development  Companies  can  approve  a 
joint action plan concluded between one or more civil society organizations, trade unions 
and/or employers’ organizations that aims to make the participating companies conduct 
due diligence in order to prevent the use of child labour in the production of goods and 
services. Any company that conducts its business in accordance with such a joint action 
plan is assumed to conduct due diligence along the lines set out in the Act.661 

5. 

c. 

Procedural Framework 

Competent Court or other body 

A public supervisor, which will have to be appointed by General Administrative Order, is 
to  monitor  and  enforce  compliance  with  the  provisions  set  out  in  the  CLDD  Act  (see 
above  under  4a).  The  envisioned  criminal  sanctions  can  be  imposed  under  the  Dutch 
Economic Offences Act (Wet op de Economische Delicten), which may be enforced by the 
Dutch public prosecutor before (in many cases) the police court for economic offences or 
the economic division of the competent court. 

Standing  (including  participation  of  foreign  plaintiffs/representative 

d. 
entities such as NGOs or trade unions) 

Any  natural  or  legal  person  whose  interests  have  been  affected  by  the  (in)actions  of  a 
company  in  complying  with  the  provisions  as  set  out  in  it  can  file  a  complaint  with  the 
supervisor, but only if and insofar as there are specific indications of non-compliance by 
a specific actor (see above under 4b). 

6. 

a. 

Available Remedies 

Civil, criminal and administrative remedies 

See  above  under  4(c).  The  CLDD  Act  does  not  contain  provisions  relating  to  access  to 
remedy  for  the  actual  victims  of  child labour.  This is  related  to  the  fact  that  the  stated 
aim  of  the  Act  is  the  protection  of  Dutch  consumers,  rather  than  the  protection  of  the 
actual  victims  of  child  labour.    As  mentioned  under  4b,  the  Act  allows  any  natural  or 
legal  person  whose  interests  have  been  affected  by  the  (in)actions  of  a  company  in 
complying with the provisions as set out in the proposed act, to file a complaint with the 
supervisor.  However,  whereas  the  Act  provides  a  range  of  administrative  law  and 
criminal law enforcement options aimed at non-adhering companies, it does contain any 

659   Ibid., arts. 7(1)-7(3). 
660   Ibid., art. 9. 
661  Ibid., art. 5(4). 

177 

 
 
 
 
                                                        
specific  provisions  aimed  at  providing  or  improving  access  to  remedies  for  the  actual 
victims of child labour. They will therefore have to rely on existing generic legal bases for 
claims in Dutch civil law and possible also criminal law (see below under III). 

Although  Dutch  law  already  contains  a  number  of  provisions  relating  to  unfair 
commercial practices and misleading advertisement (based on EU norms) that could also 
be of relevance in the IRBC-context, these are also generally aimed at the protection of 
consumers and/or competitors. As such, also these provisions only provide recourse for 
consumers  or  competitors  who  have  suffered  harm  as  a  result  of  (for  instance) 
misleading  statements  by  the  company  relating  to  working  conditions  in  the  supply 
chain,  and  do  not  provide  access  to  remedies  for  the  actual  victims  of  (for  instance) 
those poor working conditions in the supply chain.662 

Note that due to the requirement of relativity in Dutch tort law (requiring that the norm 
breached  served  to  protect  against  damage  such  as  that  suffered  by  the  person 
sustaining the loss)663, the actual victims will, in civil liability cases based on Dutch tort 
law,  not  be  able  to  base  their  claims  directly  on  the  violation  of  the  CLDD  Act.664 They 
can  rely  on  it  indirectly,  however,  if  and  insofar  as  the  violation  of  the  Act  can  be 
constructed as an indication that an unwritten norm pertaining to proper societal conduct 
(i.e.,  a  duty  of  care  or  zorgplicht  vis-à-vis  these  victims)  has  been  violated  by  the 
company in question.665 In cases where an infringement of the norms set out in the Act 
also constitutes an infringement of the OECD Guidelines for Multinational Enterprises and 
(under  certain 
involves  a  Dutch  multinational  enterprise,  stakeholders  can 
circumstances)  also  file  a  notification  with  the  Dutch  NCP.  If  the  NCP  considers  that 
further  consideration  of  the  specific  instance  is  warranted,  it  will  assist  the  parties 
involved to come to a mutually agreed solution of the issue in question through dialogue 
or mediation by the NCP, or via an external mediator.666 

Whether sanctions include compensation 

b. 

No 

7. 
Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
and  b)  to  companies,  either  individually  or  collectively)  (public  information, 
estimated opinion) 

No estimate available as of yet. 

8. 

Impact of the Regulation 

There  is  no  information  available  as  of  yet  with  respect  to  the  impact  of  the  CLDD  Act 
on,  for  instance,  the  behaviour  of  the  companies  involved  or  the  rights  of  the  child.  In 
line with its stated main aim of consumer protection rather than protection of the actual 
victims  of  child  labour,  the  Act  does  not  contain  any  provisions  relating  to  access  to 
remedy for the latter victims (see above under 6a). 

As regards public responses of stakeholders to the CLDD Act, it should be noted that the 
CEO of Dutch sustainable chocolate company Tony Chocolonely in December 2017 wrote 
an open letter to the members of the Dutch Senate in order to convince them to vote in 
favour  of  the  Act.  This  letter  was  co-signed  by  CEOs  of  around  40  other  Dutch 
companies,  including  Aegon  Nederland,  Heineken,  Nestlé  Nederland,  PLUS  Retail  and 

662   See, in more detail: Enneking et al. 2016, p. 190-193. 
663   Art. 6:163 Dutch Civil Code. 
664   See L.F.H. Enneking, Foreign Direct Liability and Beyond – Exploring the Role of Tort Law in Promoting International 

Corporate Social Responsibility and Accountability, The Hague: Eleven International Publishing 2012 (hereinafter: Enneking 
2012), p. 232. 

665   Id. 
666   See, for more information on the specific instance procedure at the Dutch NCP: www.oecdguidelines.nl/notifications. 

178 

 
 
 
 
                                                        
Rabobank.667 In the letter, it was posited that also among the Dutch business community 
a  need  is  felt  for  a  legislative  framework  with  respect  to  child  labour  in  global  value 
chains. The main reasons for this, according to the letter, are: 1) that child labour is a 
serious issue that needs to be tackled through legislation; 2) that legislation on this issue 
would create a more level (national) playing field and would reward the companies that 
are forerunners when it comes to preventing child labour in global value chains; and 3) 
that it is important that the Netherlands remain among the group  of  countries that are 
leading  when  it  comes  to  the  enactment  of  national  legislation  with  respect  to  IRBC-
issues.668 

The CLDD Act was adopted by the Dutch House of Representatives on February 7th, 2017 
and by the Dutch Senate in May 14th, 2019. The date at which it will enter into force is 
yet to be set, but will not be before 1 January 2020.669 

B)  IRBC  Agreement  on  Sustainable  Garment  and  Textile  (hereinafter:  G&T 
agreement) 

Convenant Duurzame Kleding en Textiel670 

1. 

Area of Regulatory Framework 

Multi-stakeholder initiative in relation to IRBC in the garment and textile sector. 

2. 

a. 

Scope 

Rationale given by the parties for the Agreement 

In the preamble to the G&T Agreement, it is stated, among other things, that: 

“[…]  agreements  on  international  responsible  business  conduct  offer  businesses  the 
opportunity  at  sector  level,  together  with  the  government  and  other  parties,  to  find 
solutions  for  these  complex  problems  [relating  to  IRBC  in  global  value  chains]  in  a 
structured way, thereby increasing their influence (“leverage”) […]; garment and textile 
was  identified  as  a  sector  with  an  increased  risk  of  breaches  of  human  rights, 
environmental  standards  and  animal  welfare  according  to  the  2014  KPMG  study  into 
risks  on  adverse  impacts  in  Dutch  industry  sectors  commissioned  by  the  Dutch 
government;  the  government  expressed  a  wish  to  enter  into  an  agreement  on 
international  responsible  business  conduct  with  the  textile  sector  and,  in  response,  the 
sector stated that it shared this wish […].671 

It is stated in the Agreement that its main aims are: 

1)  “to  achieve  substantial  progress  towards  improving  the  situation  for  groups 
experiencing  adverse  impacts  in  respect  of  specific  risks  in  the  garment  and  textile 
production  or  supply  chain  within  3-5  years”;  2)  “to  provide  individual  enterprises  with 
guidelines  for  preventing  their  own  operation  or  business  relationships  from  having  a 
(potential) adverse impact in the production or supply chain and for resisting it if it does 

667  See ‘Een Wet Zorgplicht Kinderarbeid pakt kinderarbeid serieus aan’, 

tonyschocolonely.com/storage/configurations/tonyschocolonelycom.app/files/wetzorgplichtkinderarbeid/een_wet_zorgplicht
_pakt_kinderarbeid_serieus_aan.pdf. 

668  Id. 
669  See for the latest developments: Eerste Kamer der Staten Generaal, Initiatiefvoorstel-Kuiken Wet zorgplicht kinderarbeid. 

Available at eerstekamer.nl/wetsvoorstel/34506_initiatiefvoorstel_kuiken. 

670   Convenant  Duurzame Kleding en Textiel, SER 2016, available at ser.nl/-/media/ser/downloads/overige-

publicaties/2016/convenant-duurzame-kleding-textiel.pdf. See for the English translation: Agreement on Sustainable 
Garment and Textile, SER 2016, available at ser.nl/-/media/ser/downloads/engels/2016/agreement-sustainable-garment-
textile.pdf.  

671   Agreement on Sustainable Garment and Textile, p. 3-4. 

179 

 
 
 
 
 
 
                                                        
arise”; 3) “to develop joint activities and projects to address problems that enterprises in 
the garment and textile sector cannot [resolve] completely and/or on their own”.672 

b. 
Size and type of business covered,  including level of turnover, particular 
industry  sectors  and  type  of  supply  chain,  and  whether  public  procurement  is 
included 

At  present,  the  G&T  Agreement  has  been  signed  by  around  95  companies  from  the 
Dutch  garment  and  textile  sector  that  have  thereby  expressed  they  are  committed  to 
achieving its goals.673 The enterprises involved in the agreement ‘are divided into three 
categories, each with specific due diligence requirements in keeping with the size of the 
enterprises and depending on whether they buy directly from the production countries: 
A)  Turnover  >  €25  million  in  garments  and  textiles  or  turnover  between  €2.5  and  €25 
million and buying at least 25% of their turnover directly from production countries; B) 
Turnover between €2.5 million and €25 million and buying less than  25% directly from 
production countries; C) Turnover < €2.5 million’.674 

The  Agreement  does  include  provisions  on  public  procurement.  It  provides  in  this 
respect, among other things: 

“By  introducing  the  Action  Plan  for  Socially  Responsible  Purchasing,  the  Dutch 
government  will  encourage  governments  to  do  their  purchasing  in  accordance  with  the 
OECD  Guidelines,  e.g.  by  changing  over  to  a  single  system  with  a  due  diligence 
requirement.  By  setting  a  good  example  as  a  government  and  purchasing  in  a  socially 
responsible way, the government will help to create a market for sustainable innovative 
products and production processes”.675 

It also provides: 

“The Dutch government will explore the possibilities at EU level of making due diligence 
as described in the OECD Guidelines a selection criterion for purchasing and will issue a 
report in this regard”.676 

c. 
Extent  of  human  rights,  environmental,  climate  change,  sustainability 
and  governance  matters  covered,  and  whether  the  regulation  uses  the 
terminology of human rights (see above) 

The  Parties  to  the  Agreement  have  identified  nine  specific  themes  which  they  feel 
currently  merit  the  priority  attention  of  enterprises  in  the  garment  and  textile  sector 
operating in the Netherlands in terms of IRBC. These themes are, in no particular order: 
1)  discrimination  and  gender;  2)  child  labour;  3)  forced  labour;  4)  freedom  of 
association; 5) living wage; 6) safety and health in the workplace; 7) raw materials; 8) 
water pollution and use of chemicals, water and energy; and 9) animal welfare.677 These 
are worked out in more detail in the agreement.678 

The  participating  enterprises  are  expected  to  perform  due  diligence  and  to  focus 
particular attention on these themes. However, it is possible that individual companies in 
conducting  their  due  diligence  process  encounter  other  problems  in  their  value  chain; 
when that is the case, they are to include them in their annual individual action plan.679 

Jurisdictional  extent  of  business  covered,  including  whether  it  includes 
d. 
activity by subsidiaries or business relations of corporate nationals located in a 
different State and operating outside the State of the regulation 

672   Ibid., p. 4. 
673   See for lists of signatories, participating organizations and supporters: imvoconvenanten.nl/garments-

textile/participants?sc_lang=en . 

674   Agreement on Sustainable Garment and Textile, p. 6. 
675   Ibid., section 4(10). 
676   Ibid., section 4(11). 
677   Ibid., p. 15. 
678   Ibid., p. 26-40. 
679   Id. 

180 

 
 
                                                        
The  due  diligence  requirements  set  out  in  the  G&T  Agreement  in  principle  relate  to 
corporate  activities  throughout  the  production,  supply  or  value  chain,  which 
encompasses  the  process  from  raw  material  to  consumer  or  user.  According  to  the 
Agreement,  the  chain  consists  of  six  stages:  1)  production  of  raw  materials  and  fibres; 
2)  manufacture  of  materials  (textiles)  from  yarn,  including  weaving,  knitting,  braiding, 
tufting, finishing and dyeing stages; 3) manufacture of components such as buttons, zips 
and  garment  trimmings;  4)  manufacture  of  garments;  5)  product  design  and 
development (often for brands); 6) retail trade. 

3. 

Content of Regulation 

Overview and description of the required measures for business (such as 

a. 
a requirement to adopt human rights due diligence or a vigilance plan) 

According to the G&T Agreement, the enterprises involved must conduct due diligence (a 
term  that  also  in  the  Dutch  language  version  of  the  agreement  is  not  translated  into 
Dutch) in order to put their social responsibility into practice. It is therefore expected of 
individual  enterprises  supporting  the  Agreement  that  they  sign  a  Declaration  in  which 
they  state  that:  1)  they  will  conduct  a  due  diligence  process,  which  is  consistent  with 
their size and business circumstances; 2) present an annual action plan as part of their 
due  diligence  process  to  the  secretariat  of  the  Agreement  on  Sustainable  Garment  and 
Textile; 3) in their annual action plan i) explicitly discuss certain issues that are deemed 
to  be  relevant  and  ii)  provide  the  agreement’s  Secretariat  with  certain  information 
relating to their business activities and their value chains; and 4) agree to the rules and 
procedures of the agreement’s complaints and disputes mechanism.680 

b. 

Key legal elements of the obligation 

The  G&T  Agreement  follows  the  terminology  of  the  OECD  Guidelines  and  the  UNGPs, 
according  to  which  “due  diligence  is  a  process  in  which  enterprises  identify,  avoid  and 
mitigate  the  actual  and  potential  adverse  impact  of  their  actions  and  account  for  how 
they  deal  with  the  risks  identified.  An  important  precondition  for  conducting  due 
diligence on human  rights is to formulate and embed a human  rights policy.  If the due 
diligence  process  reveals  that  the  enterprise  has  caused  or  contributed  to  adverse 
impacts, the enterprise should (help to) seek redress and/or remedy. These are adverse 
impacts  caused  by  the  enterprise,  to  which  its  business  activities  have  contributed 
and/or  which  are  the  direct  result  of  its  business  activities”. 681 Both  instruments  are 
specifically  referred  to  in  the  agreement  as  together  with  the  core  labour  standards  of 
the  ILO  constituting  “[…]  the  starting  point  for  international  responsible  business 
conduct”.682 

c. 

Risk assessment requirements and risk mitigation measures 

According  to  the  G&T  Agreement,  the  due  diligence  process  consists  of  the  following 
steps:  1)  formulating  human  rights  policy  within  the  enterprise;  2)  analysing  and 
determining  precautionary  measures;  3)  embedding  in  the  enterprise;  4)  monitoring 
progress and results; 5) remedy and redress; and 6) communication”.683 

The Agreement also provides, among other things, that the parties to the agreement will 
“[…]  develop  tools  to  help  participating  enterprises  complete  their  due  diligence 
process”.684 Those  include  specific  guidelines  for  small  and  medium-sized  enterprises  in 
line  with  the  structure  of  the  OECD’s  Due  Diligence  Guidance  for  Responsible  Supply 
Chains  in  the  Garment  and  Footwear  Sector.  Furthermore,  the  Secretariat  “[…]  will 
prepare  a  list  for  every  subsector  of  risks  commonly  associated  with  frequently  used 
production  countries  to  simplify  the  due  diligence  process  for  smaller  enterprises”  and 

680   Agreement on Sustainable Garment and Textile, p. 8-9. 
681   Ibid., p. 41. 
682   Agreement on Sustainable Garment and Textile, p. 3 (preamble). 
683   Ibid., p. 41 
684   Ibid., p. 9. 

181 

 
 
 
                                                        
prepare questionnaires on the basis of which companies “[…] will be able to arrive at an 
initial prioritisation of risks to be addressed and draw up a list of known measures that 
enterprises can take or initiatives which they can join to tackle each risk theme”.685 

d. 
Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 
supply chain,  including the  legal test  and its factors used to  ascribe  liability to 
parent companies for the impacts of subsidiaries and suppliers (if any) 

The  G&T  Agreement  directly  refers  UNGPs  and  OECD  Guidelines,  under  which  “[…] 
enterprises  bear  a  responsibility  for  preventing  and  reducing  any  adverse  impact  on 
people  and  the  environment  by  their  own  operation  or  business  relationships  in  the 
production  or  supply  chain”.686 It  then  also  refers  to  a  figure  in  one  of  the  appendices 
(Appendix  7)  that  visualizes  how  the  UNGPs  see  the  different  modes  of  involvement  in 
adverse impact on human rights and the expectations that the UNGPs set in this regard. 
There is no mention of liability of any of the companies involved.687 

e. 
Requirements  for  an  external  control  or  evaluation  of  the  human  rights 
or environmental due diligence exercise, including key elements of a grievance 
mechanism or whistle blower mechanism 

The  G&T  Agreement’s  Secretariat  is  tasked  with,  among  other  things,  assessing  the 
quality  and  the  annual  progress  of  the  action  plans  that  the  companies  involved  will 
prepare as part of their due diligence.688 Disputes between the Secretariat and adhering 
enterprises regarding the quality of their action plans will be resolved by an independent 
Complaints  and  Disputes  Committee.  The  Secretariat  will  also  “[…]  carry  out  random 
verification  of  information  supplied  and  improvements  reported  by  enterprises”. 689 The  
Secretariat  may  also  receive  signals  from  stakeholders  about  particular  production 
locations,  which  it  will  then  pass  on  to  the  companies  concerned  and  report  to  the 
Steering  Committee.    The  Agreement  further  provides  that  “[p]rogress  on  the  nine 
priority  themes  will  be  monitored  for  the  mid-term  and  final  review  by  taking  random 
samples in collaboration with local partners and civil society organisations”.690 

f. 

Transparency and disclosure requirements 

The  companies  involved  in  the  G&T  Agreement,  as  part  of  their  due  diligence  process, 
present  an  annual  action  plan  to  the  Secretariat  in  which  they  explicitly  discuss  a 
number  of  elements.  These  include:  a)  insights  gained  into  their  production  or  supply 
chain through the due  diligence process and the possible impacts in their supply chain; 
b) how their own purchasing process contributes to potential (risks of) adverse impacts 
and measures to be taken to mitigate them; c) the policy and the measures they pursue 
with regard to the nine themes prioritised by the Parties and how they will participate in 
the  collective  projects  for  these  themes  which  are  consistent  with  the  substantial  risks 
found  in  these  themes;  d)  setting  quantitative  and  qualitative  objectives  in  terms  of 
improvements  for  the  duration  of  the  Agreement,  broken  down  into  objectives  after  3 
and  5  years.691   They  also  provide  the  Secretariat  with  certain  information  relating  to 
their  operational  processes,  supply  chains  and  the  risks  involved  therein;  this 
information  will  be  treated  as  confidential  by  the  Secretariat.692 Furthermore,  from  the 
second  year  onwards  they  also  report  to  the  Secretariat  on  the  results  of  last  year’s 
plan.693 

The  Secretariat  prepares  an  annual  report  for  publication  by  the  Steering  Group  of 
results  achieved  and  specific  improvements  in  the  production  or  supply  chain.  In  this 

685   Ibid., p. 9-10. 
686   Ibid., p. 8. 
687   Ibid., p. 56. 
688   Ibid., p. 10. 
689   Ibid., p. 11. 
690  Id. 
691  Agreement on Sustainable Garment and Textile, p. 8. 
692  Ibid., p. 8-9. 
693  Ibid., p. 9. 

182 

 
 
                                                        
report,  the  information  submitted  to  the  Secretariat  by  the  enterprises  is  shown  in 
aggregated form and cannot therefore be traced back to individual enterprises.694 

4. 

a. 

Monitoring, sanction and enforcement 

Monitoring body 

The  Parties  to  the  G&T  Agreement  have  established  an  operational  complaints  and 
disputes  mechanism  and  have  for  this  purpose  appointed  an  independent  Complaints 
and Disputes Committee.695 

Form  of  monitoring/evaluation,  timelines  for  investigating  complaints, 

b. 
procedures for review 

The Complaints and Disputes Committee “[…] will issue a ruling as speedily as possible, 
but in principle within six months at most, on any complaints and disputes submitted to 
it”.  It  consists  of  three  members  and  decides  by  majority  of  votes.696 The  Committee 
establishes its own procedure based on Principle 31 UGPs.697 

The  Secretariat  may  submit  a  dispute  with  an enterprise  concerning  (the  quality  of)  its 
action plan and  progress report to the Complaints and Disputes Committee, which will 
then assess, after hearing both sides of the argument, whether the company involved is 
acting in accordance with the G&T Agreement. The Committee’s ruling will be motivated 
and  submitted  in  writing  to  both  the  Secretariat  and  the  company  involved;  the 
Secretariat will monitor compliance with the ruling by the company involved.698 

A  stakeholder  who  is  suffering  injury,  loss  or  damage  caused  by  one  of  the  parties 
participating  in  the  Agreement  (or  a  party  mandated  to  represent  him)  may  submit  a 
complaint  to  the  Complaints  and  Disputes  Committee,  but  not  before  the  stakeholder 
and  the  company  concerned  have  entered  into  direct  dialogue  and  possibly  mediation. 
When the Committee takes on a complaint, it makes public the subject of the complaint 
and the parties involved.  If the company  concerned is party to an  equivalent grievance 
mechanism, the Committee will declare itself incompetent.699 

The  Complaints  and  Disputes  Committee  assesses,  after  hearing  both  sides  of  the 
argument,  whether  the  company  involved  is  acting  in  accordance  with  the  Agreement. 
Its  ruling is  binding  on  all  the  parties  involved  in the  procedure.    It  publishes  its  ruling 
and motivation while observing confidentiality where necessary.700 

c. 

Form of sanctions 

The Secretariat monitors compliance with the ruling. 

In  case  a  company  fails  to  comply  with  a  ruling  concerning  a  dispute,  the  Secretariat 
informs  the  Steering  Group.  The  Steering  Group  and/or  one  or  more  parties  to  the 
agreement  will  be  entitled  to  issue  written  reminders  to  the  company  concerned.  The 
Agreement  further  provides  that  “[i]f  a  dispute  then  arises  between  the  enterprise 
concerned  and  one  or  more  Parties  to  the  Agreement  with  regard  to  failure  to  comply 
with the binding advice of the Complaints and Disputes Committee in a timely manner or 
at all, that dispute can be submitted to the Netherlands Arbitration Institute (NAI) by the 
enterprise  concerned  or  one  or  more  Parties  to  the  Agreement  within  six  months  after 
the elapse of the time limit set by the Complaints and Disputes Committee.701 

In case a company fails to comply with a ruling concerning a complaint, the Secretariat 
informs  the  Steering  Group.  If  the  ruling  concerns  the  influencing  of  a  supplier  / 

694  Ibid., p. 9. 
695  Ibid., p. 11. 
696  Ibid., p. 11-12. 
697  Ibid., p. 11. 
698  Ibid., p. 12. 
699  Ibid., p. 12. 
700  Ibid., p. 12. 
701  Ibid., p. 13-14. 

183 

 
 
 
                                                        
suppliers that cannot be induced to cooperate, the  Steering Group may decide to place 
that supplier on a list of companies from which participating companies are not allowed 
to  purchase  anymore.  In  cases  which  involve  an  unjustifiable  failure  by  a  participating 
company  to  comply  with  the  binding  ruling  of  the  Complaints  and  Disputes  Committee, 
“[…]  the  parties  involved  and  the  parties  to  the  agreement  will  be  at  liberty  to  make 
public substantive information on the complaint and their opinion of the failure to comply 
with  the  binding  ruling  of  the  […]  Committee.  In  such  cases,  the  Parties  to  the 
Agreement may propose to the Steering Group that the enterprise be expelled”.702 

5. 

Procedural Framework 

See above under 4. 

6. 

Available Remedies 

Not Applicable 

Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
either individually or collectively) (public information, 

7. 
and b) to companies,  
estimated opinion) 

No estimate available as of yet. 

8. 

Impact of the Regulation 

the 

agreement’s 

See 
at 
imvoconvenanten.nl/garments-textile/agreement/publicaties?sc_lang=en.  The  Dutch 
government’s  IRBC-policy,  including  the  covenants,  is  currently  under  evaluation;  the 
results of this evaluation will likely become public in the summer of 2019. 

2016/2017 

reports 

annual 

2018 

and 

III.  COMPARATIVE ANALYSIS 

9. 

Comparisons between different regulations within the Member State 

a. 
Corporate  and  directors’  liability  regime  in  case  of  violations  or  damage 
caused  by  operators  in  the  EU  parent  company’s  supply  chain,  including 
relevant jurisprudence, even in the absence of legislation on due diligence703 

As was mentioned before (see Overview), Dutch courts have over the past two decades 
been  confronted  with  a  variety  of  cases  in  which  Dutch  companies  (sometimes  along 
with  their  foreign  subsidiaries)  have  been  held  to  account  for  irresponsible  business 
conduct  in  global  value  chains  using  existing  legal  bases  in  civil  law  or  criminal  law.704 
The most relevant case law with respect to IRBC-issues that has so far been rendered by 
Dutch  courts  stems  from  the  aforementioned  civil  liability  lawsuit  between  Nigerian 
farmers  and  NGO  Milieudefensie  against  RDS  and  SPDC.  The  farmers  claim  that  the  oil 
spills at issue have caused damage to their lands and fishponds and have compromised 
their  livelihoods,  and  that  the  defendant  companies  are  liable  for  this  damage  on  the 
basis of the tort of negligence under Nigerian law.705 

702  Ibid., p. 14. 
703  This section is largely based on Enneking 2019 (forthcoming) II and Enneking et al. 2016, p. 139-220.  
704  See in more detail: Enneking 2019 (forthcoming) I; Enneking et al. 2016, p. 89-102.  
705  The Hague District Court, 30 January 2013, ECLI:NL:RBDHA:2013:BY9854 (Akpan et al. v. Royal Dutch Shell and Shell 

Petroleum and Development Company of Nigeria), par.4.38-4.46. 

184 

 
 
 
 
 
 
 
 
 
                                                        
In January 2013, the Hague District Court, on the basis of the evidence presented to it, 
came to the conclusion that the oil spills were the result of sabotage, and not the result 
of faulty maintenance as had been argued by the plaintiffs. This, in combination with the 
fact that under Nigerian law the operator of an oil pipeline is not liable, in principle, for 
harm  resulting  from  oil  spills  caused  by  sabotage,  led  the  court  to  dismiss  the  claims 
against  the  Nigerian  Shell  subsidiary  SPDC  in  two  out  of  the  three  proceedings.706 The 
court  also  dismissed  all  of  the  claims  against  the  parent  company  RDS,  holding  that 
under Nigerian tort law a parent company does not in principle have a legal obligation to 
prevent  its  subsidiaries  from  causing  harm  to  third  parties  except  under  special 
circumstances, which the court did not find to exist.707 

It  did  however  grant  one  of  the  claims  against  the  Nigerian  subsidiary  in  one  of  the 
proceedings  (the  Akpan  case)  that  related  to  two  oil  spills  in  2006  and  2007  from  an 
abandoned  wellhead  near  the  village  of  Ikot  Ada  Udo.  It  ordered  SPDC  to  pay 
compensation  for  the  resulting  loss.  Although  starting,  also  here,  from  the  assumption 
that  the  immediate  cause  of  the  oil  spills  had  been  sabotage,  the  court  in  this  specific 
case  decided  that  SPDC  had  been  negligent  in  leaving  behind  the  wellhead  without 
adequately securing it, thus making it easy for saboteurs to unscrew its valves. This led 
the  court  to  conclude  that  in  failing  to  take  sufficient  precautions  against  the  risk  of 
sabotage, SPDC had violated the duty of care it owed to the neighbouring farmers.708 

The  case  is  currently  pending  before  the  Hague  Court  of  Appeal,  which  rendered  an 
interim judgment on a number of preliminary issues in 2015 but has not yet decided on 
the  merits  of  the  case. 709 The  court  did  briefly  address  the  issue  of  parent  company 
liability  in  its  2015  decision,  as  this  issue  is  very  closely  connected  to  that  of  personal 
jurisdiction. It stated, inter alia: 

“Considering the foreseeable serious consequences  of oil spills to the  local environment 
from  a  potential  spill  source,  it  cannot  be  ruled  out  from  the  outset  that  the  parent 
company  may be  expected in such a case to take an interest in preventing spills (or in 
other words, that there is a duty of care [...]), the more so if it has made the prevention 
of environmental damage by the activities of group companies a spearhead and is, to a 
certain  degree,  actively  involved  in  and  managing  the  business  operations  of  such 
companies, which is not to say that without this attention and involvement a violation of 
the  duty  of  care  is  unthinkable  and  that  culpable  negligence  with  regard  to  the  said 
interests can never result in liability”.710 

With this statement, it may have set the stage for a more lenient approach at the merits 
stage  to  the  concept  of  parent  company  liability  than  that  displayed  by  the  Hague 
District  Court.711 In  addition,  the  Hague  Court  of  Appeal  in  its  December  2015  decision 
confirmed  the  District  Court’s  findings  that  jurisdiction  existed  not  only  with  respect  to 
the claims against the Netherlands-based parent company, but also with respect to those 
against  the  Nigeria-based  subsidiary.  Furthermore,  like  the  Hague  District  Court,  it 
rejected  the  defendants’  argument  that  the  claims  against  the  parent  company 
constituted  an  abuse  of  procedural  rights  as  they  were  ‘evidently  without  merit’  and 
‘merely  serve(d)  as  an  anchor’  to  create  jurisdiction  over  the  claims  against  the 
subsidiary.712 

706  The Hague District Court, 30 January 2013, ECLI:NL:RBDHA:2013:BY9845 (Dooh et al. v Royal Dutch Shell and Shell 

Petroleum Development Company of Nigeria), par. 4.43-4.58; The Hague District Court, 30 January 2013, 
ECLI:NL:RBDHA:2013:BY9850 (Oguru et al. v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria), 
par. 4.45-4.60 

707  The Hague District Court, 30 January 2013, ECLI:NL:RBDHA:2013:BY9845, ECLI:NL:RBDHA:2013:BY9850, 

ECLI:NL:RBDHA:2013:BY9854. 

708  The Hague District Court, 30 January 2013, ECLI:NL:RBDHA:2013:BY9854 (Akpan et al. v. Royal Dutch Shell and Shell 

Petroleum and Development Company of Nigeria), par.4.38-4.46. 

709  The Hague Court of Appeal, 18 December 2015, ECLI:NL:GHDHA:2015:3586, ECLI:NL:GHDHA:2015:3587, 

ECLI:NL:GHDHA:2015:3588. 

710  The Hague Court of Appeal, 18 December 2015, ECLI:NL:GHDHA:2015:3586 (Dooh et al. v. Royal Dutch Shell and Shell 

Petroleum and Development Company of Nigeria), para. 3.2. 

711  See, in more detail: Enneking 2019 (forthcoming) II.  
712  See, for example: The Hague Court of Appeal, 18 December 2015, ECLI:NL:GHDHA:22015:3587 (Akpan et al. v Royal 

Dutch Shell and Shell Petroleum and Development Company of Nigeria). 

185 

 
 
                                                        
The  extent  to  which  the  legal  regime  translates  a  corporate  duty  to 
b. 
respect  human  rights  and  abstain  from  other  abuse(s)  and  from  causing 
damage  into  a  civil  law  obligation  by  requiring  a  standard  of  reasonable  care 
from the company713 

As opposed to Dutch company law and Dutch criminal law, Dutch tort law (as laid down 
in book 6 of the Dutch Civil Code) is specifically geared towards protecting third parties' 
interests  against  the  harmful  effects  caused  by  the  activities  of  others,  including  both 
natural  and  legal  persons,  as  it  may  be  invoked  at  the  initiative  of  an  injured  party  in 
order to obtain compensation for the damage suffered from those responsible. As such, 
it  is  potentially  very  relevant  when  it  comes  to  setting  out  duties  of  care  for  Dutch 
companies in relation to third parties (workers, neighbours, communities) who might be 
negatively impacted by human rights violations or environmental degradation caused by 
the  activities  of  business  enterprises  (subsidiaries,  sub-contractors,  etc.)  in  their  global 
value chains.714 

Issues relating to responsible business conduct in global value chains typically relate to 
activities in weak governance zones, where legal standards relating to the protection of 
human rights, health and safety, and the environment are not very strict and/or poorly 
enforced. Therefore, the focus with respect to IRBC-related issues is on the possibilities 
offered  by  Dutch  tort  law  to  hold  companies  liable  for  violations  of  unwritten  norms 
pertaining  to  due  care  for  the  interests  of  third  parties.  In  proceedings  on  the  basis  of 
Dutch tort law by workers, neighbours of communities who have been exposed to human 
rights  violations  or  environmental  harm  as  a  result  of  business  activities  in  the  global 
supply  chains  of  Dutch  companies,  the  open  standard  of  “[…]  an  act  or  omission 
breaching  […]  a  rule  of  unwritten  law  pertaining  to  proper  societal  conduct”  will  be 
especially  relevant. 715  This  open  standard,  which  is  generally  referred  to  in  the 
Netherlands  as  a  duty  of  care  (ongeschreven  zorgvuldigheidsnorm  or  zorgplicht)  opens 
up  the  possibility  to  include  generally  accepted  non-binding  standards  of  conduct  in 
assessing the measure of care that could have been expected of the companies involved. 
Thus,  the  corporate  responsibility  to  respect  the  human  rights  and  environmental 
interests of third parties in global supply chains that is imposed by international soft law 
instruments like the UNGPs and the OECD Guidelines may,  through this open standard, 
play a role in determining whether a Dutch company has violated a duty of care towards 
host country workers, neighbours or communities. 

Despite  the  possibilities  that  exist  in  the  Dutch  field  of  tort  law  when  it  comes  to 
addressing  irresponsible  business  conduct  in  global  value  chains,  no  relevant  case  law 
exists  as  of  yet.  One  reason  for  this  is  the  fact  that  the  corporate  responsibilities  to 
prevent and/or mitigate the risk of human rights abuse and environmental harm, as set 
out under the UNGPs and the OECD Guidelines, are a relatively recent phenomenon. At 
the same time, impediments exist with regard to the possibilities for host country victims 
to  get  access  to  home  country  courts  in  this  type  of  litigation  as  a  result  of  both 
jurisdictional  and  procedural  barriers  (e.g.  with  relation  to  the  financing  of  claims, 
collective  redress  and  access  to  evidence716).  Furthermore,  the  potential  role  of  Dutch 
tort  law  in  this  respect  is  limited  by  the  fact  that  in  these  transnational  tort  cases  it  is 
usually host country rather than home country tort law that will be applied by the court 
in  order  to  determine  liability.  In  most  European  countries,  the  general  rule  as  regards 
the applicable law in transnational tort cases is that the law will be applied of the country 
in which the harm has arisen, which in the IRBC context will typically be the host country 
where  the  human  rights  violations  and/or  environmental  degradation  have  occurred. 717 

713  This section is largely based on: Enneking 2019 (forthcoming) I; Enneking et al. 2016, p. 162-196, 229-252; Enneking 

2012, p. 229-244. 

714  Enneking et al. 2016, p. 217-222, 256-258. 
715  Art. 6:162(2) Dutch Civil Code. 
716  See, in more detail: Enneking 2019 (forthcoming) I; L.F.H. Enneking, ‘Judicial remedies - The issue of applicable law’, in: 

J.J. Alvarez Rubio & K. Yiannibas (eds.), Human rights in business - Removal of barriers to access to justice in the 
European Union, London: Routledge 2017 (hereinafter: Enneking 2017), p. 65-74; Enneking et al. 2016, p. 195-217. 

717  Art. 4 (1) Rome II Regulation. See, in more detail: Enneking 2017, p. 48-52; Enneking et al. 2016, p. 151-158. 

186 

 
 
                                                        
Although there are some exceptions to this general rule, these have not yet been relied 
on in relevant cases before Dutch courts.718 

c. 
The  level  of  “duty  of  care”/”due  diligence”  required  of  the  company,  in 
order to fulfil their obligations, and the key elements of this legal “duty of care” 
719 

Under  the  Dutch  general  provision  on  tort  /  delict  (art.  6:162  Dutch  Civil  Code),  the 
question  whether  a  company  has  taken  sufficient  care  in  light  of  the  potential  risks  of 
human rights violations and/or environmental harm that are inherent in its own activities 
or those of other companies in its global value chain, will be considered on the balance 
of  four  factors.  These  include:  1)  the  probability  that  the  risk  will  materialize;  2)  the 
seriousness  of  the  expected  damage;  3)  the  character  and  benefit  of  the  activities  in 
question;  and  4)  the  burden  of  taking  precautionary  measures. 720  In  essence,  this 
balance  between  care  and  risk  is  rather  pragmatic  as  it  revolves  around  the  aim  of 
avoiding  or  mitigating  the  risk  of  harm  on  the  one  hand  and  the  means  (time,  money, 
effort) by which to achieve this on the other. The larger the risks that are inherent in the 
company’s  activities,  the  more  may  be  expected  from  it  by  way  of  precautionary 
measures.  Special  care  is  required  when  it  comes  to  activities  that  are  typical  of  the 
modern  industrialized  and  motorized  society,  especially  where  the  expected  harm 
consists of personal injury or property damage as opposed to pure financial loss. 

As the risk becomes more serious, the company’s duty to take precautionary measures 
shifts from best practicable means to best technical means, in the sense  that business-
economic  considerations  will  become  less  and  less  important  in  view  of  the  aim  of 
avoiding widespread and/or serious people- and planet-related harm. Slowly but surely, 
the  obligation  on  the  company  to  perform  to  the  best  of  its  ability  in  view  of  the  costs 
involved,  shifts  in  the  direction  of  an  obligation  to  perform  to  the  best  of  its  ability 
regardless  of  the  costs  and  possibly  even  beyond,  in  the  direction  of  an  obligation  to 
achieve  (or,  in  this  sense,  rather:  avoid)  a  particular  result  and  stricter  forms  of 
liability. 721 Worth  mentioning  in  this  respect  is  a  development  in  the  Dutch  Supreme 
Court’s case law in the direction of what has been termed ‘effective care’, on the basis of 
which  increasing  significance  is  attached  in  certain  areas,  including  where  activities 
create certain foreseeable risks of personal injury for third parties (gevaarzetting), to the 
obligation  to  take  effective  precautionary  measures.722 Actual  physical  measures  by  the 
party  creating  the  risk  are  preferred  in  this  respect  over  mere  warnings  to  those  who 
may  be  at  risk;  in  those  situations  where  warnings  are  the  designated  type  of 
precautionary measures, they too need to be effective in order for the party creating the 
risk to escape liability if that risk materializes.723 

At the same time, for the company to be held liable for the harm caused by the wrongful 
behaviour  in  question  on  the  basis  of  the  Dutch  general  provision  on  tort/  delict,  that 
behaviour  needs  to  be  imputable  to  it.  This  means  that  the  risk  involved  in  the 
company’s activities must have been both foreseeable and avoidable, in the sense that a 
reasonably  acting  company  could  have  known  and  foreseen  it  and  could  have  taken 
its  harmful 
steps  to  prevent  the  risk 

from  materializing  and/or  to  mitigate 

718  For instance, art. 7 Rome II Regulation. See, in more detail: Enneking 2017, p. 52-61.  
719  This section is largely based on: Enneking 2012, p. 232-235. See also Enneking et al. 2016, p. 162-181. 
720  The seminal case in this respect is: Dutch Supreme Court, 5 November 1965, NJ 1966/136 (Kelderluik). See, for a 

discussion of this case in comparative perspective: G. Van Maanen, D. Townend & A. Teﬀera, ‘The Dutch ‘Cellar Hatch’ 
judgment as a landmark case for tort law in Europe: A brief comparison with English, French and German law with a law 
and economics ﬂavour’, European Review of Private Law 2008/5, p. 871-889 (hereinafter: Van Maanen, Townend & Teffera 
2008).  

721  See, in more detail: Enneking et al. 2016, p. 181-190; Enneking 2012, p. 245-247; L.F.H. Enneking, Corporate social 
responsibility: tot aan de grens en niet verder?, Utrecht: Wetenschapswinkel Rechten 2007, p. 71-73. See also more 
generally on the blurred borders between fault and strict liability: C.C. van Dam 2006, European Tort Law, Oxford: Oxford 
University Press 2006 (hereinafter: Van Dam 2006), p. 255-265.  

722  See, for instance: T. Hartlief, Anno 2010, Amsterdam: deLex 2009 (hereinafter: Hartlief 2009), p. 60-61.  
723  See, for instance, Dutch Supreme Court 28 May 2004, NJ 2005/105 (Jetblast). For a comprehensive discussion of this 
matter, see for instance: Van Maanen, Townend & Teffera 2008, p. 874-876; I. Giesen, Handle with care!, Den Haag: 
Boom Juridische uitgevers 2005.  

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consequences.724 Expectations as to the knowledge and capacities of the company, which 
will  generally  be  subjected  to  a  rather  objective  test,  are  likely  to  be  in  line  with  the 
complexity  of  its  business  operations;  after  all,  any  societal  actor  may  be  expected  to 
have the knowledge and capacities necessary to properly perform the societal activities it 
engages in.725 Furthermore, Dutch  case law suggests that companies may be  expected, 
with  a  view  to  the  interests  of  others,  to  be  organized  in  such  a  way  as  to  ensure  the 
availability  and  use  of  the  necessary  knowledge  and  capacities  throughout  the 
organization.726 Dutch  case  law  also  shows  that  especially  with  respect  to  activities  in 
violation  of  unwritten  (and/or  written)  rules  of  conduct  and  safety  that  seek  to  protect 
others against personal injury, Dutch courts will be quick to hold the actor liable for the 
resulting  damages,  even  where  the  risk  inherent  in  the  activity  and/or  the  harmful 
results were difficult to foresee.727 

d. 

How directors’ responsibility can be engaged728 

Contrary to  for instance Dutch tort law,  Dutch company law (as laid down in book 2 of 
the Dutch Civil Code) applies in principle to all Dutch companies (i.e. all companies that 
are incorporated under Dutch law), regardless of the location where they carry out their 
operations. 729 It  does  not  create  specific  duties  of  care  for  Dutch  companies  or  their 
directors  in  relation  to  third  parties  (workers,  neighbours,  communities)  who  might  be 
negatively impacted by human rights violations or environmental degradation caused by 
the  activities  of  business  enterprises  (subsidiaries,  sub-contractors,  etc.)  in  their  global 
value chains.730  It also does not contain any general obligations for Dutch companies to 
implement  the  key  elements  of  the  responsibility  to  respect  as  set  out  in  the  OECD 
Guidelines  or  the  UNGPs,  like  corporate  codes  of  conduct  on  responsible  business 
conduct  in  global  value  chains,  human  rights  and  environmental  due  diligence 
procedures  and/or  company  level  grievance  mechanisms.  Nonetheless,  there  are  some 
provisions  and  there  is  some  case  law  in  the  field  of  Dutch  company  law  that  may 
provide starting points for a further elaboration of the corporate responsibility to respect 
the human rights and environmental interests of third parties in global value chains. 

One  such  starting  point  is  the  requirement  that  directors  (and  supervisory  directors)  in 
the  execution  of  their  tasks  are  to  focus  on  the  interest  of  the  business  enterprise 
associated  with  the  corporation. 731  In  the  Netherlands,  the  notion  of  the  corporate 
interest is interpreted broadly, in that it is considered to refer to the long-term interest 
of  the  business  enterprise  and  comprises  not  only  shareholder  interests  but  also  the 
interests  of  other  stakeholders.  According  to  the  Dutch  Corporate  Governance  Code732, 
which  contains  soft  law  guidelines  for  good  corporate  governance  of  Dutch  listed 

724  See, on the element of imputability in the Dutch general provision on tort/delict: Enneking et al. 2016, p. 168-169; C.C. 
Van Dam, Aansprakelijkheidsrecht – Een grensoverschrijdend handboek, Den Haag: Boom Juridische uitgevers 2000 
(hereinafter: Dam 2000), p. 247-286. See on the imputability of knowledge: Enneking et al. 2016, p. 131-133; B.E.L.J.C. 
Verbunt & R.F. Van den Heuvel, ‘De rol van toerekening van wetenschap bij aansprakelijkheid voor zuiver nalaten in het 
rechtspersonenrecht’, in: M. Holtzer et al. (eds.), Geschriften vanwege de Vereniging Corporate Litigation 2006-2007, 
Deventer: Kluwer 2007, p. 211-230; R.P.J.L. Tjittes, Toerekening van kennis, Deventer: Kluwer 2001.  

725  See generally: Van Dam 2006, p. 219-225; Van Dam 2000, p. 258-266. When applying an objective test, the court will 
make use of a standard of reference, such as the reasonable man or the bonus pater familias, or, in this context, a 
reasonably acting parent company. 

726  See generally, with further references: Van Dam 2000, pp. 266-275. For a more detailed discussion of the role that this 

requirement of proper knowledge management may play in corporate groups: Lennarts 2002. See also Enneking 2007, p. 
67-68.  

727  See for instance Dutch Supreme Court 29 November 2002, NJ 2003/549 (Legionellabesmetting Westfriese ﬂora). Especially 

with respect to risks related to moder-day society, such as those pertaining to climate change, new occupational diseases, 
radiation and/or food supply, even further-reaching duties may exist for those in a position to reduce those risks on the 
basis of the precautionary principle. See for instance Hartlief 2009, p. 96-97.  

728  This section is largely based on: Enneking 2019 (forthcoming) I; Enneking et al. 2016, p. 102-140. 
729  Arts 10:117 and 10:118 Dutch Civil Code.  
730  See, in more detail: Enneking et al. 2016, p. 102-140. 
731  Arts. 2:129(5) / 2:239(5) and 2:140(2) / 2:250(2) Dutch Civil Code. See in more detail and with a focus on the IRBC-

context: L.F.H. Enneking & R. Heesakkers, ‘Vennootschappelijk belang en (internationaal) maatschappelijk verantwoord 
ondernemen’, in: B. Kemp, H. Koster, K. Schwarz (eds.), Vennootschappelijk belang, Deventer: Wolters Kluwer 2019 
(forthcoming); Enneking et al. 2016, p. 105-110. Note that the Dutch company law provisions do not provide much 
guidance on what specific tasks (the members of) corporate boards are supposed to execute. Arts. 2:141 / 2:251 Dutch 
Civil Code suggest that those tasks include developing a company strategy, gaining insight into the general and financial 
risks of the company, and making sure that the company has an administrative and audit system in place,  

732  Monitoring Commissie Corporate Governance Code, ‘De Nederlandse Corporate Governance Code’ (2016). Available at 

mccg.nl/download/?id=3364.  

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companies, a company’s stakeholders are those groups and individuals that have a direct 
impact  on  or  are  directly  impacted  by  the  company’s  pursuit  of  its  goals,  including 
employees,  shareholders  and  other  capital  providers,  suppliers,  customers  and  other 
interested  parties.733 In  executing  their  tasks,  directors  (and  supervisory  directors)  are 
required to exercise due  care with respect to the interests of all those who are directly 
involved in or linked to the corporation and the business enterprise that is associated to 
it,  which  means  that  they  may  need  to  refrain  from  doing  things  that  would 
unnecessarily or unduly harm those interests.734 

However,  despite  its  broad  interpretation  and  the  duties  of  care  that  directors  (and 
supervisory directors) may have with respect to the interests of certain stakeholders, the 
point of departure in Dutch company law remains that the corporate interest comes first, 
unless  the  law  or  the  company’s  articles  of  incorporation  provide  otherwise. 735  
Furthermore, there is no support in Dutch statutory or case law for an interpretation of 
the corporate interest and/or directors’ duties that is as broad as to encompass ‘external’ 
stakeholders  who  are  not  directly  involved  in  or  linked  to  the  corporation’s  business 
activities, like most stakeholders in the IRBC-context (i.e., employees of subsidiaries or 
subcontractors,  host  country  communities,  the  local  environment).  Consequently, 
directors (and supervisory directors) are only required (or, strictly speaking, permitted) 
to take the interests of such ‘external’ stakeholders into account if and to the extent that 
this is required by the law, follows from the company’s articles of incorporation, or is in 
the  company’s  own  interest.736 The  latter  may  be  relevant  not  only  in  situations  where 
there  is  a  business  case  for  fair  and  sustainable  production  (like  with  green  energy  or 
slave-free chocolate), but also in situations where preventing negative impacts becomes 
a  matter  of  risk-management  due  to  the  threat  of  legal  or  reputational  penalties. 
However, there are many (empirical) studies that suggest that either situation is still the 
exception rather than the rule in the IRBC context.737 

It should be noted that even if a duty could be said to exist under certain circumstances 
for  directors  (or  supervisory  directors)  of  Dutch  companies  to  take  the  interests  of 
‘external’  stakeholders  in  the  IRBC-context  into  account,  Dutch  company  law  does  not 
provide  them  with  enforcement  mechanisms  to  hold  (officers  of)  the  corporation  liable 
for any damage suffered as a result of its operations. This also explains why there is no 
case  law  in  the  field  of  Dutch  company  law  that  specifically  deals  with  irresponsible 
business  conduct  in  global  value  chains. 738 In  theory,  inquiry  proceedings  (the  Dutch 
enquêteprocedure 739 )  could  provide  an  option  for  ‘external’  intervention  in  order  to 
address serious and ongoing violations of human rights or environmental standards that 
occur  as  part  of  the  international  business  activities  of  Dutch  companies  (and/or  their 
subsidiaries).  These  proceedings  may  also  be  instituted  in  the  general  interest  by  for 
example trade unions or the Advocate General at the Dutch Supreme Court.740 However, 
there are no examples to date of such proceedings being applied in the IRBC-context. 

One  case  that  may  be  mentioned  here  is  the  1979  Batco  case,  which  involved  inquiry 
proceedings  into  the  aﬀairs  of  the  company  Batco  Nederland,  following  a  dispute 
between the company and the labour unions over the company’s decision to close one of 
its  factories.  The  Enterprise  Division  of  the  Amsterdam  Court  of  Appeal  came  to  the 
conclusion  that  there  had  been  mismanagement  by  Batco  in  this  respect,  since  the 

733  Ibid., p. 8. 
734  Art. 2:8 Dutch Civil Code and Dutch Supreme Court, 4 April 2014, ECLI:NL:HR:2014:797 (Cancun).  
735   Although there is no specific statutory provision to this effect, it is generally assumed that directors have a duty to obey 

relevant statutory rules, even if not doing so could be in the interest of the company. See, for instance: K.H.M. de Roo, ‘De 
nalevingsplicht van het bestuur van rechtspersonen’, Ondernemingsrecht 2018/1, p. 3-12. Furthermore, in managing the 
company the directors are subject to any restrictions flowing from the company’s articles of incorporation. See for instance 
arts. 2:129(1) / 2:239(1) Dutch Civil Code.  

736  Enneking et al. 2016, p. 103-117. 
737  A complete overview and/or more detailed discussion of these studies goes beyond the scope of this chapter. See, 

however, for instance: A. van Baar, P.J. Engelen, J. van Erp, L.F.H. Enneking, ‘Reputational penalties for corporate human 
rights violations’ 2019 (forthcoming). 

738  For a more detailed discussion including references to case law that may be indirectly relevant, see Enneking et al. 2016, 

p. 102-140. 

739  Art. 2:344 Dutch Civil Code et seq. 
740  Enneking et al. 2016, p. 117-133. 

189 

 
 
                                                        
company  had  contravened  elementary  principles  of  responsible  entrepreneurship  by 
failing  to  properly  take  into  account  the  factory  workers’  interests.  One  of  the  court’s 
considerations was that while the company had expressly accepted the OECD Guidelines 
for Multinational Enterprises as a guideline for its policies in these matters, it had failed 
to live up to its responsibility under those guidelines to consult with the unions and the 
works council.741 

Of  course,  there  is  always  the  possibility  of  seeking  to  hold  directors  (or  supervisory 
directors) liable for damage suffered as a result of the company’s operations on the basis 
of tort law (art. 6:162 Dutch Civil Code). However, it should be noted that the threshold 
for this type of what is often referred to as ‘external’ directors’ liability is relatively high, 
as the point of departure in Dutch law is that it is the company that should be held liable 
if  it  commits  unlawful  behaviour  that  results  in  damage  to  third  parties.  A  director  can 
only  under  exceptional  circumstances  be  held  liable,  next  to  the  company,  for  the 
ensuing  damage.  In  order  for  director’s  liability  to  arise  in  this  context,  it  needs  to  be 
established  that  there  is  serious  personal  blame  on  the  director  in  relation  to  the 
misconduct in question.742  Perhaps also due to this high(er) threshold, there have so far 
not  been  any  attempts  to  hold  directors  of  Dutch  companies  personally  liable  on  the 
basis of Dutch tort law for harm caused to third parties as a result of those companies’ 
irresponsible business conduct in global value chains. 

e. 
Whether the  concept of  due  diligence  is  used  in the domestic  regulation 
of other  areas of corporate governance,  and if so,  what the  legal elements  are 
to establish a duty and/or liability (including, if any, for subsidiaries and in the 
supply chain). 

One field in which due diligence obligations exist that may be relevant to mention here is 
in  the  financial  sector.  There,  obligations  to  conduct  due  diligence  are  incorporated  in 
various  statutes  that  aim  to  prevent  the  misuse  of  the  financial  system  for  money 
laundering and terrorist financing purposes, and to control integrity risks. These statutes 
include, among others, the Financial Supervision Act (Wet op het financieel toezicht), the 
Anti-Money  Laundering  and  Counter-Terrorist  Financing  Act  (Wet  ter  voorkoming  van 
witwassen  en  financieren  van  terrorisme),  and  the  Trust  Offices  Supervision  Act  (Wet 
toezicht  trustkantoren).  They  impose  obligations  on  financial  institutions  to  operate 
adequate  ‘customer  due  diligence’  systems  in  order  to  know  their  customers  and  to 
avoid engaging in business  relationships with persons who  could damage trust in these 
institutions  or,  more  specifically,  are  associated  with  money  laundering  or  terrorist 
financing.743 

It should further be mentioned that Directive 2014/95/EU on disclosure of non-financial 
and  diversity  information744 has  been  transposed  into  Dutch  law  by  Royal  Decree  (the 
Besluit Bekendmaking niet-financiële informatie).745 In doing so, the text and meaning of 
the Directive have been followed relatively closely, even though the order of the relevant 
provisions  has  been  changed  and  all  of  the  Directive’s  terms  have  been  translated  into 
Dutch. The  key phrase  of “[…] due diligence processes implemented […]”,  for instance, 
has been translated to  “[…]  toegepaste zorgvuldigheidsprocedures […]”.  It is likely that 
in  case  of  inconsistencies,  Dutch  courts  will  interpret  the  Dutch  provisions  in  line  with 
those of the Directive. 

741  Amsterdam Court of Appeals (Enterprise Division), 21 June 1979, NJ 1980/71 (Batco). 
742  See, for instance: Dutch Supreme Court, 8 December 2006, NJ 2006/659 (Ontvanger/Roelofsen); Dutch Supreme Court, 

23 November 2012, NJ 2013/302 (Spaanse Villa); Dutch Supreme Court, 5 September 2014, NJ 2015/21 (Hezemans Air); 
Dutch Supreme Court, 5 September 2014, NJ 2015/22 (RCI/Kastrop); Dutch Supreme Court, 6 Februari 
2015, ECLI:NL:HR:2015:246 (Crane/Staal). 

743  See, in more detail: De Nederlandse Bank, ‘DNB Guidance on the Anti-Money Laundering and Counter-Terrorist Financing 

Act and the Sanctions Act’, April 2015, available at toezicht.dnb.nl/en/binaries/51-212353.pdf. 

744  Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU 
as regards disclosure of non-financial and diversity information by certain large undertakings and groups, OJ L 330/1 (15 
November 2014). 

745  Besluit van 14 maart 2017, houdende regels ter uitvoering van richtlijn 2014/95/EU van het Europees Parlement en van de 

Raad van 22 oktober 2014 tot wijziging van richtlijn 2013/34/EU met betrekking tot de bekendmaking van niet-financiële 
informatie en informatie inzake diversiteit door bepaalde grote ondernemingen en groepen (PbEU 2014, L 330) (Besluit 
bekendmaking niet-financiële informatie), Stb. 2017, 100. 

190 

 
 
                                                        
How  parent  companies  can  be  held  liable  in  the  Member  States  for  the 
f. 
impacts of their subsidiaries, including non-EU based subsidiaries (including in 
comparative areas of corporate governance such as anti-bribery and corruption, 
anti-money laundering, taxation, competition, health and safety) 746 

In the field of Dutch company law, the notions of separate legal personality and limited 
liability are seen as fundamental, which means that in principle legal persons cannot be 
held liable for the actions of other legal persons. These notions also apply to corporations 
belonging  to  the  same  group;  from  a  legal  point  of  view  they  are  viewed  as  separate 
entities and may therefore only be held liable for debts or actions of other group entities 
in exceptional cases.747 As a consequence, under the present state of affairs there is little 
room for holding corporations liable for human rights abuses or environmental harm by 
their subsidiaries or supply chain partners on the basis of veil piercing doctrines. 

Unlike Dutch company law, Dutch tort law does potentially offer possibilities for holding a 
company  liable  for  harm  caused  to  third  parties  not  by  its  own  activities  but  by  the 
activities  of  others,  such  as  foreign  subsidiaries,  sub-contractors  or  other  companies  in 
the  value  chain.  Determining  factors  would  be  the  degree  to  which  the  risks  related  to 
these activities could have been foreseeable for the company, and the degree to which it 
could have prevented or mitigated those risks on the basis of its de facto influence on / 
control of the relevant actors and activities. It has been suggested in the literature that 
such de facto control may result from a combination of a wide variety of circumstances 
that may typify the particular relationship between the company and the local operator. 
In  relationships  between  a  parent  company  and  its  foreign  subsidiary,  circumstances 
that  may  be  relevant  for  establishing  the  existence  of  a  controlling  relationship  may 
include:  shareholding  by  the  parent;  de  facto  inﬂuence  on  the  daily  activities  of  the 
subsidiary  by  the  parent;  the  existence  and  contents  of  group  policies  for  example  on 
health,  safety  and  environmental  matters  and  their  monitoring  and  enforcement;  the 
existence  of  a  common  brand;  the  need  for  ‘parental’  approval  for  certain  business  or 
policy  decisions  by  the  subsidiary;  the  appointment  of  parent  company  staﬀ  in  key 
management functions within the subsidiary; and financial dependency of the subsidiary 
on  the  parent.748 Whether  the  intensity  of  these  connections  is  such  as  to  be  able  to 
speak  of  a  controlling  relationship  that  gives  rise  to  a  duty  of  care  on  the  part  of  the 
defendant parent company vis-à-vis third parties with respect to the harmful impacts of 
the  acitivities  of  its  subsidiary  is  dependent  on  the  particular  circumstances  of  each 
individual  case;  generally  speaking,  the  mere  fact  of  shareholding  by  the  parent  is  not 
sufficient to assume that such a controlling relationship exists.749 

There is a relevant line of case law in which Dutch parent companies of corporate groups 
have been held liable for breaching duties of care owed to their subsidiaries’ (voluntary) 
creditors. These cases have not based on veil piercing doctrines (i.e. company law), but 
on  the  Dutch  general  provision  on  non-contractual  liability  (i.e.  tort  law).  In  each  of 
these cases, the parent company was assumed to have insight into and control over the 
subsidiary’s  harmful  activities  due  to  its  intensive  involvement  in  (relevant  aspects  of) 
the  management  of  that  subsidiary.750 All  of  these  cases  have  so  far  revolved  around 
parent  company  duties  of  care  towards  voluntary  creditors  of  subsidiaries  who  have 
suffered  financial  harm  due  to  the  parent  company’s  acts  or  omissions;  there  have  not 
yet  been  any  cases  relating  to  human  rights  or  environmental  factors  and/or  to  global 
value chains. However, there does not  seem to be any  reason why  similar duties could 
not be accepted under Dutch tort law in relation to involuntary (tort) creditors like host 

746  This section is largely based on: Enneking 2019 (forthcoming) I; Enneking et al. 2016, p. 169-181; Enneking 2012, p. 229-

244. 

747  See, for instance: Enneking et al. 2016, p. 126-131; Enneking 2012, p. 179-186. 
748  See, for example: R. Van Rooij, ‘De moeder, de dochter, het concern en de calamiteit’, in: M.J.G.C. Raaijmakers et al. 

(eds.), Aansprakelijkheden, Deventer: Kluwer 1990.  

749  Id. 
750  Well-known cases include: Dutch Supreme Court, 25 September 1981, NJ 1982, 443 (Osby/LVM); Dutch Supreme Court, 
19 February 1988, NJ 1988, 487 (Albada Jelgersma II); Dutch Supreme Court, 12 June 1998, NJ 1998, 727 (Coral/Stalt); 
Dutch Supreme Court, 11 September 2009, JOR 2009, 309 (Comsys). See, in more detail: Enneking et al. 2016, p. 175-
177; Enneking 2012, p. 235-238. 

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country  workers,  neighbours  and  communities  who  suffer  personal  injuries  or  other 
types  of  harm  as  a  result  of  human  rights  violations  and/or  environmental 
degradation.751 If anything, the threshold for a finding of liability tends to be lower under 
Dutch tort law in cases involving personal injuries and involuntary creditors than in tort 
cases pertaining to commercial parties and purely financial interests.752 

g. 
How  companies  in  the  Member  States can  be  held  liable  for  the  impacts 
of their supply chain, including non-EU based suppliers, and including suppliers 
beyond the first tier of the supply chain753 

In  principle,  the  general  framework  set  out  above  with  respect  to  the  possibility  of 
parent  company  liability  under  Dutch  tort  law  would  also  apply  to  cases  where  a 
company is sought to be held liable in relation to the harmful impacts of the activities of 
other  types  of  companies  in  the  value  chain,  including  non-EU  based  suppliers  and 
suppliers  beyond  the  first  tier  of  the  supply  chain.  Also  in  these  cases,  determining 
factors  would  be  the  degree  to  which  the  human  rights  and/or  environmental  risks 
related  to  the  activities  in  question  could  have  been  foreseeable  for  the  company,  and 
the degree to which it could have prevented or mitigated those risks on the basis of its 
de facto influence on / control of the relevant actors and activities. However, it should be 
mentioned  that  whereas  the  existing  body  of  case  law  with  respect  to  parent  company 
liability under Dutch tort law is very small, there is as of yet no case law whatsoever with 
respect  to  these  other  forms  of  corporate  liability  in  relation  to  IRBC-issues  in  global 
value chains. This could change, however, if a Dutch court were to decide on the merits 
of a case like the civil liability lawsuit against Trafigura for its involvement in the Probo 
Koala waste dumping incident. In that case, claimants have sought to hold the defendant 
company liable in relation to the harm caused  by the activities of a sub-contractor (i.e. 
the local company that was hired to dispose of the waste). However, it currently seems 
unlikely that this case will even reach the merits phase, since the organization filing the 
claims  on  behalf  of  the  victims  has  so  far  been  declared  inadmissible  by  both  the 
Amsterdam  District Court (…)754 and the Amsterdam Court of Appeal (in October 2018) 
755, albeit for different reasons. 

Whether  any  other  area  of  law  requires  due  diligence  for  cross-border 

h. 
corporate impacts, such as cross-border pollution or environmental hazards 

N/a 

i. 
Whether due diligence over own operations or the supply chain is a legal 
requirement  in  other  areas  of  law  regulating  business,  including  whether  due 
diligence is available as a defence 

Yes, in the fields of company law and financial law, in particular in relation to commercial 
transactions between companies, changes in the ownership or control structures of legal 
persons, and (other) substantial financial transactions such as mergers and acquisitions, 
important  investments  or  in  case  the  intention  exists  of  letting  a  company  go  public. 
There is no real Dutch equivalent for the term due diligence as it is used in this context; 
the  closest  approximation  would  be  ‘gepaste  voorzichtigheid’  or  ‘verschuldigde 
oplettendheid’. The objective of due diligence in this context is to get as much clarity as 
possible about the object of the transaction and/or the party with which the transaction 
is  to  be  concluded,  so  that  the  investors  or  corporate  decision  makers  involved  can 

751  See, in more detail and with further references to case law: Enneking 2019 (forthcoming) I; Enneking et al. 2016, p. 162-
181; Enneking 2012, p. 229-238. Similarly for instance: C. Van Dam, Onderneming en mensenrechten, The Hague: Boom 
Juridische uitgevers 2008, p. 55-63. 

752  Compare, for instance: Van Dam 2008, p. 67. 
753 First tier suppliers are understood as those suppliers with which the company does not have a direct contractual 

relationship. 

754  Amsterdam District Court 30 November 2016, ECLI:NL:RBAMS:2016:7841 (Stichting Union des Victimes de déchets 

toxiques d’Abidjan/Trafigura Beheer). 

755  Amsterdam Court of Appeal 16 October 2018, ECLI:NL:GHAMS:2018:3707 (Stichting Union des Victimes de déchets 

toxiques d’Abidjan/Trafigura Beheer).  

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assess  whether  the  target  company  has  made  any  unfavourable  commitments,  is 
involved in other issues, and/or may become subject to liability for past activities.756 

A company may invoke the fact that it has conducted due diligence  with respect to the 
object of the transaction and/or the party with which the transaction is to be concluded 
in  order  to  defend  itself  against  liability.  An  example  is  the  situation  in  which  banks 
underwrite  a  public  offer  of  securities;  if  they  have  conducted  adequate  due  diligence 
into the party offering the securities, they can under certain circumstances use this as a 
defence  against  liability  in  case  the  securities  turn  out  to  be  less  valuable  than 
expected. 757  Another  example  is  the  situation  in  which  an  adequate  due  diligence 
procedure in relation to the risk of the target company of a merger or acquisition being 
or  having  been  involved  in  bribery  or  corruption  (ABAC  due  diligence)  before  the 
transaction takes place may result in a milder stance of enforcement authorities in case 
misconduct is revealed subsequent to the transaction.758 

Whether the severity of the human rights abuses is relevant, taking into 

j. 
account the specific risks of certain activities 

See above under 9a. 

k. 
The  burden  of  proof  to  hold  a  company  liable  for  human  rights  or  other 
impacts,  including  which  regulations  are  the  most  efficient  for  victims  in  this 
respect759 

One  of  the  main  principles  of  the  Dutch  law  of  evidence  is  that  the  plaintiﬀ  in  a  civil 
procedure before a Dutch court will have to furnish and where necessary prove the legal 
and  factual  circumstances  underlying  his  claim.760 Accordingly,  in  any  civil  liability  case 
relating to IRBC-issues in global value chains that is brought before Dutch courts on the 
basis  of  Dutch  tort  law,  the  burden  of  proof  with  respect  to  the  minimally  required 
factual content of the legal rule upon which the claim is based will in principle be on the 
host country plaintiﬀs. Meeting this burden of proof may be particularly problematic for 
these  plaintiﬀs,  however,  due  to  the  lack  of  transparency  that  typically  exists  with 
respect to the internal control structures and transnational activities of the multinational 
corporations involved and the inequality of arms that typically characterizes the relations 
between these plaintiﬀs and their corporate opponents.761 

Therefore,  it  is  important  to  note  that,  at  various  points,  Dutch  substantive  tort  law  
allows  for  (partial)  reversals  of  the  burden  of  proof,  assumptions  of  fact,  or  increased 
obligations for defendants to provide grounds, which together may in eﬀect considerably 
lighten the host country plaintiﬀs’ burden in these cases when it comes to furnishing and 
proving  the  necessary  facts.  Whereas  the  actual  reversal  of  the  burden  of  proof  is 
relatively  controversial  and  therefore  also  relatively  rare,  assumptions  of  fact  and 
increased  obligations  for  defendants  to  provide  grounds  are  generally  considered  to  be 
less  drastic.  A  relevant  example  is  the  assumption  of  wrongfulness  in  tort  cases 
pertaining to personal injury, where the fact that personal injury has arisen as a result of 
the  defendant’s  activities  may  lead  courts  to  assume,  subject  to  proof  to  the  contrary, 
that  the  defendant  has  failed  to  exercise  due  care.  Also,  when  it  comes  to  proof 
regarding the defendant’s knowledge of the risk involved in a particular activity and his 

756  See, for instance: M. Brink & S. Martis, ‘Enkele juridische aspecten van “due diligence”’, Bedrijfsjuridische berichten 

2010/29. 

757  See, for instance: V.P.G. de Serière, Mr. C. Assers handleiding tot de beoefening van het Nederlands Burgerlijk Recht. 2. 

Rechtspersonenrecht. Deel IV. Effectenrecht, Deventer: Wolters Kluwer 2018, par. 468. 

758  See, for further detail: S. Oded & D.L.S. Ceulen, ‘Anti-bribery due diligence in M&A transacties’, Bedrijfsjuridische berichten 

2016/18. 

759  The following is largely based on: Enneking 2012, p. 243-244. 
760  Article 150 Dutch Code of Civil Procedure.  
761 This issue is in turn closely related to the more procedural issue of access to evidence. See in more detail for instance: 

Enneking 2017, p. 38-77; Enneking et al. 2016, p. 205-217; L.F.H. Enneking, ‘Multinationals and transparency in foreign 
direct liability cases - The prospects for obtaining evidence under the Dutch civil procedural regime on the production of 
exhibits’, The Dovenschmidt Quarterly , 2013/3, p. 134-147..  

193 

 
 
                                                        
capacity  to  prevent  the  risk  from  materializing  (fault),  the  burden  of  proof  is  generally 
assumed to lie with the defendant rather than the plaintiﬀ.762 

As for proof of causation, difficulties may arise where the host country plaintiﬀs need to 
prove the existence of a conditio sine qua non connection between the allegedly wrongful 
activities  by  the  corporate  defendant(s)  and  the  harm  suﬀered.  Also  when  it  comes  to 
primary  causation,  the  burden  of  proof  is  in  principle  on  the  plaintiﬀs;  in  practice, 
however,  Dutch  courts  may  under  some  circumstances  alleviate  the  burden  of  proof  in 
this  context. 763  It  is  generally  accepted  in  Dutch  case  law,  for  example,  that  if  the 
tortious  acts  or  omissions  create  a  certain  risk  of  harm  through  violation  of  written  or 
unwritten norms of safety and conduct and if this risk materializes, a causal  connection 
between conduct and harm is in principle, subject to proof to the contrary, assumed to 
be  present. 764 At  the  same  time,  Dutch  courts  have  in  various  contexts  come  up  with 
creative ways to deal with situations in which it is impossible to establish with certainty 
whether  and  to  what  extent  a  norm  violation  has  resulted  in  damage,  and/or  whether 
the harm suﬀered has been caused by the norm violation in dispute. 765 

Secondary causation, on the other hand, is not a matter of fact but a matter of law and 
will  thus  be  determined  by  the  court  on  the  basis  of  what  has  been  established  in  the 
course of the procedure. Consequently, the burden of proof in relation to any assertion 
by  the  tortfeasor  that  the  damage  as  a  whole  or  particular  types  of  loss  are  not 
sufficiently connected to the tortious conduct in dispute to be imputed on him, is much 
less important given that this involves a legal and not a factual determination.766 

The  implications  of  third  State,  EU  and  international  regulation  for 

l. 
regulating due diligence of business enterprises operating in the Member State 

In  the  Netherlands,  real  discussion  about  more  binding  regulations  with  respect  to 
(ir)responsible business conduct in global value chains is often fended off by referring to 
the anticipated negative effects of such regulations on the Dutch investment climate and 
the  competitiveness  of  Netherlands-based  companies.  However,  such  claims  are  never 
substantiated  with  any  evidence  that  such  negative  effects  would indeed  occur  or  have 
indeed  occurred.  In  reality,  studies  relating  to  the  effects  on  a  country’s  investment 
climate of legislation, especially legislation relating to IRBC-related issues, remain scarce 
and  otherwise  lead  to  contradicting  results.767 Nonetheless,  Dutch  policymakers  tend  to 
remain  wary  of  implementing  national  legislation  that  would  ‘burden’  Dutch  companies 
with  more  stringent  obligations  in  relation  to,  for  instance,  human  rights  or 
environmental due diligence than their competitors from other European countries. This 
partly explains the Dutch preference for non-binding or at least less binding instruments 
like the IRBC-Covenants. It also explains why in discussions about more binding national 
regulations with respect to IRBC-issues it is often suggested that such regulations should 
be  implemented  at  the  EU-level,  where  they  would  be  binding  upon  all  EU-based 
companies,  rather  than  in  the  Netherlands.  Thus,  it  seems  that  the  prospect  of  EU 
regulations  in  the  IRBC  context  that  would  affecting  not  only  Dutch  companies  but 
companies from all EU Member States, would actually be much more palatable for Dutch 
policymakers –  who do not seem all that keen on being ‘leaders’ in this respect  – than 
national regulations in that context.768 

762  See, for further detail, for instance: I. Giesen, ‘The burden of proof and other procedural devices in tort law’, in: The 

European Centre of Tort and Insurance Law (ed.), European tort law, Wien: Springer, 2009, p. 49-67; I. Giesen, Bewijs en 
aansprakelijkheid, The Hague: Boom Juridische uitgevers 2001.  

763  See, for a more detailed discussion and further references to case law: C. Asser, A.S. Hartkamp & C.H. Sieburgh, Mr. C. 

Assers handleiding tot de beoefening van het Nederlands Burgerlijk Recht. 6. Verbintenissenrecht. Deel II. De verbintenis 
in het algemeen, tweede gedeelte, Deventer: Wolters Kluwer 2009 (hereinafter: Asser/Hartkamp & Sieburgh 6-II* 2009), 
par. 76-82. 

764  For more detail, see: I. Giesen, ‘De aantrekkingskracht van Loreley - Over de opkomst en ondergang (?) van de 

‘omkeringsregel’, in: T. Hartlief, S.D. Lindenbergh (eds.), Tien pennestreken over personenschade, The Hague: Sdu 
Uitgevers 2009, p. 69-86. 

765  See, with further references to case law: Asser/Hartkamp & Sieburgh 6-II* 2009, par. 79-81. 
766  See, for instance: Asser/Hartkamp & Sieburgh 6-II* 2009, par. 82. 
767  See, in more detail: Enneking et al. 2016, p. 519-549. 
768  See, in more detail: Enneking 2019 (forthcoming) I. 

194 

 
 
                                                        
As for international regulation, the focus is currently of course on the proposed Binding 
Treaty  on  Business  and  Human  Rights.  Dutch  policymakers  seem  to  still  be  struggling 
with  determining  their  point  of  view  on  that  matter,  also  in  view  of  the  current 
reluctance  at  the  EU  level  to  really  engage  with  the  discussions  relating  to  this 
instrument.  Dutch  ngo’s  recently  called  on  the  Dutch  government  to  take  a  more  pro-
active  stance  in  view  of  the  reluctance  at  the  EU  level,  but  whether  this  call  will  be 
followed  up  by  the  Dutch  government  is  doubtful.  In  response  to  questions  about  this 
issue  by  members  of  Dutch  Parliament,  the  Dutch  Minister  for  Foreign  Trade  and 
Development Cooperation recently indicated that the Dutch government is not planning 
on plotting out an independent course in relation to the Treaty negotiations, as it is felt 
that  they  call  for  a  joint  EU  approach. 769 As  for  legislative  initiatives  in  neighbouring 
states,  it  should  be  noted  that  Dutch  policymakers  have  over  the  past  couple  of  years 
commissioned  various  studies  looking  at  the  developments  on  and  impacts  of    such 
initiatives.770 So far, this does not seem to have led however to concrete plans to come 
up  with  similar  types  of  legislation  in  the  Netherlands.  See  also  the  discussion  on  (the 
resistance against) the proposed Dutch CLDD act under 10 below. 

IV. REGULATORY FRAMEWORK 

10.  Overall Review of Regulatory Framework 

The covenant approach is currently the main focus of the Dutch government’s policy on 
IRBC.  It  holds  potential  in  mobilizing  the  companies  involved  and  fostering  an  ongoing 
dialogue between these companies and the civil society actors that are also involved. At 
the  same  time,  however,  they  provide  an  effective  way  of  holding  off  further-reaching 
(more  binding)  regulatory  initiatives.  The  level  of  ambition  varies  strongly  among  the 
different  covenants.  Level  of  participation  by  companies  in  the  sector  also  varies 
strongly. Some of them are very selective in the issues addressed, e.g. only responsible 
investing. With the exception of the G&T covenant, they do not provide any recourse for 
victims.  The  Dutch  government  is  currently  evaluating  its  IRBC  covenant  policy,  but  it 
remains unclear against what benchmarks. If the evaluation turns out to be positive, it is 
likely  that  this  will  be  interpreted  as  a  sign  that  further-reaching  (more  binding) 
regulatory initiatives are not necessary. However, the question may be raised whether it 
is  possible  to  reach  such  a  (politically  convenient)  conclusion  on  the  basis  of  the 
evaluations  conducted.  It  should  be  noted  that  the  covenant  policy  allows  the  Dutch 
government  to  comfortably  sit  back  in  its  chair  without  having  to  do  to  much  except 
facilitate the covenants. The question may be raised whether this is enough to dispose of 
its  obligations  under  the  UNGPs  (although  this  is  of  course  a  soft  law  instrument)  and 
other human rights instruments. 

The  CLDD  Act  ,  prior  to  its  adoption  by  the  Dutch  Senate  in  May  2019,  met  with 
considerable resistance. The more legal arguments against adoption of the Act that were 
raised  in  the  Senate  can  roughly  categorized  in  arguments  pertaining  to  legal 
uncertainty, insufficiently founded choices as to its scope and aims, and non-feasibility of 
its  monitoring  and  enforcement  mechanisms.  One  of  the  main  arguments  raised  with 

769  Dutch Minister of Foreign Trade and Development Cooperation, ‘Beantwoording vragen van het lid Alkaya over de 

voortgang van het VN-verdrag over mensenrechten en bedrijven’ (23 April 2019), available at 
rijksoverheid.nl/documenten/kamerstukken/2019/04/23/beantwoording-kamervragen-over-voortgang-vn-verdrag-
mensenrechten-en-bedrijven. 

770  The first of these was the comparative and empirical study on the duties of care of Dutch business enterprises with respect 
to international corporate social responsibility, the results of which have been published as Enneking et al. 2016 (and the 
original version of which is available online at rijksoverheid.nl/documenten/rapporten/2016/04/21/zorgplichten-van-
nederlandse-ondernemingen-inzake-internationaal-maatschappelijk-verantwoord-ondernemen. After that followed a 
comparative study on government policies to stimulate IRBC: Change in Context, ‘Government policy to stimulate 
international responsible business conduct’ (January 2018), available at business-
humanrights.org/sites/default/files/government-policy-to-stimulate-international-responsible-business-conduct.pdf. This 
study was followed in turn by a more recent third study on strategies for responsible business conduct: PWC, ‘Strategies 
for responsible business conduct’ (December 2018), available at 
https://www.rijksoverheid.nl/documenten/rapporten/2019/02/22/strategies-for-responsible-business-conduct. 

195 

 
 
 
 
                                                        
respect to legal uncertainty pertained to the liberal use of General Administrative Orders 
for issues that are fundamental for the Act’s scope and consequences. Arguments raised 
with  respect  to  scope  and  aims  centred,  among  other  things,  around  the  Act’s  single-
issue focus on preventing child labour rather than the protection of human rights and the 
environment more broadly, as well as its stated aim of consumer protection rather than 
the  protection  of  the  actual  victims  of  child  labour.  Arguments  raised  with  respect  to 
monitoring  and  enforcement  included,  among  other  things,  the  fact  that  none  of  the 
existing  public  supervisors  in  the  Netherlands  have  so  far  declared  themselves  to  be 
capable  and/or  willing  to  fulfill  the  role  of  supervisor  in  this  context,  meaning  that  a 
completely  new  supervisory  body  will  have  to  be  established,  and  the  expected 
difficulties of enforcing the Act’s obligations extraterritorially.771 

Despite these objections, a majority of the Dutch Senate voted in favour of the CLDD Act 
on May 14th, 2019. This is an interesting development, as despite its many flaws the Act 
does  also  hold  potential  for  change  in  several  ways.  For  instance  when  it  comes  to  the 
public  supervisor  that  will  now  have  be  introduced  to  monitor  and  enforce  compliance, 
and when it comes to its international scope as regards companies covered (due to the 
focus  on  Dutch  consumers’  interests).  It  is  important  to  note  that  one  of  the  main 
challenges  that  faced  the  Act  prior  to  its  adoption  was  the  lack  of  support  not  only 
among political parties (especially after the Dutch Labour party was decimated following 
the March 2017 Dutch  general elections) but also among civil society  actors. The latter 
felt  left  out  of  the  drafting  process  and  have  generally  been  opposed  to  any  regulatory 
initiative  that  does  not  include  an  access  to  remedy  component.  However,  it  could  be 
argued that having a binding regulatory instrument in place, flawed and limited in scope 
as it may be, is better  that having none at all. At the same time, the question may be 
raised  whether  it  is  even  a  good  idea  to  try  to  combine  both  prevention  and  access  to 
remedy  in  the  same  regulatory  instrument,  due  to  the  risk  that  you  may  end  up  with 
sub-optimal results on both sides. In this sense, the CLDD Act, which mainly focuses on 
prevention,  will  undoubtedly  create  a  really  interesting  precedent  and  potential  case 
study. 

All in all, the Netherlands has not exactly been the leader of the pack when it comes to 
introducing  regulatory  initiatives  aimed  at  promoting  IRBC  and  disposing  of  its 
obligations  in  this  respect  under  the  UNGPs  and  other  HR  instruments.  However,  this 
may  have  changed  with  the  recent  adoption  of  the  CLDD  Act.  At  the  same  time,  its 
covenant  approach  potentially  also  does  hold  certain  merit  especially  when  it  comes  to 
impacting business  conduct.  It should be noted, however, that much  like the  CLDD Act 
the covenant approach does not do much to promote the right to remedy for victims of 
corporate human rights and environmental abuse. In this respect, victims remain largely 
dependent  on  the  possibilities  offered  by  the  Dutch  legal  system  for  filing  civil  liability 
claims  against  Netherlands-based  companies  and,  where  relevant,  their  host  country 
subsidiaries before Dutch courts. However, despite the fact that there a number of such 
cases  have  already  been  initiated  in  the  Netherlands  and  a  couple  of  interesting 
precedents  have  already  been  set,  many  of  the  practical  and  procedural  barriers 
(including especially costs and access to evidence) that severely limit the possibilities in 
this  regard,  remain  unaddressed.  Even  though  the  Dutch  government  says  it  is looking 
into these issues, it has as of yet not done much to try to resolve them. This means that 
for the time being it remains up to the victims and the NGOs representing them to come 
up  with  creative  ways  to  try  to  work  around  these  barriers.  Although  stakeholders  can 
(under  certain  circumstances)  also  file  a  notification  with  the  Dutch  NCP  in  case  of 
infringements  of  the  OECD  Guidelines 
for  Multinational  Enterprises  by  Dutch 
multinational enterprise, the Dutch NCP’s mandate does not extend beyond assisting the 
parties involved to come to a mutually agreed solution of the issue in question through 
dialogue  or  mediation  by  the  NCP,  or  via  an  external  mediator.  It  does  not  have  the 
authority to issue remedies in the form of compensation on its own initiative.772 

771  See, in more detail: Enneking 2019 (forthcoming) I. 
772   See, for more information on the specific instance procedure at the Dutch NCP: www.oecdguidelines.nl/notifications. 

196 

 
 
                                                        
POLAND COUNTRY REPORT 

Bartosz Kwiatkowski773 

I. 

OVERVIEW 

Polish regulations in the field of human rights and environmental protection are generally 
based  on  orders  and  prohibitions,  only  occasionally  reaching  for  the  due  diligence 
instruments. Legal obligations to carry out risk assessments, mitigation or prevention of 
negative  impacts,  monitoring  a  given  area,  the  disclosure  of  internal  policies,  or 
introducing  grievance  mechanisms,  were  not  usually  introduced  to  the  legal  system  by 
the  own  initiative  of  the  Polish  legislator  but  due  to  the  implementation  or  direct 
application of EU law. This is especially visible on the example of the environmental law, 
but also in such areas like anti-money laundering (AML) and counter-terrorism financing 
(CTF)  or  personal  data  protection.  In  the  Polish  legal  system,  there  is  still  a  lack  of 
binding and effective regulations regarding the observance of human rights in the supply 
chain or protection of whistleblowers774. 

At  the  same  time,  the  government  promotes  international  standards  in  the  area 
especially  by  translating  and  publishing  OECD  and  UN  guidelines,  as  well  as  preparing 
the  National  Action  Plan  on  Implementing  of  UN  Guidelines  on  Business  and  Human 
Rights for 2017-2020775. However, it did not lead to the creation of national or sectoral 
standards  in  the  scope  of  human  rights  due  diligence.  On  the  other  hand,  there  are 
entities  -  especially  large  corporations  that  are  also  subject  to  the  obligation  to  report 
non-financial  information  -  in  which  the  relevant  risk  analysis,  mitigation  programs  or 
internal  policies  are  implemented 776 .  Nevertheless,  due  to  the  lack  of  common 
regulations,  these  internal  solutions  differ  from  each  other  and  are  often  far  from 
ideal777. 

The due diligence approach begins to appear in the functioning of state bodies, for which 
the  legislator  imposes  an  obligation  –  for  example  as  a  stage  preceding  the 
implementation  of  compliance  monitoring  or  as  a  tool  for  conducting  control  -  for  the 
analysis of the risk of infringing the law by a given enterprise. 

However,  it  is  important  to  point  out  that  Polish  law  has  covered  for  decades  another 
concept of proper conduct, which – to some extent – includes elements which might be 
also found in due diligence – due care778. Its main legal source is art. 355 § 1 of the Civil 
Code 779 which  states  that  a  debtor  is  obliged  to  use  the  care  commonly  required  in 
relations  of  a  given  type  (due  care).  It  is  due  care  that  the  legal  system  most  often 
identifies  as  a  criterion  for  assessing  the  behaviour  of  an  entity  to  which  we  want  to 
attribute  liability  for  non-performance  or  improper  performance  of  an  obligation,  or  for 

773 Frank Bold Foundation 
774 J. Smętek, Ochrona sygnalistów (whistleblowers) ujawniających nadużycia w biznesie [in:] A. Ploszka [ed.], Biznes a prawa 
człowieka – współczesny stan dyskusji, p. 22, available at: http://www.hfhr.pl/wp-
content/uploads/2017/03/Biznes_a_prawa_cz%C5%82owieka-FINAL-2017-03-20.pdf;  
775 OECD Guidelines for Multinational Enterprises and sectoral guidance on the website of the Ministry of Investment and 
Development: https://www.gov.pl/web/inwestycje-rozwoj/wytyczne-oecd. Information regarding UN Guidelines NAP: 
https://www.gov.pl/web/dyplomacja/krajowy-plan-dzialania-na-rzecz-wdrazania-wytycznych-onz-dotyczacych-biznesu-i-praw-
czlowieka-2017-2020 and the documents included there. 
776 The database containing CSR reports may be found here: http://raportyspoleczne.pl/biblioteka-raportow/. The database of 
Polish companies’ non-financial reports published in connection with NFR Directive 2014/95/UE is available here: 
https://standardy.org.pl/raporty-spolek/. 
777 The Association of Stock Exchange Issuers (Stowarzyszenie Emitentów Giełdowych), EY and GES as part of the 6th edition 
of the "ESG Analysis of Companies in Poland" project checked the level of reporting of non-financial data of the largest 140 
companies listed on the WSE Main Market. The results of the analysis show that the companies in the second half of the year 
were not even in "starting blocks" (https://www.rp.pl/Rachunkowosc/301179991-Czy-firmy-sa-gotowe-na-ujawnianie-danych-
niefinansowych.html). 
778 Original Polish term is należyta staranność which is translated as due care, proper diligence or due diligence. In order to 
avoid misunderstandings, the Author of the report will use the term "due care". 
779 the Act of 23 April 1964 – the Civil Code (Ustawa z dnia 23 kwietnia 1964 roku - Kodeks cywilny, Dz.U.2018.1025, 
hereinafter: the Civil Code) http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU19640160093/U/D19640093Lj.pdf; 

197 

 
 
 
 
 
                                                        
tort  or  delict780.  The  due  care  benchmark  shall  be  objective.  Its  application  in  practice 
consists first of all in choosing a model that determines the optimal course of action in a 
given manner, appropriately concretised and socially approved, and then comparing the 
behaviour of the debtor with such a model of proceeding. It is not only the inconsistency 
of his behaviour with the model but also the opportunity and the obligation to predict the 
appropriate  consequences  of  behaviour  that  determines  whether  the  obligated  person 
may  be  accused  of  not  having  due  care  in  fulfilling  his  duties.  A  measure  of  a  debtor's 
conduct,  the  essence  of  which  lies  in  the  failure  to  exercise  due  care,  cannot  be 
formulated  at  the  level  of  unenforceable  obligations,  detached  from  experience  and 
specific circumstances.781 The mentioned model must take into account the special ability 
to predict, pre-emptiveness and reliability (conscientiousness) in the way  a professional 
works,  and  the  large  requirements  in  terms  of  his  knowledge  and  practical  skills 
(professionalism). It should be emphasized that it is also about the knowledge that goes 
beyond  the  scope  of  specialist  information  in  a  given  field,  but  is  essential  for 
professional activity782. 

At first glance the content of this provision might be surprising in the context of human 
rights and environmental law, however, other branches of law and jurisprudence use the 
doctrine  and  judicial  conclusions  made  in  relation  to  it.  Although,  the  due  care 
regulations  do  not  introduce  any  obligations  to  perform  a  due  diligence  kind  of  process 
(including  especially  risk  assessment,  mitigation  or  prevention  of  negative  impacts, 
monitoring  a  given  area,  or  introducing  grievance  mechanisms),  a  proper  due  care 
conduct  -  according  to  what  was  stated  above  -  may  and  shall include  these  elements. 
As will be described below the concept of due care is further developed especially in the 
area of environmental law. 

Taking above into account in this report a brief description of elements of due diligence 
regulatory framework in Poland will be presented, focusing mostly on the  environmental 
law,  but  covering  to  some  extent  also  issues  connected  with  non-financial  reporting, 
employment law, entrepreneurs' law, health and safety  regulations, AML, personal data 
protection, public procurement law and VAT tax law. 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

A. 

Environmental law 

1.  Area of Regulatory Framework 

Environmental law (including on climate change) 

Constitution  of  the  Republic  of  Poland  of  April  1997  (Dz.U.1997.78.483, 

The  Act  of  27  April  2001  Environmental  Protection  Law  (Dz.U.2018.799, 

The  Act  of  14  December  2012  on  Waste  (Dz.U.2018.992,  hereinafter:  Waste 

- 
hereinafter: Constitution)783; 
- 
hereinafter: EPL)784; 
- 
Act)785; 
- 
(Dz.U. 2018.954, hereinafter: Environmental Damage Act)786; 

The  Act  of  13  April  2007  on  prevention  and  repair  of  environmental  damage 

780 Olejniczak A., Art. 355. [in:] Kodeks cywilny. Komentarz. Tom III. Zobowiązania - część ogólna, Kidyba A. (ed.)., 2nd 
edition, LEX, 2014. 
781 Judgment of the Supreme Court of 23 October 2003, V CK 311/02 
782 Olejniczak A., op. cit. 
783 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU19970780483/U/D19970483Lj.pdf; 
784 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20010620627/U/D20010627Lj.pdf; 
785 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20130000021/U/D20130021Lj.pdf; 
786 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20070750493/U/D20070493Lj.pdf; 

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The  Act  of  10  July  2008  on  mining  waste  (Dz.U.2017.1849,  hereinafter:  Mining 

- 
Waste Act)787; 

2.  Scope 

Description of the scope of regulation cannot be deprived of the necessary introduction, 
which requires a brief presentation of the main assumptions on which the Polish system 
of environmental law is based. The starting point is the provisions of the Constitution of 
the  Republic  of  Poland,  including  the  key  Article  5  concerning  the  political  principles  of 
the  state,  emphasizing  that  the  Republic  of  Poland  ensures  the  protection  of  the 
environment, guided by the principle of sustainable development. This concept has been 
defined in the Environmental Protection Law Act stating that: sustainable development is 
understood as such social and economic development in which the process of integrating 
political, economic and social activities takes place, while maintaining the natural balance 
and  durability  of  basic  natural  processes,  in  order  to  guarantee  the  possibility  of 
satisfying the basic needs of individual communities or citizens of both the present and 
future generations788. 

The  basic  regulations  at  the  statutory  level  are  contained  in  the  EPL,  which  includes 
general provisions describing a comprehensive approach to environmental protection. It 
should be emphasized that on the one hand, those provisions  should be fundamental to 
the whole environmental law system but on the other hand, legislative practice, judicial 
(common and administrative) or law enforcement practice do not pay special attention to 
this role789. Therefore, the EPL is only one of many environmental law acts, in which the 
most important – from a practical point of view  – are detailed provisions regulating the 
issues  of  protection  against  pollution,  including  issuing  emission  permits,  or  the 
functioning  of  the  system  of  fees  and  administrative  financial  sanctions.  The  lack  of  a 
concept  of  the  effective  organization  of  the  state  bodies  performing  tasks  related  to 
environmental protection does not have a positive impact on the functioning of the Act. 

The  EPL  regulates  the  issues  of  air  protection,  protection  of  land  surface  or  protection 
against  noise,  whereas  the  issues  related  to  e.g.  water  resources  protection 790,  waste 
management 791,  access  to  information  on  the  environment  and  its  protection,  public 
participation in environmental protection and environmental impact assessments792 have 
been regulated in separate legal acts. 

In the EPL the important regulations concerning due diligence can be found, starting with 
the precautionary principle, which can be treated as a principle of due care on the basis 
of  the  Supreme  Court's  jurisprudence  which  states:  Pursuant  to  Article  6(1)  of  the 
Environmental  Protection  Act,  whoever  undertakes  activities  that  may  have  a  negative 
impact  on  the  environment  is  obliged  to  prevent  such  impact  (the  so-called  preventive 
principle).  In  turn,  according  to  Article  6(2)  of  the  Act,  whoever  undertakes  an  activity 
whose negative impact on the environment has not yet been fully recognized is obliged, 
guided by caution, to take all possible preventive measures (the so-called precautionary 
principle).  The  precautionary  principle,  therefore,  applies  to  activities  undertaken  in 
situations  where  the  effects  of  such  activities  have  not  yet  been  fully  recognized.  The 
provision of Article 6(2) of the Act contains an exonerative premise, which is "guided by 
caution".  The  legislator  does  not  define  what  it  understands  by  the  notion  of  foresight, 
although this circumstance is connected with the exclusion of liability. Per analogy iuris, 
the notion of caution may be identified with the "due care" formula used in Article 355 of 
the  Civil  Code.  It  is  understood  as  the  performance  of  the  obligation  "in  a  diligent 
manner", observing the required level of diligence (due care)793. 

787 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20081380865/U/D20080865Lj.pdf. 
788 Article 3 point 50 of EPL. 
789 M. Górski Prawo ochrony środowiska. Komentarz (Environmental Protection Law. Commentary, CH. Beck, 2014. 
790 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20170001566/U/D20171566Lj.pdf. 
791 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20130000021/U/D20130021Lj.pdf. 
792 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20081991227/U/D20081227Lj.pdf. 
793 Judgment of the Supreme Court of 2 April 2014, IV CSK 404/13. 

199 

 
 
                                                        
In  practice,  it  [due  care  –  BK]  should  be  applied  in  such  a  way  that  all  operators 
undertaking activities whose effects are not fully verified and which may have a negative 
impact on the environment should make a comprehensive analysis of how the risks can 
be  eliminated.  If  the  studies  carried  out  indicate  that,  even  if  the  state  of  the  art  is 
applied,  the  risks  to  the  environment  arising  from  the  planned  activity  cannot  be 
eliminated, the entity interested in undertaking the activity should resign from it or the 
results will be one of the grounds for refusal by the administrative authority to grant an 
authorisation to carry out such activity. The precautionary principle is also implemented 
by the obligation to take into account the hazards, resulting from the planning principle, 
as  the  outlining  of  hazards  at  the  stage  of  project  planning  and  then  following  the 
precautionary principle allows taking possible preventive measures. […] 

Speaking  of  the  precautionary  principle,  it  should  also  be  borne  in  mind  that  the 
obligation  to  use  it  can  be  concretised  in  various  areas.  Therefore,  the  doctrine 
emphasizes  that  activities  aimed  at  implementing  this  directive  may  in  practice  be 
divided into three groups. The first of these should be the prevention of damage at their 
source.  Legal  regulations  and  [internal/sector  –  BK]  standards  can  be  used  for  this 
purpose. The second group should include activities aimed at neutralizing the side effects 
of human interference in the environment. In the third, there would be legal and social 
control of activities that carry with them the risk of damage to the environment794. 

3.  Content of Regulation 

EPL 

The  necessity  to  implement  the  precautionary  principle  at  each  stage  of  using  the 
environment  obliges  entities  to  apply  elements  of  environmental  due  diligence  in  those 
cases  where  there  is  a  higher  possibility  of  threats  resulting  from  the  functioning  of  a 
specific entity. Therefore, a plant posing a serious industrial accident hazard, depending 
on  the  type,  category  and  quantity  of  hazardous  substances  present  in  the  plant,  are 
considered  as  plants  with  an  increased  risk  of  occurrence  of  an  accident795.  The  same 
conditions  shall  be  applied  to  plants  where  the  possibility  of  hazardous  substances 
occurring is foreseen796. 

The operator who runs a plant with a high or increased risk shall draw up, as part of the 
overall management system, a major-accident prevention programme and implement it 
- commensurate to the risks - by means of a safety management system, guaranteeing 
an  adequate  level  of  protection  for  people  and  the  environment.  The  programme  shall 
take into account the risks of industrial accidents and the complexity of the organization 
at the plant797. 

The accident prevention programme shall be revised where the need for it is justified on 
grounds  of  safety  arising  from  changes  in  facts,  scientific  and  technical  progress  or 
analysis of existing industrial accidents. 

The  operator  who  runs  a  plant  with  a  high  or  increased  risk  is  required  to  develop  and 
implement - commensurate  with the risks - a  safety management system to guarantee 
an  adequate  level  of  protection  of  people  and  the  environment,  as  part  of  the  overall 
management system of the establishment798. The safety management system, based on 
a  risk  assessment,  shall  take  into  account  the  risks  of  industrial  accidents  and  the 
complexity  of  the  organization  of  the  plant  and  include  the  organizational  structure, 
responsibilities,  procedures,  processes,  and  resources  necessary  to  define  and 
implement the failure prevention programme. 

If  there  are  any  circumstances  indicating  that  the  installation  may  have  a  negative 
impact on the environment, the environmental authority may, by way of decision, oblige 

794 Gruszecki K., Art. 6. [in:] Prawo ochrony środowiska. Komentarz,4th edition, Wolters Kluwer, 2016. 
795 Article 248 sec 1 of EPL. 
796 Article 248 sec 2 of EPL 
797 Article 251 of EPL. 
798 Article 252 of EPL. 

200 

 
 
                                                        
the plant operator to prepare and submit an environmental review799. The environmental 
review includes: 

determination  of  the  environmental  impact  of  the  installation,  including  in  the 

description  of  activities  aimed  at  preventing  and  limiting  the  impact  on  the 

- 
case of a serious industrial accident; 
- 
environment; 
- 
requirements. 

comparison  of 

the 

technology  used  with 

the 

technology  meeting 

the 

Additionally,  EPL  incorporates  a  series  of  provisions  related  to  monitoring,  reporting  to 
the  environmental  authorities,  controlling  and  limiting  the  amount  of  emissions  to  the 
environment800. 

Environmental Damage Act 

The Environmental Damage Act is a transposition of Directive 2004/35/EC801, which aims 
to ensure the full implementation of the "polluter pays" principle, as well as to eliminate 
barriers to the competitiveness of businesses operating in different EU countries, whose 
activities may become a source of a direct threat of environmental damage or harm. 

The Act imposes an obligation to undertake preventive and corrective actions802: In the 
event  of  a  direct  threat  of  environmental  damage,  the  entity  using  the  environment  is 
obliged  to  take  preventive  actions  immediately.  In  the  case  of  environmental  damage, 
the entity using the environment is obliged to: 

1) 
take action to limit environmental damage, prevent further damage and negative 
consequences  for  human  health  or  further  weakening  of  the  functions  of  natural 
elements,  including  immediate  control,  containment,  removal  or  other  limitation  of 
pollution or other harmful factors; 
2) 

take corrective action. 

If the direct threat of environmental damage has not been eliminated, despite preventive 
actions,  or  if  environmental  damage  has  occurred,  the  entity  using  the  environment  is 
obliged to immediately report this fact to the environmental protection authority and the 
provincial environmental inspector803. The report  shall include  inter alia  a description of 
the preventive and corrective actions taken up to the moment of notification. Moreover, 
the  entity  using  the  environment,  at  each  request  of  the  environmental  protection 
authority,  is  obliged  to  immediately  provide  information  on  the  direct  threat  of 
environmental  damage  or  environmental  damage,  also  if  there  is  a  justified  suspicion 
that such a threat or damage has occurred804. 

The  entity using the environment is obliged to carry  out preventive or  remedial  actions 
and inform the environmental protection authority about their termination805. 

Mining Waste Act 

The  waste  holder  operating  a  mining  waste  facility  shall  prepare  a  risk  assessment  of 
the mining waste facility, which has to determine the impact on the environment, with 
particular  emphasis  on  the  impact  on  the  condition  of  air,  groundwater  and  surface 
water,  soil  and  landscape  and  include  an  indication  of  possible  threats  to  a  serious 
accident806. 

Waste Act 

799 Article 237 of EPL. 
800 E.g. article 148 of EPL. 
801 Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard 
to the prevention and remedying of environmental damage, Official Journal L 143 , 30/04/2004 P. 0056 - 0075 
802 Article 9 of environmental damage act. 
803 Article 11 sec 1 of environmental damage act. 
804 Article 11 sec 2 of environmental damage act. 
805 Article 19 of environmental damage act. 
806 Article 10 of mining waste act. 

201 

 
 
                                                        
The Waste Act transposes the provisions of the EU Directive on waste807. 

It is worth noting that in connection with the latest amendment to the provisions of the 
analyzed  Waste  Act  (the  so-called  'waste  package'  of  July  2018 808 ),  legal  solutions 
appeared  which  impose  additional  significant  obligations  on  entities  participating  in 
waste management.  The introduced changes are  related, among others, to the scourge 
of fires that have occurred in 2018 in landfills throughout Poland. 

Presently, detailed requirements for waste storage include among others: 

the  maximum  permissible  weight  of  waste  stored  at  the  same  time  and  during 

- 
the year; 
limitation of the permissible period of waste storage from 3 years to 1 year; 
- 
an  obligation  to  install  a  visual  control  system  of  the  place  of  storage  of  waste, 
- 
which will facilitate the supervision of the area and the handling of waste and, in the 
event of a fire, will help to identify the cause and possible arson perpetrators; 
- 
commencing waste management activities; 
an  obligation  to  have  collateral  for  claims,  aimed  at  securing  funds  in  case  of 
- 
necessity  to  cover  the  authorities’  costs  of  alternative  disposal  and  management  of 
abandoned waste. 
- 

an  obligatory  opinion  of  the  State  Fire  Service  on  fire  risks  prepared  prior  to 

4.  Procedural Framework 

Competent Court or other body 

Environmental Damage Act 

The  body  competent  in  matters  of  liability  connected  with  (a  threat  of)  environmental 
damage is the regional director for environmental protection809. 

A  complaint  against  the  decision  of  the  administrative  body  may  be  lodged  with  the 
administrative court. 

EPL 

The catalogue of environmental protection authorities includes810: 

- 
- 
- 
- 
- 
- 
- 
- 

commune head, mayor or city president; 
staroste; 
regional council; 
the marshal of the voivodship; 
voivode; 
the minister responsible for environmental affairs; 
General Director of Environmental Protection; 
the regional director of environmental protection. 

Mining Waste Act 

The  authority  competent  in  matters  related  to  mining  waste  is  regional  director  of 
environmental protection, the marshal of the voivodship or staroste. 

5.  Impact of the Regulation 
a. 

Impact  of  the  national  regulation  on  behaviour/policy  of  businesses 

(both direct and indirect) 

807 Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008 on waste and repealing certain 
Directives (Text with EEA relevance), Official Journal L 312, 22.11.2008, p. 3–30 
808 The Act of 20 July 2018 amending the act on waste and some other acts (Dz.U.2018.1592) 
809 Article 7 of environmental damage act. 
810 Article 376 of environmental damage act. 

202 

 
 
 
                                                        
Environmental Damage Act 

The  discussed  regulation  requires  that  entrepreneurs  who  want  to  avoid  incurring 
additional  costs  will  have  to  raise  the  standard  of  environmental  management  in  the 
enterprise  in  the  form  of,  among  others,  the  introduction  of  appropriate  environmental 
policies including due diligence for environmental impacts. 

Waste Act 

The  introduced  changes  have  a  direct  impact  on  the  enterprises  involved  in  waste 
management  and  will  force  them  to  take  measures  to  improve  the  functioning  of  the 
enterprise, including sustainability and environmental due care. 

b. 

Impact  of  the  national  regulation  on  victims  and  potential  victims  (both 

direct and indirect) 

Environmental Damage Act 

The  provisions  of  the  Act  provide  legal  tools  for  intervention  against  entrepreneurs 
whose  activities  affect  the  state  of  the  natural  environment.  Nevertheless,  the 
administrative  authorities  competent  in  these  matters  are  not  provided  with  the 
necessary financial resources to commission the necessary expertise or studies811. This is 
particularly  important  in  situations  where  the  entrepreneur  cannot  be  clearly  identified 
for environmental damage and where appropriate evidence has to be taken. 

Waste Act 

According to the justification of the bill, the changes introduced in it shall have a positive 
impact  on  the  natural  environment  and  human  health  and  life.  The  proposed  legal  and 
administrative instruments aim to contribute to reduce the occurrence of the problem of 
abandonment of waste and other irregularities (including the occurrence of fires at waste 
storage).  The  changes  should  have  an  indirect  positive  impact  on  the  situation  and 
regional  development.  The  legal  and  administrative  instruments  contained  in  the 
provisions are aimed at limiting irregularities in waste management, which, in particular 
in  the  case  of  hazardous  and  municipal  waste  management,  have  a  specific  impact  on 
the  environment  and  health  and  life  of  people,  both  those  employed  in  this  sector  and 
those  adjacent  to  the  areas  where  waste  management  activities  are  carried  out.  These 
instruments  should  facilitate  the  performance  of  the  tasks  by  the  administration 
(environmental  authorities  and  the  Inspection  for  Environment  Protection)  and  thus 
contribute  to  the  improvement  of  the  supervision  of  waste  holders  carrying  out  waste 
management activities812. 

Additionally,  it  is  worth  noting  that  improper  waste  management,  especially  in  cases 
where improper handling of waste took place on a large scale, may adversely affect the 
image of a certain region as well as the image of companies operating in its area. 

c. 

Overall Review of Regulatory framework 

Currently,  despite  the  non-financial  reporting  obligations,  there  are  no  provisions  that 
would  require  mandatory  preparation  and  implementation  of  environmental  policies 
among  ordinary  entrepreneurs  using  the  environment.  The  environmental  policy 
containing e.g. ways of reducing the carbon footprint of the enterprise or introduction of 
the Zero Waste philosophy should be drawn up by every entrepreneur regardless of the 
scale of the conducted activity. However, the content of the policy should be adequate to 
the type, character, and scale of the conducted activity. 

811Cf. Justification of the draft act amending the Act on Access to Information on the Environment and its Protection, Public 
Participation in Environmental Protection and Environmental Impact Assessments and certain other acts, p. 8 – 10, 
https://legislacja.rcl.gov.pl/docs//2/12302204/12454864/12454865/dokument305453.pdf 
812 Justification for the draft of waste act 
https://legislacja.rcl.gov.pl/docs//2/12312419/12514885/12514886/dokument344644.pdf 

203 

 
 
                                                        
B. 

Non-Financial Reporting813 

2. Scope 

Rationale given by the State for the regulation 

The  Accounting  Act  (AA)  was  amended  in  2016  by  the  Act  of  15th  December  2016 
amending  the  Accounting  Act  (Ustawa  z  dnia  15  grudnia  2016  r.  o  zmianie  ustawy  o 
rachunkowości)  and  introduced  primarily  new  article  49b  of  AA,  describing  the  duty  to 
draw  non-financial  statements.  As  the  Justification  for  the  draft  Act  amending  the 
Accounting  Act  indicated 814 ,  the  obligation  of  extended  reporting  of  non-financial 
information  for  specific  units  transposes  the  basic  provisions  of  art.  19a  of  Directive 
2013/34/EU  introduced  by  Article  1  of  Directive  2014/95/EU.  Article  49b  is  the  basic 
provision of the Accounting Act, specifying the scope of units and rules for reporting non-
financial  information.  According  to  the  draft  Act,  the  statement  will  be  created  by  the 
largest catalogue of huge public interest entities815. 

Size and type of business covered 

Article 49b of AA applies to entities defined in article 3, paragraph 1e, subparagraphs 1 
to 6 of AA (being organizational entities operating under the Banking Law, the provisions 
on trading in securities, the provisions on investment funds and on the management of 
alternative  investment  funds,  the  provisions  on  insurance  and  reinsurance  activity,  the 
provisions on cooperative savings and credit funds or the provisions on organization and 
operation  of  retirement  pension  funds,  regardless  of  their  level  of  revenues;  entities 
intending  to  apply  or  applying  for  a  permit  to  pursue  activity  under  the  provisions 
referred  above,  or  for  an  entry  into  the  register  of  the  parties  managing  an  alternative 
investment  company  (ASI)  in  accordance  with  the  provisions  on  investment  funds  and 
the  management  of  alternative  investment  funds;  alternative  investment  companies 
within  the  meaning  of  the  provisions  on  investment  funds  and  the  management  of 
alternative  investment  funds,  including  those  entitled  to  use  the  name  "EuVECA"  or 
"EuSEF"; issuers of the securities admitted to trading on one of the regulated markets of 
the  European  Economic  Area  and  issuers  intending  to  apply  or  applying  for  such 
admission;  issuers  of  securities  admitted  to  trading  in  the  alternative  trading  system; 
domestic  payment  institutions;  electronic  money  institutions)  if  they  are  companies, 
joint-stock limited partnerships,  or  such  registered partnership or limited partnership in 
which  all  the  partners  or  shareholders  bearing  unlimited liability  are  companies,  limited 
joint-stock  partnerships  or  companies  or  partnerships  from  other  countries  of  a  similar 
legal  form  to  those  companies  or  partnerships,  provided  that  in  the  financial  year  for 
which  financial  statements  are  drawn  up  and  in  the  year  preceding  this  year  such  a 
company or partnership exceeds the following values: 

1) 
500 persons - in the case of average annual full-time employment; 
85 000  000  PLN  –  in  the  case  of  balance-sheet  assets  total  at  the  end  of  the 
2) 
financial year, or 170 000 000 PLN in the case of net revenues from sales of goods and 
products for the financial year. 

3.  Extent  of  human  rights,  environmental,  climate  change,  sustainability  and 

governance matters covered 

According to AA, the description of policies applied by the entity shall be included, with 
respect  to  social  issues,  employees’  issues,  environmental  issues,  respect  for  human 
rights and corruption prevention816. 

813 According to Accounting Act (Ustawa o rachunkowości z dnia 29 września 1994 roku, Dz.U.2019.351); hereinafter: AA; 
814 The justification for the draft Act amending the Accounting Act, p. 1 
http://orka.sejm.gov.pl/Druki8ka.nsf/0/9A9AE12E5EE6DFBAC125806F004DD80E/%24File/1045-uzasadnienie.docx; 
815 Ibidem, p. 4, 17. 
816 Article 49b paragraph 2 point 3 of AA; 

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Jurisdictional extent of business covered 

As mentioned above, the obligation set in article 49b affects also companies from other 
countries than Poland of a similar legal form to the above-mentioned type of companies. 

4.  Content of Regulation 

Overview  and  description  of  the  required  measures  for  business,  and  risk 
assessment requirements and risk mitigation measures 

The  AA  bound  the  abovementioned  entities  to  include  in  the  report  on  activities  –  as  a 
separated part – a statement on non-financial information. This statement at least needs 
to contain817: 

a concise description of the entity's business model; 
1) 
non-financial key performance indicators connected with the entity's activity; 
2) 
3) 
description  of  policies  applied  by  the  entity  with  respect  to  social  issues, 
employees’ issues, environmental issues, respect for human rights and corruption 
prevention, as well as a description of results of applying these policies818; 
4) 
part of the policies referred to in point 3; 
description  of  significant  risks  connected  with  the  entity’s  activities  which  may 
5) 
have an adverse impact on the issues referred to in point 3, including risks linked with 
the  entity’s  products  or  its  relations  with  the  external  environment,  including  with 
contracting parties, as well as a description of managing these risks. 

description of due  diligence procedures – where the entity applies the same as 

a.  Key  legal  elements  of  the  obligation,  and  transparency  and  disclosure 

requirements 

While  drawing  up  the  statement  on  non-financial  information,  as  AA  allows,  the  entity 
may apply any rules, including own rules, national, EU or international norms, standards 
or guidelines. The entity, however, shall include in the statement the information on the 
rules, norms, standards, and guidelines applied819. The entity shall present non-financial 
information to the extent it is necessary for assessing the entity’s development, results 
and standing as well as the impact of the entity’s  activities on the issues such as social 
issues, employees’ issues, environmental issues, respect for human rights and corruption 
prevention820.  Where  there  is  a  link  between  the  values  shown  in  the  annual  financial 
statements  and  the  information  included  in  the  statement  on  non-financial information, 
the statement shall include references to amounts shown in the financial statements as 
well as additional explanations regarding these amounts821. 

If the entity does not apply policy as regards one or several issues referred to above, the 
entity  shall  include  in  the  statement  on  non-financial  information  the  reasons  for  not 
applying  the  policy822.  This  provision  is  important  as  it  indicated  that  the  company  is 
obliged  to  state  the  functioning  of  a  policy  if  one  exists,  however,  the  entity  is  not 
obliged to have such a policy. 

In exceptional cases, the entity may omit in the statement on non-financial information 
the information on expected events or cases being the subject of pending negotiations if 
–  in  accordance  with  a  justified  opinion  of  the  entity’s  manager  or  members  of  the 
supervisory  board  or  another  body  supervising  the  entity  –  disclosure  of  such 
information  has  a  significant  adverse  impact  on  the  market  situation  of  the  entity.  The 
entity may not omit this information if it prevents the  due and objective assessment of 

817 Article 49b paragraph 2 of AA; 
818 It has to be underlined that this regulation cannot be treated as a source of obligation for enterprises to prepare and 
implement such policies. 
819 Article 49b paragraph 8 of AA; 
820 Article 49b paragraph 3 of AA; 
821 Article 49b paragraph 4 of AA; 
822 Article 49b paragraph 5 of AA; 

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the  entity’s  development,  results  and  standing  as  well  as  the  impact  of  the  entity’s 
activities  on  the  social  issues,  employees’  issues,  environmental  issues,  respect  for 
human rights and corruption prevention. If this occurs, the entity should indicate it in the 
non-financial information823. 

It is important to note that the entity is permitted not to draw up the statement on non-
financial  information  if  it  separately  prepares,  together  with  the  report  on  activities,  a 
report on non-financial information and publishes it on its website within 6 months from 
the  balance-sheet  date.  The  entity  shall  contain  in  the  report  on  activities  the 
information on drawing up a separate report on non-financial information in accordance 
with the requirements specified above824. 

Article 55 of AA states that in case of the controlling entity which is the entity referred to 
in  Article  3,  paragraph  1e,  points  1  to  6  if  AA  and  a  company,  a  limited  joint-stock 
partnership,  or  such  a  registered  partnership  or  limited  partnership  in  which  all  the 
partners  or  shareholders  bearing  unlimited  liability  are  companies,  limited  joint-stock 
partnerships or companies or partnerships from other countries of a similar legal form to 
those companies or partnerships; and a controlling entity of a capital group if aggregate 
data  of  the  controlling  unit  and  all  subsidiary  entities  of  every  level  as  on  the  balance-
sheet  date  of  the  financial  year  and  the  balance-sheet  date  of  the  preceding  financial 
year: 

having made the consolidation exclusions referred to in Article 60, paragraphs 2 
- 
and  6,  exceed  the  values  referred  to  in  Article  49b,  paragraph  1  of  AA  and  prior  to 
making the consolidation exclusions exceed the following values: 500 persons  – in the 
case  of  average  annual  full-time  employment  and  102,000,000  PLN  –  in  the  case  of 
balance-sheet  assets  total  at  the  end  of  the  financial  year  or  170,000,000  PLN  in  the 
case of net revenues from sales of goods and products for the financial year; 
also includes in the report on the capital group’s activities – as a separated part – 
- 
a  statement  of  a  capital  group  on  non-financial  information  properly  drawn  up  in 
accordance with the requirements specified in the article 49b of AA825. 

Also,  AA  enables,  the  controlling  entity  is  permitted  not  to  draw  up  the  statement  of  a 
capital group on non-financial information, provided that it separately prepares, together 
with  the  report  on  the  capital  group’s  activities,  a  report  of  a  capital  group  on  non-
financial information  and  publishes  it  on  its  website  within  6  months  from  the  balance-
sheet date. The entity shall contain in the report on the entity’s activities the information 
on  drawing  up  a  separate  report  of  a  capital  group.  It  is  assumed  that  the  controlling 
entity  drawing  up  the  statement  of  a  capital  group  on  non-financial  information  or  the 
report  of  a  capital  group  on  non-financial  information  in  accordance  with  the 
requirements of the AA fulfils the obligation to disclose the indicators and information on 
social  issues,  employees’  issues,  environmental  issues,  respect  for  human  rights  and 
corruption prevention826. 

An  entity  which  is  a  lower-level  controlling  entity  is  permitted  not  to  draw  up  the 
statement of a capital group on non-financial information or the report of a capital group 
on  non-financial information if  its  higher-level  controlling  entity  having  its  seat  or  head 
office on the territory of the European Economic Area draws up a statement of a capital 
group  on  non-financial  information  or  a  report  of  a  capital  group  on  non-financial 
information  in  accordance  with  the  provisions  of  law  of  the  European  Economic  Area 
state  by  which  it  is  governed,  which  statement  or  report  shall  cover  this  entity  and  its 
subsidiary  entities  of  every  level.  In  this  case,  the  entity  shall  disclose  in  the  report  on 
activities  the  name  and  seat  of  its  higher-level  controlling  entity  which  draws  up  the 
statement or report of a capital group on non-financial information, which statement or 
report  shall  cover  this  entity  and  its  subsidiary  entities  of  every  level.  In  this  case, 

823 Article 49b paragraph 6 and 7 of AA; 
824 Article 49b paragraph 9 of AA. 
825 Article 55 paragraph 2b of AA; 
826 Article 55 paragraph 2c and 2d of AA; 

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according to the article 69 of AA, the manager of an entity shall place on the website of 
such  entity  a  capital  group  statement  on  non-financial  information  or  a  capital  group 
report  on  non-financial  information  drawn  up  by  the  higher-level  controlling  entity, 
within  30  days  of  the  day  of  its  approval  but  no  later  than  within  12  months  of  the 
balance  sheet  date  of  such  controlling  entity,  each  of  them  translated  into  the  Polish 
language by a sworn translator827. 

b.  Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 

supply chain 

According  to  AA,  the  entity  which  is  a  subsidiary  entity,  including  a  lower-level 
controlling entity, is permitted not to draw up the statement on non-financial information 
or the report  on non-financial information if its higher-level controlling entity having its 
seat or head office on the territory of the European Economic Area draws up a statement 
of  a  capital  group  on  non-financial  information  or  a  report  of  a  capital  group  on  non-
financial information in accordance with the provisions of law of the European Economic 
Area state by which it is governed, which statement or report shall cover this entity and 
its subsidiary entities of every level. In this case, the entity shall disclose in the report on 
activities  the  name  and  seat  of  its  higher-level  controlling  entity  which  draws  up  the 
statement or report of a capital group on non-financial information, which statement or 
report  shall  cover  this  entity  and  its  subsidiary  entities  of  every  level828.  If  this  occurs, 
pursuant to the article 69 of AA, the manager of an entity shall place on the website of 
such  entity  a  capital  group  statement  on  non-financial  information  or  a  capital  group 
report  on  non-financial  information  drawn  up  by  the  higher-level  controlling  entity, 
within  30  days  of  the  day  of  its  approval  but  no  later  than  within  12  months  of  the 
balance  sheet  date  of  such  controlling  entity,  each  of  them  translated  into  the  Polish 
language by a sworn translator829. 

5.  Monitoring, sanction, and enforcement 

Form of sanction 

According  to  the  article  79  of  AA,  constituting  the  rules  of  criminal  liability,  whoever, 
against the provisions of the AA, fails to place the documents on an entity's website (in a 
situation  when  the  entity  is  permitted  not  to  draw  up  the  statement  on  non-financial 
information  if it  separately  prepares,  together  with  the  report  on  activities,  a  report  on 
non-financial  information  and  publishes  it  on  its  website  within  6  months  from  the 
balance-sheet  date  and  instead  contains  in  the  report  on  activities  the  information  on 
drawing  up  a  separate  report  on  non-financial  information  in  accordance  with  the 
requirements specified), shall be liable to a fine or a penalty of restriction of liberty830. 

What  is  more,  as  it  is  stated  above,  the  statement  on  non-financial  information  is  a 
separate  part  of  the  report  on  activities.  This  decides  on  applying  article  4a  of  AA, 
according to which the manager of an entity and members of the supervisory board or of 
another  body  supervising  the  entity  shall  ensure  that  the  report  on  activity  of  a  capital 
group, in particular, are in compliance with the requirements set forth in AA – therefore 
also  in  compliance  with  the  provisions  of  AA  concerning  the  obligation  of  stating  non-
financial  information.  In  case  of  breach  of  this  duty,  the  manager  of  an  entity  and 
members  of  the  supervisory  board  or  of  another  body  supervising  the  entity  shall  be 
jointly and severally liable to the company (partnership) for any damage caused by acts 
or omissions constituting this breach831. 

It  is  relevant  as  well  that  pursuant  to  AA,  that  whoever  allows  the  following:  the  case 
when  the  report  on  activities  is  not  prepared,  prepared  against  the  provisions  of  AA 
(therefore including those concerning the obligation to include in the report of activities 

827 Article 55 paragraph 2e of AA. 
828 Article 49b paragraph 11 of AA; 
829 Article 69 paragraph 5 of AA; 
830 Article 79 point 4a of AA; 
831 Article 4a paragraph 1 and 2 of AA; 

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the statement of non-financial information) or presentation of untrue data therein - shall 
be liable to a fine or a penalty of deprivation of liberty of up to 2 years, or both penalties 
together832. Moreover, whoever fails to file the report on activities or report on activities 
of a capital group shall be liable to a fine or a penalty of restriction of liberty833. 

C. 

Entrepreneurs' Law834 

2. Scope 

Rationale  given  by  the  State  for  the  regulation,  and  extent  of  human  rights, 
environmental, climate change, sustainability and governance matters covered 

In  the  Justification  of  the  draft  of  Entrepreneurs’  Law  (EL)  in  2018  indicates  that  the 
constitutional  obligation  to  protect  freedom  of  economic  activity  from  the  unlawful 
interference  of  other  entities,  EL  shall  be  fulfilled  by  explicit  commitment  of  the 
entrepreneurs to perform their economic activity in compliance with the rules included in 
article 9 of EL, which also include the issue of human rights and freedoms. 

The  principle  of  fair  competition  (one  of  the  rules  included  in  article  9  EL)  as  a  legal 
determinant of the performance  of entrepreneurs’ business activity has not only strictly 
juridical  dimension,  but  also  includes  elements  of  a  more  universal  meaning,  including 
matters in the scope of ethics, morality, culture, organizational rules and the essence of 
the market economy. In the practical sense – as justification describes - fair competition 
can  be  defined  in  a  negative  sense  as  entrepreneurs  abstaining  from  acts  of  unfair 
competition, understood as actions contrary to the law or good practices that threaten or 
violate the interest of another entrepreneur or client. 

Therefore, the legislator decided that the content of the principle specified in article 9 EL 
cannot  be  reconstructed  by  solely  following  the  content  of  legal  provisions,  but  it  is 
necessary  to  reach  for  various  non-legal  points  of  reference.  Moreover,  as  it  is 
mentioned  in  the  justification  of  the  draft,  the  above  rule  was  also  rooted  in  the  UN 
Guiding  Principles  on  Business  and  Human  Rights,  which  were  adopted  in  2011  by  the 
UN Human Rights Council, which takes into consideration the duties of states concerning 
the  protection  of  the  rights  of  individuals  when  it  comes  to  their  infringement  by  the 
companies. In justification of the draft of EL, it is further amplified that the EU Member 
States – on the basis of commitments made in the document  EU Action Plan on Human 
Rights  and  Democracy  2015-2019  and  in  the  conclusions  to  the  Action  Plan  –  were 
bound to adopt national action plans implementing the UN Guidelines. By the time that 
EL  was  drafted,  the  Polish  Ministry  of  Foreign  Affairs  had  coordinated  the  process  of 
implementation; meanwhile, the inter-ministerial and public consultations concerning the 
National Action Plan on Implementing the UN Guidelines came to an end. 

Considering  the  above,  the  legislator  indicated  that  EL  contains  direct  referral  to  the 
obligation  to  respect  and  protect  human  rights  and  liberties.  It  does  not,  however, 
explicitly relate to HRDD except for stressing out the role of enterprises in the protection 
of  human  rights  and  the  need  of  securing  by  the  state  the  access  to  remedies  for  the 
entrepreneurs'  victims 835 .  Despite  the  reference  to  the  necessity  of  ensuring  the 
possibility of claiming remedies to the harmed individuals, the EL itself does not contain 
any regulation enabling such actions. 

832 Article 77 point 2 of AA; 
833 Article 79 point 4 of AA: 
834 Entrepreneurs' Law (Ustawa z dnia 6 marca 2018 roku Prawo przedsiębiorców, Dz.U.2018.64.; hereinafter: „EL”); 
http://isap.sejm.gov.pl/isap.nsf/download.xsp/WDU20180000646/U/D20180646Lj.pdf;  
835 835 Justification of the draft of Entrepreneurs’ Law, p. 31 - 32, 
http://orka.sejm.gov.pl/Druki8ka.nsf/0/9E761CF9B6B03CBCC12581E10059DD88/%24File/2051.pdf. 

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3.  Content of Regulation 

Overview and description of the required measures for business 

The  preamble  of  EL  recalls  principles  as  the  constitutional  principle  of  freedom  of 
economic  activity,  the  rule  of  law,  legal  certainty,  non-discrimination,  and  sustainable 
development.  In addition, EL states that an entrepreneur may take any actions,  except 
for those prohibited by law836. Moreover, EL obliges the entrepreneur to pursue economic 
activity according to the principles of fair competition and with respect to good customs 
and  legitimate  interests  of  other  entrepreneurs  and  consumers,  and  to  respect  and 
protect the human rights and freedoms837. Nevertheless, despite the explanation for 
constituting  the  article  9,  EL  does  not  develop  this  obligation  or  actions  that  the 
entrepreneur is bound to perform to be in compliance with this duty838. Moreover, there 
is a lack of provision that would address this principle in the case of infringing it by the 
entrepreneur,  nor  there  are  objectives  of  the  entity’s  liability  or  responsibilities  to  the 
victims. 

4.  Monitoring, sanction, and enforcement 

According  to  the  provisions  of  EL,  the  general  rule  concerning  the  control  of  the 
economic activity of entrepreneurs is that it is planned and performed upon preparing a 
previous  analysis  of  the  probability  of  law  infringement  when  performing  the  economic 
activity. This analysis should identify the scope of the subject areas in which the risk of 
violation is the greatest839. 

As  EL  states,  in  the  event  of  becoming  aware  of  the  economic  activity  contrary  to  the 
provisions of EL, as well as in the event of a threat to life or health, the risk of property 
damage  in  large  sizes  or  imminent  environmental  risk  as  a  result  of  this  activity,  the 
village  mayor,  mayor  or  city  president  immediately  notifies  competent  authorities. 
Moreover, the competent authorities cannot immediately inform the above bodies about 
the actions taken, the village mayor, mayor or city president might impose, through the 
decision, stopping the business activity for the necessary period, though not longer than 
3 days840. 

D. 

Labour Code841 

2. Scope 

Rationale given by the State for the regulation 

The  introduction  of  the  obligation  to  assess  and  document  occupational  risks  related  to 
work performed in the Labour Code (LC) results from the provisions of Directive 89/391 
and  occurred  through  the  Act  of  November  14,  2003,  amending  the  Labour  Code  and 
changing other Acts842. In its justification, it is stated that the need for the amendment 
of LC arises from the necessity of adapting into Polish legislation European Union laws843. 

836 Article 8 of EL; 
837 Article 9 of EL; 
838 Justification of the draft of Entrepreneurs’ Law, p. 32, 
http://orka.sejm.gov.pl/Druki8ka.nsf/0/9E761CF9B6B03CBCC12581E10059DD88/%24File/2051.pdf. 
839 Article 47 paragraph 1 of EL; 
840 Article 60 paragraph 1, 2 and 3 of EL; 
841 Labour Code (Ustawa z dnia 26 czerwca 1974 roku Kodeks pracy, tekst jednolity: Dz.U.2018.917); hereinafter: LC, 
http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU19740240141/U/D19740141Lj.pdf; 
842 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20032132081/T/D20032081L.pdf; 
843 Justification of the Act of November 14, 2003, on amending the act - Labour Code and changing other acts, p. 3 
http://orka.sejm.gov.pl/Druki4ka.nsf/($vAllByUnid)/2C5F50B0FEEEA959C1256C850057A9AA/$file/1162.PDF 

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Extent  of  human  rights,  environmental,  climate  change,  sustainability  and 
governance matters covered 

LC  defines  the  rights  and  obligations  of  employers  and  employees 844 .  Its  chapters 
concern e.g. basic rules of labour law845, equal treatment in employment846, employment 
of  young  adults 847,  work  safety  and  hygiene 848,  consideration  of  claims  arising  from 
employment  relationships  and  labour  courts849 or  responsibility  for  offences  in  cases  of 
violation  of  employee’s  rights 850 .  The  provisions  describe  employers’  duties  (e.g.  to 
prevent  mobbing851,  to  provide  equal  treatment  in  employment852,  to  have  respect  for 
dignity and other personal rights of the employee853) and constitutes several prohibitions 
(e.g. inadmissibility of any discrimination in employment, direct or indirect854 or general 
prohibition  to  employ  a  person  who  is  not  over  15-years-old855).  There  is  no  general 
obligation  to  perform  due  diligence  in  the  matters  of  human  rights  or  environmental 
aspects  in  supply  chains,  nevertheless  some  of  the  companies  create  appropriate 
policies,  e.g.  Polish  LPP  joint-stock  company  created  documentation  regulating  the 
cooperation with suppliers - a Code of Conduct for the suppliers, LPP Quality Guidebook 
or LPP Sustainable Development Strategy856; also CCC joint-stock company provides the 
Code of Conduct for the suppliers857. 

In the context of this analysis, it is crucial that one of the principles is that the employer 
is  obliged  to  ensure  for  the  employees  safe  and  hygienic  work  conditions 858  (and 
therefore refers to human rights such as health, life or security), and as for due diligence 
duty  of  the  employer,  it  is  embodied  in  particular  in  Section  VI  of  Chapter  10  - 
Preventive health protection of LC. 

3. Content of Regulation 

Overview and description of the required measures for business; obligations in 
relation to subsidiaries and business relationships in the supply chain; and risk 
assessment requirements and risk mitigation measures 

Due  to  provisions  of  LC  describing  the  employer’s  duties  in the  matters  connected  with 
protecting  the  employees’  life  and  health  through  ensuring  safe  and  hygienic  working 
conditions  to  his/her  employees  by  an  appropriate  use  and  application  of  the 
achievements  of  science  and  technology 859.  In  particular,  the  employer  is  obliged  to 
ensure the  development  of  a  coherent  policy  preventing  accidents  at  work  and 
occupational  diseases  which  covers  technology,  organization  of  work,  working 
conditions,  social  relationships  and  the  influence  of  factors  related  to  the  working 
environment860. 

The  employer  is  obliged  to  assess  and  document  the  occupational  risk  connected  with 
the work performed and apply the necessary preventive measures to reduce such risk as 
well  as  inform  the  employees  of  any  occupational  risk  connected  with  the  work 
performed and of the rules for protection against hazards861. 

844 Article 1 of LC; 
845 Section I Chapter II of LC; 
846 Section I Chapter IIa of LC; 
847 Section IX Chapters I-VI of LC; 
848 Section X Chapters I-XIII of LC; 
849 Section XII Chapters I-III of LC. 
850 Section XIII of LC; 
851 Article 943 paragraph 1 of LC; 
852 Article 94 point 2b of LC; 
853 Article 111 of LC; 
854 Article 113 of LC; 
855 Article 190 paragraph 2 of LC; 
856 As stated in LPP non-financial report https://www.lppsa.com/wp-content/uploads/2018/06/Niefinansowy-raport-LPP-za-
2017.pdf; 
857 CCC Code of Conduct for the Suppliers https://firma.ccc.eu/Media/download/814/kodeks-postepowania-ccc-pl.pdf; 
858 Article 15 of LC; 
859 Article 207 paragraph 2 of LC; 
860 Ibidem. 
861 Article 226 of LC. 

210 

 
 
                                                        
Moreover,  pursuant  to  LC,  an  employer  is  obliged  to  apply  measures  preventing 
occupational diseases and other diseases  connected with the work. This duty is fulfilled 
particularly through: 

ensuring  permanent  efficiency  of  facilities  limiting  or  eliminating  factors  in  the 
- 
working environment which are harmful to health and of  facilities for  measurement of 
such factors; 
conducting, at the employer’s cost, tests and measurements of factors harmful to 
- 
health as well as records and keeps the results of such researches and measurements 
and make them accessible to employees862. 

LC contains a reference that the Minister of Labour and Social Policy in agreement with 
the  Minister  of  Health  and  Social  Welfare  shall  establish  through  an  ordinance,  general 
health and safety regulations regarding work performed in various branches of work863. 

4. Monitoring, sanction, and enforcement 

Monitoring body 

According to the provisions of LC, the supervision and control of compliance with  labour 
law, including the provisions and the principles of work safety and hygiene are enforced 
by  the  State  Labour  Inspection.  The  State  Sanitary  Inspectorate  is  responsible  for 
supervision and control of compliance with the principles and provisions on work hygiene 
and the conditions of the working environment. The procedures and organization of that 
inspection are regulated in different laws864. 

Social control of  compliance with  labour law, including the provisions  and rules  of work 
safety  and  hygiene  is  to  be  enforced  by  the  social  labour  inspectorate,  which 
organization, tasks, and rights, as well as the principles of cooperation thereof with the 
State Labour Inspectorate and other authorities of supervision and control, are regulated 
in different laws865. 

An  employer  employing  more  than  100  employees  is  obliged  to  create  the  service  of 
safety  and  hygiene  of  work,  which  is  advising  and  controlling  body  for  the  matters  of 
safety  and  hygiene  of  work.  An  employer  with  less  than  100  employers  entrusts  the 
above responsibilities to the employee who performs different work866. 

An  employer  employing  more  than  250  employees  has  to  create  a  commission  of  work 
safety and hygiene as the advising body867. 

Form  of  monitoring/evaluation,  timelines 
procedures for review 

for 

investigating  complaints, 

Supervising  bodies  when  controlling,  for  example,  enterprises,  are  obliged  to  take 
precautions aimed at creating safe and hygienic work conditions, in particular by868: 

providing  their  assistance  to  enterprises  and  organizational  units  in  carrying  out 

performing a yearly assessment on the state of safety and hygiene in enterprises 

• 
the tasks related to work safety and hygiene; 
• 
and to determine the directions of improvement of this condition; 
• 
need or opportunity occurs. 

to initiate and conduct scientific research on health and safety at work when such 

862 Article 227 of LC; 
863 Article 23715 of LC; 
864 Art. 184 paragraph 1-3 of LC; 
865 Art. 185 paragraph 1 and 2 of LC; 
866 Article 23711 of LC; 
867 Article 23712 of LC. 
868 Article 23714 of LC; 

211 

 
 
                                                        
The  doctrine  indicates  that  the  obligations  and  the  wording  of  duties  are  very  general, 
what poses a danger that in reality the  above-mentioned duties are not performed and 
enforced869. 

Form of sanction 

An  employer  shall  be  responsible  for  the  level  of  work  safety  and  hygiene  in  the 
employing establishment870. 

The  provisions  of  LC  describing  offences  connected  with  work  safety  and  hygiene  in 
employment,  constitute  that  any  person  responsible  for  the  level  of  work  safety  and 
hygiene  in  an  employing  establishment  or  otherwise  managing  employees  or  other 
natural  persons,  who  fails  to  observe  the  provisions  or  principles  of  work  safety  and 
hygiene, shall be liable to a fine from 1,000 up to 30,000 PLN871. 

What is more, LC states that an employee may also terminate a contract of employment 
without  a  notice  in  a  situation  when  the  employer  has  committed  serious  violations  of 
basic duties towards the  employee872. Such violation873 is - among  others  - a breach  of 
occupational health and safety conditions in accordance with the applicable provisions of 
LC. In such a case, the employee shall have the  right  to  compensation  equal  to  an 
amount  of  remuneration  for  the  period  of  notice. In the case of termination of the 
contract of employment concluded for a definite period, the compensation shall be equal 
to an amount of the remuneration for the period of intended validity of the contract, but 
for not more than the notice period874. 

E. 

Health and safety875 

2Scope 

Extent  of  human  rights,  environmental,  climate  change,  sustainability  and 
governance matters covered 

The  provisions  of  the  Ordinance  on  general  health  and  safety  at  work  (GHS)  concern 
human  life,  health,  and  safety  at  work.  The  laws  concerning,  in  particular  the 
assessment  risk,  were  introduced  through  the  amendments  to  the  GHS  in  2007  and 
2008. 

3. Content of Regulation 

Overview and description of the required measures for business, and key legal 
elements of the obligation 

The  employer  fulfils  the  obligation  to  provide  the  employees  with  health  and  safety  at 
work,  in  particular  by  preventing  work-related  hazards,  proper  organization  of  work, 
application  of  necessary  preventive  measures  and  information  and  training  of 
employees876.  The  above  duty  should  be  implemented  on  the  basis  of  general  rules  on 
the prevention of work-related accidents and diseases, in particular by: 

- 
- 
- 

risk prevention; 
conducting a risk assessment related to threats that cannot be excluded; 
elimination of threats at the source of their occurrence; 

869 Cf. Wyka T., Art. 23714 [in:] Kodeks Pracy. Komentarz, Baran K. (ed.),, WKP 2018. 
870 Article 207 of LC; 
871 Article 283 paragraph 1 of LC; 
872 Article 55 § 11 of LC; 
873 Cf. the judgment of the District Court in Toruń. October 27, 2017, act signature IV P 63/17, 
https://orzeczenia.ms.gov.pl/content/$N/151025200002021_IV_P_000063_2017_Uz_2017-11-13_001; 
874 Article 55 § 11 of LC; 
875 According to the Ordinance of the Minister of Labour and Social Policy of September 26, 1997 on general health and safety 
at work (tekst jednolity: Dz.U.2003.169.1650.); hereinafter: GHS, 
http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU19971290844/O/D19970844.pdf. 
876 § 39 paragraph 1 of GHS; 

212 

 
 
                                                        
adaptation  of  work  conditions  and  processes  to  the  employee's  capabilities,  in 
- 
particular  through  appropriate  design  and  organization  of  workplaces,  selection  of 
machines and other technical equipment and tools, as well as production methods and 
work - taking into account the reduction of workload, especially monotonous work and 
work  in  the  pre-determined  rate,  and  limit  the  negative  impact  of  such  work  on  the 
health of employees; 
- 
- 
materials - safe or less dangerous; 
- 
equipment; 
- 

application of new technical solutions; 
replacing  dangerous  technological  processes,  devices,  substances  and  other 

giving  priority  to  collective  protection  measures  against  personal  protective 

instructing employees in the field of occupational health and safety877. 

GHS  also  concerns  occupational  risk  assessment  and  preventive  measures.  The 
employer  assesses  the  occupational  risk  occurring in  the  performed  work,  in  particular, 
when:  selecting  equipment  for  workstations  and  workplaces,  used  chemical,  biological, 
carcinogenic  or  mutagenic  substances  and  preparations  as  well  as  changing  work 
organization.  While  performing  occupational  risk  assessment,  all  of  the  factors  of  the 
work environment occurring during the performed works and ways of performing works 
should be taken into account878. 

The  preventive  measures  and  methods  used  as  well  as,  following  the  occupational  risk 
assessment,  work  organization  should  ensure  an  increase  in  the  level  of  safety  and 
health  protection  of  employees  and  be  integrated  with  the  activity  carried  out  by  the 
employer at all levels of the organizational structure of the workplace879. 

GSH decides that the employer keeps the record of the occupational risk assessment and 
necessary  preventive  measures.  This  provision  also  describes  the  content  of  the 
documentation confirming the performance of the assessment, which should include: 

the  description  of  the  worksite  assessed,  including  the  description  of  machines, 
- 
tools, and materials used, performed tasks, hazardous, harmful and burdensome work 
environment factors, the means of collective and individual protection used and people 
working in this position; 
- 
environment factors and the necessary preventive measures to reduce the risk; 
- 

the  results  of  the  occupational  risk  assessment  carried  out  for  each  of  the  work 

the date of the assessment and the persons making the assessment880. 

Another obligation of the employer is to inform the employees about existing threats, in 
particular  about  threats  that  they  will  be  protected  against  by  personal  protective 
equipment,  and  to  provide  information  about  these  measures  and  the  rules  for  their 
use881. 

Moreover, the employer is obliged to determine and to bring up to date the inventory of 
particularly  dangerous  works  occurring  in  the  workplace  and  designates  detailed 
requirements  for  occupational  health  and  safety  in  the  performance  of  particularly 
dangerous work882. 

Additionally,  the  employer  is  obliged  to  inform  employees  about  the  physical,  chemical 
and biological properties of materials, semi-finished products, and finished products used 
in the workplace, and about the risks to health and safety of employees related to their 
use, as well as the methods of their safe use and handling in emergency situations883. 

877 § 39 paragraph 2 points 1-8 of GHS; 
878 § 39a paragraph 1 of GHS; 
879 § 39a paragraph 2 of GHS; 
880 § 39a paragraph 3 of GHS; 
881 § 39c of GHS; 
882 § 80 paragraph 1 and 2 of GHS; 
883 § 92 paragraph 1 of GHS; 

213 

 
 
 
                                                        
F.  Public Procurement Law884 

2. Scope 

Rationale given by the State for the regulation 

Some of the significant changes to the Public Procurement Law (PPL) were introduced in 
2016 (and came into force in July that year) as a result of transposition885 to the Polish 
legal order the Directive 2014/24/EU886 as well as the Directive 2014/25/EU887. 

The Act amending PPL included also all of the provisions of the directives concerning the 
mandatory  exclusion  of  the  contractors  who  e.g.  committed  crimes  recognized  as 
particularly detrimental to the public interest.  The  contractors are  obliged to attach the 
statement that they do not fall for the scope of the exclusion. Moreover, contractors who 
refer to the resources of other entities also need to demonstrate the absence of a basis 
for their exclusion. 

3. Content of Regulation 

Overview and description of the required measures for business 

According  to  PPL,  the  contractor  willing  to  be  awarded  the  order  by  the  contracting 
authority  needs  to  prove  through  the  statement  that  neither  of  the  subcontractors  on 
whose resources he/she relies, does not fall within the scope of obligatory exclusion from 
the contract award proceedings888. 

The  subcontractor  being  a  natural  person  cannot  participate  in  the  contract  award 
proceeding if he or she had committed crimes and have been validly convicted for, e.g.: 
various  corruption  crimes,  crimes  against  the  environment,  human  trafficking,  crimes 
against  the  rights  of  the  people  pursuing  gainful  employment,  crimes  concerning 
entrusting work to foreigners illegally staying in Poland or minor foreigners, and crimes 
concerning  entrusting,  under  conditions  of  special  use,  work  to  foreigners  illegally 
staying in Poland. Special use shall be understood as the situation when: the conditions 
of work that has been entrusted with the violation of law and human dignity, which are 
glaringly  different  (especially  on  the  basis  of  sex)  in  comparison  with  the  working 
conditions  of  persons  entrusted  with  the  performance  of  work  in  accordance  with  the 
law; particularly affecting the health or safety of persons doing work889. 

4. Monitoring, sanction, and enforcement 

Monitoring body 

The  President  of  the  Public  Procurement  Office  (PPPO)  is  the  monitoring  body  in  the 
scope  of  e.g.  ensuring  the  functioning  of  the  system  of  legal  protection  measures  or 
supervising  the  compliance  with  the  rules  of  the  procurement  system,  in  particular 
controlling  the  process  of  awarding  contracts  within  the  scope  provided  by  law890.  The 
PPPO also controls awarding contracts by checking the compliance of the procedure with 
the provisions of PPL891. 

884 Public Procurement Law (ustawa z dnia 29 stycznia 2004 roku Prawo zamówień publicznych, tekst jednolity: 
Dz.U.2018.1986); hereinafter: PPL, http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20040190177/U/D20040177Lj.pdf; 
885 The transposition occurred through the Act of June 22, 2016 amending the Act of 29 January 2004 - Public Procurement 
Law, Dz.U.2016.1020, http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20160001020/U/D20161020Lj.pdf 
886 Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and 
repealing Directive 2004/18/EC, Official Journal L 94, 28.3.2014, p. 65–242 
887 Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities 
operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC, Official Journal L 94, 
28.3.2014, p. 243–374 
888 Article 25a of PPL in connection with the article 24 of PPL; 
889 Ibidem. 
890 Article 152 of PPL in connection with the article 154 point 6 and 11; 
891 Article 161 paragraph 1 and 2 of PPL; 

214 

 
 
 
                                                        
Form of sanction 

If PPPO discovers that the regulations set in PPL have been infringed, he might apply to 
the court for the annulment of the contract - wholly or partially892. 

III. COMPARATIVE ANALYSIS 

9.. Comparisons between different regulations within the Member State 

a.  Corporate  and  directors’  liability  regime  in  case  of  violations  or  damage 
caused  by  operators  in  the  EU  parent  company’s  supply  chain,  including 
relevant jurisprudence, even in the absence of legislation on due diligence 

Under the Polish Code of Commercial Companies893 piercing the corporate veil is limited. 
In  case  of  a  limited  liability  company,  members  of  the  management  board  are  liable  if 
execution  against  the  company  proved  ineffective.  However,  they  may  extricate 
themselves  from  liability  by  filing  a  bankruptcy  request  in  due  time 894.  In  joint  stock 
companies  even  such  limited  liability  of  the  managing  board  members  is  not  stipulated 
by  law.  However,  board  members  may  be  subject  to  tortious  liability  based  on  the 
general rules of the Civil Code895. It has to be pointed out that as a general rule a legal 
person  is  obliged  to  repair  damage  caused  by  the  fault  of  its  body896,  nonetheless,  it 
does  not  exclude  the  personal  responsibility  of  a  natural  person  as  a  member  of  the 
body. The responsibility of these entities is then joint and several897. In a situation when 
damage  is  caused  by  members  of  the  body  who  overstepped  their  duties  responsibility 
can only be attributed to the members of the body. 

Presently,  there  are  no  statutory  grounds  to  assign  liability  of  parent  companies  for 
violation  of  contracts  by  their  subsidiaries  since  “in  essence,  a  parent  company  is  not 
responsible  towards  third  parties  for  liabilities  of  its  subsidiary;  creditors  of  the 
subsidiary are third parties in relation to the parent company”, which is associated, inter 
alia,  with  the  “fundamental  rule  of  commercial  law,  pursuant  to  which  a  partner 
(shareholder) of a capital company (in this case – the parent company) is not liable with 
its assets for liabilities of the capital company in which it participates (in this case  – the 
subsidiary)898”. What is important is that liability of the parent company for liabilities of 
its daughter company is not uncommon in the legal order of other European countries 899. 
However,  the  mentioned  rule  does  not  apply  to  non-contract  liability.  Therefore,  it  is 
possible  –  by  using  general  Civil  Code  provisions  (art.  405  et  seq.  [unjust  enrichment] 
and  art.  415  et  seq.  [tort  liability])  to  make  a  parent  company  liable  for  a  delict 
committed by its subsidiary, especially in situation of abuse of the formal separation of 
companies within a single capital group900. 

Nonetheless,  it  has  to  be  underlined  that  in  many  cases  using  a  described  general 
framework of civil responsibility may be hard or even impossible, mainly due to evidence 

892 Article 168 point 3 of PPL. 
893 Ustawa z dnia 15 września 2000 roku Kodeks spółek handlowych (tekst jednolity: Dz.U.2019.505., hereinafter: the Code of 
Commercial Companies) http://isap.sejm.gov.pl/isap.nsf/download.xsp/WDU20000941037/U/D20001037Lj.pdf. 
894 Article 299 paragraph 1 and 2 of the Code of Commercial Companies; 
895 Article 300 of the Code of Commercial Companies which refers to Article 415 et seq. of the Civil Code (Anyone who by a 
fault on his part causes damage to another person is obliged to remedy it); 
896 Art. 416 of the Civil Code. 
897 Wałachowska M., Art. 416 [in:] Kodeks cywilny. Komentarz. Tom III. Zobowiązania. Część ogólna (art. 353-534), Fras M., 
Habdas M. (ed.). Wolters Kluwer Polska, 2018. 
898 M. Rodzynkiewicz, Kodeks spółek handlowych. Komentarz (Code of Commercial Companies. Commentary), LexisNexis, 
2014; 
899 Verdict of the Court of Justice (Ninth Chamber) of 20 June 2013 in Case C-186/12, http://curia.europa.eu/juris/ 
liste.jsf?num=C-186/12&language=EN; 
900 Cf. Judgment of the Supreme Court of 24 November 2009, V CSK 169/09, where the Supreme Court stated that: However, 
there are no obstacles to pursuing a claim for unjust enrichment, provided that all the conditions provided for in Article 405 et 
seq. of the Civil Code are met, against a person who is outside the existing and improperly performed - by another person - 
relationship of obligation. As indicated by the Supreme Court in the judgment of 22 November 2006. (V CSK 289/06,) the 
same event, the effect of which is impoverishment and enrichment, may mean one factual or legal act, but it may also include 
interrelated factual or legal acts, performed not only by the impoverished and enriched, but also by third parties. 

215 

 
 
 
                                                        
difficulties.  Because  of  that,  there  is  an  ongoing  discussion  about  changing  the  current 
regulations to introduce the broader idea of piercing the corporate veil – connected with 
the  liability  of  members  of  bodies,  as  well  as  parent  companies.  In  April  2019  press 
publication  appeared  referring  to  the  unpublished  draft  of  the  Act  on  Specific 
Responsibility  of  Parent  Companies  for  Damages  to  the  Dominated  Company,  its 
Partners and Creditors901. According to the publication, a parent company will be obliged 
to  repair  the  damage  resulting  from  the  abuse  of  a  dominant  position  unless  it  proves 
the  lack  of  guilt.  As  the  draft  was  not  published  it  is  impossible  to  make  any  further 
comments on this topic. 

b.  Whether  the  concept  of  due  diligence  is  used  in  the  domestic  regulation  of 
other areas of corporate governance 

i. Anti-money laundering 

Due  diligence  demands  and  risk  analysis  are  visible  in  anti-money  laundering 
regulations902, however, the General Inspector of Financial Information (GIFI) – who has 
a  position  of  a  secretary  or  an  undersecretary  of  state  in  the  Ministry  of  Finance  –  is 
obliged  to  prepare  and  update  every  two  years  a  national  assessment  of  money 
laundering  and  terrorist  financing  risk,  within  which  he  is  supported  by  obliged 
institutions  (a  group  of  corporate  entities  to  which  AML/CTF  obligations  were 
imposed 903).  The  national  assessment  includes:  a  description  of  the  risk  assessment 
methodology;  a  description  of  phenomena  related  to  money  laundering  and  terrorism 
financing; a description of the applicable regulations; an indication of the level of risk of 
money  laundering  and  terrorist  financing  in  Poland  and  its  substantiation;  conclusions 
resulting  from  the  assessment;  identification  of  issues  related  to  the  protection  of 
personal data related to AML/CTF. The national assessment is the basis for the preparing 
of  the  AML/CTF  strategy  containing  an  action  plan  to  mitigate  the  risks  of  money 
laundering and terrorist financing904. 

Obliged  entities  at  the  same  time  must  individually  identify  and  assess  the  risks 
associated  with  money  laundering  and  terrorist  financing  related  to  their  activities, 
taking into  account  risk  factors  for  customers,  countries  or  geographic  areas,  products, 
services, transactions or their supply channels. These activities should be proportional to 
the  nature  and  size  of  the  obligated  institution.  Individual  assessments  should  be 
updated  at  least  every  two  years 905 .  Additionally,  obliged  institutions  apply  financial 
security measures to their clients, including identification of the client and verification of 
his identity; identification of the beneficial owner, evaluation of economic relations and, 
if  appropriate,  obtaining  information  on  their  purpose  and  intended  nature;  ongoing 
monitoring of the client's business relationships. Application of the mentioned measures 
must  be  preceded  by  a  risk  recognition  of  money  laundering  which  includes  type  of 
customer;  geographical  area;  the  destination  of  the  invoice;  the  type  of  products, 
services and methods of their distribution; the level of property values deposited by the 
client  or  the  value  of  transactions  carried  out;  the  purpose,  regularity  or  duration  of 
business  relationships 906 .  Among  other  obligations  these  entities  must  moreover 
introduce  the  internal  procedure  regarding  AML  and  CTF  which  has  to  cover  actions  or 
steps  taken  to  reduce  the  risk  of  money  laundering  and  terrorist  financing  and  to 

901 Podmiot dominujący będzie musiał naprawić szkodę firmie zależnej lub jej pracownikowi, Rzeczpospolita, 25th April 2019, 
https://www.rp.pl/Firma/304259988-Spolki-matki-zaplaca-za-corki---o-projekcie-ws-odpowiedzialnosci-za-szkody-w-spolce-
kapitalowej.html 
902 The act of 1 March 2018 on the prevention of money laundering and terrorist financing (Dz.U. 2018.723, hereinafter: AML 
act) http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20180000723/U/D20180723Lj.pdf, which is implementing to Polish 
legal system the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of 
the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 
648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and 
of the Council and Commission Directive 2006/70/EC. 
903 Art. 2.1 of the AML act. 
904 Art. 25, 26, 29 – 32 of the AML act. 
905 Art. 27 of the AML act. 
906 Art. 33 – 54 of the AML act. 

216 

 
 
                                                        
manage  properly  the  identified  risk;  rules  for  identifying  and  assessing  the  risks  of 
money  laundering  and terrorist  financing, including  rules  for  verifying and  updating  the 
prior  assessment  of  the  risks;  measures  in  place  to  adequately  manage  the  identified 
risk of money laundering or terrorist financing associated with the economic relationship 
or occasional transaction in question907. 

The  AML/CTF  system  is  supervised,  as  a  general  rule,  by  GIFI  who  can  impose 
administrative  penalties  on  entities  which  do  not  fulfil  AML  due  diligence  obligations  or 
managers  liable  for  infringements.  Those  penalties  include  publication  of  information 
about  violation  on  the  Ministry  of  Finance  website;  an  order  to  cease  taking  certain 
actions by an obliged institution; withdrawal of a concession or permit or  removal from 
the register of regulated activities; a ban on performing duties in a managerial position 
by  a  person  responsible  for  an  infringement  for  a  period  not  exceeding  one  year; 
financial penalty908. 

ii. Data privacy 

As  in  every  EU  country  Polish  enterprises  are  obliged  to  use  General  Data  Protection 
Regulation 909  which  introduced  a  risk-based  approach  in  the  area  of  processing  of 
personal data. One of the most important obligations of the entities processing personal 
data  is  –  under  certain  conditions  -  carrying  out  an  assessment  of  the  impact  of  the 
envisaged processing operations on the protection of personal data. According to art. 35 
of the GDPR such assessment includes: 

an  assessment  of  the  necessity  and  proportionality  of  the  processing  operations 

a systematic description of the envisaged processing operations and the purposes 
- 
of  the  processing,  including,  where  applicable,  the  legitimate  interest  pursued  by  the 
controller; 
- 
in relation to the purposes; 
an assessment of the risks to the rights and freedoms of data subjects; and 
- 
the  measures  envisaged  to  address  the  risks,  including  safeguards,  security 
- 
measures,  and  mechanisms  to  ensure  the  protection  of  personal  data  and  to 
demonstrate  compliance  with  GDPR  taking  into  account  the  rights  and  legitimate 
interests of data subjects and other persons concerned. 

Where  necessary,  the  controller  shall  carry  out  a  review  to  assess  if  the  processing  is 
performed in accordance with the data protection impact assessment at least when there 
is a change of the risk represented by processing operations910. 

Infringement of this obligation shall be subject to administrative fines up to 10 000 000 
EUR, or in the case of an undertaking, up to 2% of the total worldwide annual turnover 
of the preceding financial year, whichever is higher911. 

iii. Cybersecurity 

Due  diligence  obligations  are  also  present  in  the  Act  on  a  National  Cybersecurity 
System912. In accordance with this regulation, the key service operator shall implement a 
security management system in the information system used to provide the key service, 
within which it is inter alia obliged to: 

1) 

conduct a systematic estimation of the incident risk and manage this risk; 

907 Art. 50 of the AML act. 
908 Art. 147, 150, 151 of the AML act. 
909 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural 
persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 
95/46/EC (hereinafter: GDPR) https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679&from=EN. 
910 Article 35 paragraph 11 of GDPR. 
911 Article 83 paragraph 11 of GDPR. 
912 The act of 5 July 2018 on a national cybersecurity system (Dz.U.2018.1560, hereinafter: NCS) 
http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20180001560/T/D20181560L.pdf, which is implementing to Polish legal 
system the Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures for a 
high common level of security of network and information systems across the Union; 

217 

 
 
                                                        
collect information on cyber-security threats and vulnerabilities of the information 

implement, by taking into account the state of the art, appropriate technical and 

2) 
organisational measures commensurate with the assessed risk, including 
3) 
system used to provide the critical service; 
4)  manage incidents; 
5) 
of the information system used for the provision of the key service913. 

use  of measures to prevent and mitigate the impact of incidents on the security 

If the operator infringes regulations concerning security management system, it may be 
fined  up  to  150  000  PLN914.  Additionally,  a  financial  penalty  (up  to  200%  of  monthly 
salary) may be imposed also on the head of the operator where he has failed to exercise 
due  diligence  in  order  to  fulfil  his  obligations  to  conduct  a  systematic  estimation  of  the 
incident risk and manage this risk915. 

iv. VAT tax 

The Minister of Finance introduced in 2018 the Methodology for assessing the due care of 
purchasers  of  goods  in  domestic  transactions 916  which  identifies  the  most  relevant 
circumstances and risks that should be taken into account when assessing the behaviour 
of  taxable  persons  who  have  not  themselves  committed  VAT  fraud  and  who  were  not 
aware  that  the  transaction  from  which  they  acquired  the  goods  is  a  VAT  fraudulent 
transaction. Although the VAT Act does not directly impose an obligation to  analyze the 
risk  of  tax  fraud  in  transactions,  the  application  of  the  principles  set  out  in  the 
methodology  allows  minimizing  the  likelihood  of  refusing  the  right  to  deduct  input  tax. 
The assessment shall be done at two  stages  -  at the stage  of  starting cooperation with 
the  contractor  and  at  the  stage  of  continuing  cooperation  with  the  contractor.  Both 
stages  should  include  formal  (connected  with  the  contractor  and  its  status)  and 
transactional criteria. 

c. Liability of collective entities917 

The  Act  on  Liability  of  Collective  Entities  for  Actions  Prohibited  Under  the  Threat  of  the 
Penalties  (ALCE)  sets  out  the  rules  of  liability  for  acts  prohibited  by  penalties  as 
crimes  (so  also  some  crimes  against  the  environment  or  concerning  human 
rights) or tax crimes and the rules of conduct for such liability918. The above applies to 
the  collective  entities  understood  as  legal  persons  and  an  organizational  units  without 
legal  personality  whose  separate  provisions  accord  legal  capacity  (excluding  the  State 
Treasury,  local  government  units  and  their  unions),  as  well  as  commercial  companies 
with  the  participation  of  the  State  Treasury,  local  government  units  or  a  union  of  such 
entities,  a  company  in  the  organization,  an  entity  in  liquidation,  and  an  entrepreneur 
who is not a natural person, and a foreign organizational unit919. 

d.  Content of Regulation 

The  collective  entity  is  liable  for  the  prohibited  act  committed  by  the  natural  person  if 
this  behaviour  brought  or  could  have  brought  the  profit  (also  non-monetary)  to  this 
entity.  Additional  condition  for  entities’  responsibility  is  that  one  of  the  following  must 
occur920: 

913 Article 8 of NCS; 
914 Article 73 paragraph 1 point 1 NCS in connection with article 73 paragraph 3 point 1 NCS; 
915 Article 75 of NCS; 
916 https://www.podatki.gov.pl/media/4522/metodyka.pdf; 
917 Act on Liability of Collective Entities for Actions Prohibited Under the Threat of the Penalties (Ustawa z dnia 28 października 
2002 roku o odpowiedzialności podmiotów zbiorowych za czyny zabronione pod groźbą kary, tekst jednolity: Dz.U. z 2019 roku 
poz. 628); further as: „ALCE”. 
918 Article 1 of ALCE; 
919 Article 2 paragraph 1 and 2 of ALCE; 
920 Article 3 of ALCE; 

218 

 
 
                                                        
the natural person admitted to  operate as a  result of exceeding the authority or 

the natural person acted on behalf of or in the interest of a collective entity under 
 
the  power  or  obligation  to  represent  it,  to  take  decisions  on  its  behalf  or  to  carry  out 
internal controls either when exceeding this power or failing to do so; 
 
failure to fulfil obligations by the person referred to above; 
 
consent or knowledge of the person referred to in point 1; 
 
entity in achieving the legally acceptable goal. 

the  natural  person  is  an  entrepreneur  who  directly  cooperates  with  a  collective 

the natural person acted on behalf or in the interest of a collective entity with the 

Moreover,  an  additional  principle  for  the  entity’s  liability  is  that  the  natural  person’s 
responsibility has to be confirmed by the binding  judgment convicting this person,  or a 
sentence  conditionally  discontinuing  criminal  proceedings,  or  a  decision  to  grant  the 
person  permission  to  voluntarily  submit  to  liability  or  a  court  order  to  discontinue  the 
proceedings  against  him  on  account  of  circumstances  excluding  punishment  of  the 
perpetrator921. 

Last but not least, the most crucial in the context of this analysis is the principle that the 
collective entity is liable if the offence has been committed as a result of: 

at  least  the  lack  of  due  care 922  in  the  selection  of  a  natural  person 
 
(admitted to operate as a result of exceeding the authority or failure to fulfil obligations 
or the natural person acting on behalf or in the interest  of a  collective  entity with the 
consent or knowledge of the person by the person acting on behalf of or in the interest 
of a collective entity under the power or obligation to represent it, to take decisions on 
its behalf or to carry out internal controls either when exceeding this power or failing to 
do  so),  or  at  least  the  lack  of  proper  supervision  over  that  person  -  by  the  body  or 
representative of a collective entity923; 
the organization of the activity of a collective entity did not ensure that an offence 
 
committed by a person referred to above, while it could have been ensured by due 
care,  required  in  given  circumstances,  by  the  body  or  a  representative  of  a  collective 
entity924. 

The  collective  entity  can  be  liable  if  a  natural  person  indicated  above,  committed  the 
crime in particular against sexual freedom and decency, against the environment, 
against humanity or against family and care925. 

Liability  or  lack  of  liability  of  a  collective  entity  on  the  basis  specified  in  ALCE  does  not 
exclude civil liability for damage caused, administrative liability or individual legal liability 
of the perpetrator of a prohibited act926. 

e. Monitoring, sanction and enforcement, and available remedies 

According to article 6 of ALCE, the liability or lack of liability of a collective entity under 
the  terms  set  out  in  ALCE  shall  not  exclude  civil  liability  for  damage  caused, 
administrative liability or individual legal liability of the perpetrator of a prohibited act. 

In  the  case  of  a  collective  entity,  the  court  decides  a  fine  in  the  amount  of  1000  to 
5,000,000  PLN,  however,  not  higher  than  3%  of  the  revenue  achieved  in  the  financial 
year  in  which  the  prohibited  act  was  made,  which  is  the  basis  of  the  collective  entity's 
liability927. 

The forfeiture of a collective entity is decided towards: 

921 Article 4 of ALCE. 
922 See remarks connected with the “due care” term included in the Overview of the Report above. 
923 Article 5 point 1 of ALCE. 
924 Article 5 point 2 of ALCE. 
925 Article 16 paragraph 1 point 7-9a of ALCE. 
926 Article 6 of ALCE. 
927 Article 7 of ALCE; 

219 

 
 
                                                        
objects  coming  even  indirectly  from  a  prohibited  act  or  which  served  or  were 

- 
intended to commit a prohibited act; 
- 
- 
forbidden act928. 

property benefits derived even indirectly from a forbidden act; 
the  equivalent  of  objects  or  property  benefits  derived  even  indirectly  from  a 

What is more, if a prohibited act, which was the basis of liability of a collective entity, is 
again carried out within 5 years, the entity may be subject to a fine of up to the upper 
limit of the statutory threat increased by half929. 

What is more, on the collective entity might be imposed: 

a  ban  on  the  promotion  or  advertising  of  activities  carried  out,  products 
- 
manufactured  or  sold,  services  provided,  or  services  provided;  ban  on  the  use  of 
subsidies, subsidies or other forms of financial support by public funds; 
- 
- 
Republic of Poland is a member; 
- 

a ban on the access to funds (in certain cases); 
the prohibition of using the assistance of international organizations, of which the 

a ban on applying for public contracts930. 

Also, the judgment concerning the collective entity might be made public931. 

f. Procedural Framework 

Competent Court or other body 

The court competent in the first instance is a district court in whose district a prohibited 
act was committed, and if such an act was committed in a district of several courts, on a 
Polish  water  or  airship or  abroad  -  a  district  court  in  whose  district  there  is  a  seat  of  a 
collective entity, and in the case of a foreign organizational unit - its seat representative 
in the Republic of Poland932. However, the court of appeal, at the request of the district 
court,  may  refer  the  case  to  the  regional  court,  as  the  court  of  the  first  instance,  for 
consideration because of its special weight or complexity933. 

Jurisdictional restrictions 

The proceedings against a collective entity are initiated by the motion of the prosecutor 
or the aggrieved party, or upon the request of the President of the Office for Competition 
and  Consumer  Protection  in  cases  in  which  the  collective  entity's  liability  is  based  on  a 
prohibited act recognized as the act as an act of unfair competition, the proceedings may 
also be initiated934. 

The motion of the aggrieved party shall be prepared and signed by attorney-at-law935. 

The burden of proof lies on the entity claiming the evidence936. Moreover, the evidence is 
allowed at the request of the parties, as well as ex officio in justified cases. The evidence 
that is obviously intending to extend the proceedings is inadmissible937. 

The draft Act on Liability of Collective Entities for Actions Prohibited Under the 
Threat of the Penalties (DALCE)938 

In  August  2018  the  government  presented  a  draft  of  the  new  Act  on  Liability  of 
Collective Entities for Actions Prohibited Under the Threat of the Penalties. It was sent to 

928 Article 8 paragraph 1 of ALCE; 
929 Article 13 of ALCE; 
930 Article 9 paragraph 1 point 1-4 of ALCE; 
931 Article 9 paragraph 1 point 6 of ALCE. 
932 Article 24 of ALCE; On the OECD National Contact Points, see https://www.gov.pl/web/inwestycje-rozwoj/krajowy-punkt-
kontaktowy-oecd. On the Grupa OLX Case, see https://complaints.oecdwatch.org/cases/Case_523/1763/at_download/file.  
933 Article 25 of ALCE; 
934 Article 27 of ALCE; 
935 Article 28 of ALCE; 
936 Article 23 of ALCE; 
937 Article 35 of ALCE. 
938 Hereinafter: DALCE, http://orka.sejm.gov.pl/Druki8ka.nsf/Projekty/8-020-1211-2019/$file/8-020-1211-2019.pdf; 

220 

 
 
                                                        
the  Parliament  on  11th  January  2019;  according  to  the  Parliament’s  website  nothing 
significant  has  happened  with  it  yet  and  there  is  no  information  when  –  and  if  –  is  it 
going to be enacted939. 

The  draft  proposes  significant  changes  in  the  model  of  liability  of  collective  entities. 
According to it, a collective entity will be responsible for a prohibited act (covering acts 
or  omissions  of  its  body  and  wilful  act  or  omission  of  a  member  of  the  body)  the 
elements of which have been fulfilled by an act or omission directly related to the activity 
conducted by that entity940. 

Additionally,  a  collective  entity  shall  also  be  liable  for  a  prohibited  act  when  it  is 
committed by941: 

1.  a  natural  person  authorised  to  represent  the  entity,  make  decisions  on  its  behalf  or 
exercise  supervision  in  connection  with its  activity  in  the  interest  or  for  the  benefit  of 
the entity; 

2.  a  natural  person  authorised  to  act  by  its  body,  a  member  of  its  body  or  a  person 
referred to in point 1 as a result of abuse of rights or failure to perform obligations; 
3.  a person employed by him/her in connection with the performance of labour for his/her 

benefit. 

Furthermore,  a  collective  entity  is  responsible  for  a  prohibited  act,  from  which  it 
indirectly obtained a financial benefit, committed by942: 

a subcontractor or another entrepreneur who is a natural person, if his prohibited 

1. 
act was related to the performance of an agreement concluded with a collective entity; 
2. 
an employee or a person authorised to act in the interest or for the benefit of an 
entrepreneur  who  is  not  a  natural  person  if  his  act  was  related  to  the  performance  of 
an agreement concluded by that entrepreneur with a collective entity 

if the authority, member of the authority or person referred to in article 6 section 1 of 
DALCE  knew  or  could  have  known,  while  maintaining  the  prudence  required  in  the 
given  circumstances,  that  the  persons  referred  to  in  points  1  and  2  will  attempt  to 
commit  or  committed  a  prohibited  act  or  that  the  entrepreneur  referred  to  in  point  2 
has irregularities. 

The condition of this additional liability described above and included in  article 6 section 
1 and 2 of DALCE is the fulfilment of the elements of the prohibited act as a result of943: 

at least a lack of due care944 in the selection of the person referred to in Sec. 1 or 
1. 
2  or  the  person  referred  to  in  Article  5  Sec.  2  Item  2  or  in  their  supervision  by  a 
collective entity; 
2. 
such  an  irregularity  in  the  organisation  of  activity  of  the  collective  entity  that 
facilitated  or  enabled  the  commission  of  the  prohibited  act,  although  another 
organisation of activity could have prevented the commission of the act. 
The irregularities mentioned above consist, in particular, in the following945: 

1. 
lack of the rules of procedure in the event of a threat to commit a prohibited act 
or the consequences of failure to observe the rules of prudence; this does not apply to 
an entity which is a microentrepreneur within the meaning of EL; 
2. 
lack  of  the  specified  scope  of  responsibility  of  the  authorities  of  the  collective 
entity, its other organisational units, its employees or persons authorised to act on its 

939 http://www.sejm.gov.pl/sejm8.nsf/agent.xsp?symbol=RPL&Id=RM-10-190-18 
940 Article 5 of DALCE. 
941 Article 6 section 1 of DALCE. 
942 Article 6 section 2 of DALCE. 
943 Article 6 section 3 of DALCE. 
944 “Due care” term – according to the justification of DALCE – should be understood as in the art. 355 of the Civil Code. Cf. 
Justification of DALCE, p. 12 – 13, http://orka.sejm.gov.pl/Druki8ka.nsf/Projekty/8-020-1211-2019/$file/8-020-1211-2019.pdf 
945 Article 6 section 4 of DALCE. 

221 

 
 
 
                                                        
behalf or in its interest has not been specified; this does not apply to an entity which is 
a microentrepreneur within the meaning of EL; 
3. 
lack  of  no  person  or  organizational  unit  supervising  compliance  with  the 
regulations  and  rules  governing  the  activity  of  an  entity  which  is  at  least  a  medium-
sized enterprise within the meaning of EL; 
4. 
the  body  of  a  collective  entity  or  a  natural  person  authorised  to  represent  it, 
make  decisions  on  its  behalf  or  exercise  supervision,  in  connection  with  its  activity  in 
the interest of or on behalf of that entity, was aware of irregularities in the organisation 
which facilitated or enabled the commission of a prohibited act. 

A  collective  entity  shall  not  be  liable  for  irregularities  referred  to  in  point  2  above  if  it 
demonstrates  that  all  authorities  and  persons  authorised  to  act  on  its  behalf  or  in  its 
interest  have  exercised  the  due  care  required  under  the  circumstances  in  the 
organisation of the entity's activities and in the supervision of such activities946. 

The draft proposes to introduce to main penalties for collective entities: 

a  financial  penalty,  which  may  be  imposed  in  the  amount  from  30 000  PLN  to 

1. 
30 000 000 PLN; 
2. 

dissolution of the collective entity. 

Last  but  not  least,  DALCE  resigns  from  the  additional  condition  of  the  dependence  of 
collective entity liability on a prior determination of the criminal liability of the individual 
person. At the same time, DALCE does not include – in opposition to ALCE – a catalogue 
of crimes for which a collective entity may be found liable, what leads to the conclusion 
that all crimes and fiscal crimes may be a subject of such proceedings. 

IV. ADDITIONAL ISSUES 

Whistleblower protection 

It  needs  to  be  stated  that  in  Polish  legal  order  there  do  not  exist  effective  and 
functioning  regulation  describing  the  institution  of  whistleblowers.  Therefore,  the 
following actions should be implemented947: 

the  adoption  of  a  comprehensive 

introduce the definition of a whistleblower; 
indicate  hallmarks  of  whistleblowing,  as  well  as  define  cases  when  a 

legal  act  covering  the  protection  of 
 
whistleblowers in a manner that takes into account their specific situation, which would, 
inter alia: 
comprise  all  currently  existing  legal  regulations  which  may  serve  for  the 
 
protection of whistleblowers, i.e. labour law, criminal law, civil law,  and administrative 
law; 
 
 
whistleblower is subject to protection; 
 
procedures or policies protecting whistleblowers; 
establish  the  framework  for  whistleblowers’  protection  allowing  for  anonymizing 
 
their  data,  which  would  require  synchronizing,  mainly  with  the  provisions  on  personal 
data protection and regulations on access to public information; 
 
implemented in organizations; 
specify  main  whistleblowers’  rights  at  a  workplace  (for  example,  protection 
 
against sudden dismissal, conditions of reinstatement), under the conditions of a court 

fulfil  a  preventive  function  by  encouraging  employers  to  create  relevant 

outline  minimum  standards  of  whistleblowing  systems  which  should  be 

946 Article 6 section 6 of DALCE. 
947 Cf. B. Kwiatkowski (ed.) Basic analysis of the current situation in Poland regarding access to remedy in cases of business-
related abuse, PIHRB RS, January 2017, p. 18 – 20 and literature quoted there. 

222 

 
 
                                                        
dispute  (for  example,  shifting  the  burden  of  proof  to  the  employer  whenever  it 
dismisses  a  whistleblower  in  revenge)  or  compensation  in  case  they  were  subject  to 
retaliation; 
 
employment contracts for a definite period, civil law agreements and self-employed. 

cover  the  widest  possible  group  of  employees,  including  those  working  under 

In  recent  years  several  draft  laws  aimed  at  introducing  regulations  protecting 
whistleblowers were proposed. These include: 

the  draft  Act  on  Transparency  of  Public  Life  (ATPL) 948  (governmental, 

1. 
discontinued); 
2. 
Threat of the Penalties (DALCE); 
3. 
November 2017; no official proceedings taking place) 

the  draft  Act  on  Liability  of  Collective  Entities  for  Actions  Prohibited  Under  the 

the  draft  Act  on  whistleblowers  protection 949 (civic;  sent  to  the  government  in 

ATPL  was  widely  criticized,  also  in  the  area  connected  with  whistleblowers  protection. 
The most important arguments were connected with950: 

a prosecutor right to arbitrarily grant/take protection; 
lack of sufficient guarantees regarding the principle of confidentiality; 
lack of protection in case of disclosing information to the public; 
insufficient regulation of internal signalling systems; 
insufficient scope of protection measures; 
limited  range  of  issues  that  signalling  may  apply  to  –  only  crimes  a  corrupt, 

 
 
 
 
 
 
financial or accounting character; 
 

insufficient subject range, not covering all forms of employment. 

The definition of a whistleblower included in ATPL states that a whistleblower is a natural 
person or entrepreneur whose  cooperation with law enforcement authorities, relying on 
reporting  information  about  the  possibility  of  committing  a  crime  by  the  entity  with 
which he is bound by a contract of employment or another contractual relationship, may 
adversely  affect  her  life,  professional  and  material  situation 951 .  The  status  of  a 
whistleblower  would  be  given  to  the  person  providing  reliable  information  on  certain 
crimes952. 

The status of a whistleblower would provide the person with the reimbursement from the 
State  Treasury  of  legal  representation  costs  needed  in  connection  with  the  negative 
consequences of his filing of reliable information about the committed crimes953. 

Moreover,  the  employer  of  the  whistleblower  could  not  terminate  with  her/him  the 
employment  contract,  to  change  the  terms  of  the  employment  contract  for  less 
favourable, in particular in terms of changing the place or time of work or conditions of 
remuneration  (unless  the  prosecutor  gives  the  consent  to  do  so) 954.  If  it  occurs  that 
without  the  prosecutor’s  consent  the  employment  contract  is  terminated  –  the 
whistleblower is entitled to the compensation from the dissolving party equal to twice the 
annual remuneration obtained by the whistleblower at the last position held955. 

The  above  rules  apply  accordingly  in  case  of  changing  the  terms  of  the  contract  or  the 
employment contract956. 

948 Hereinafter: ATPL; https://legislacja.rcl.gov.pl/docs//2/12304351/12465401/12465402/dokument313363.pdf 
949 The bill prepared by the Batory Foundation, Helsinki Foundation for Human Rights, Forum of Trade Unions and Institute of 
Public Affairs is available at http://www.sygnalista.pl/projekt-ustawy/ 
950 Cf. Uwagi do projektu ustawy o jawności życia publicznego w zakresie ochrony sygnalistów, Fundacja Batorego, 
http://www.batory.org.pl/aktualnosci/uwagi_do_projektu_ustawy_o_jawnosci_zycia_publicznego_w_zakresie_ochrony_sygnali
stow 
951 Proposed article 2 point 14 of ATPL; 
952 Proposed article 65 paragraph 1 and 2 of ATPL; 
953 Proposed article 66 of ATPL; 
954 Proposed article 67 paragraph 1 point 1 in connection with article 67 paragraph 2 point 1 of ATPL; 
955 Proposed article 69 paragraph 1 point 1 of ATPL; 
956 Proposed article 69 paragraph 2 of ATPL. 

223 

 
 
                                                        
Finally,  if  the  perpetrator  of  certain  crimes  described  by  the  Act  is  convicted  the  court 
may grant the discretionary damages to the whistleblower957. 

DALCE  contains  some  provisions  regarding  whistleblowers  protection,  however,  their 
quality  is  questionable.  The  provisions  do  not  comply  with  international  standards 
(including the draft of new regulations adopted by the European Parliament on 16th April 
2019 958 )  and  are  fragmentary.  They  do  not  cover  all  forms  of  employment,  neither 
guarantee sufficient protection or assistance in the case when employers use retaliation 
against whistleblowers959. 

According to the DALCE, the bodies of the collective entity, in particular the designated 
body  of  the  collective  entity  supervising  compliance  with  the  rules  and  regulations 
governing the entity's activities, or the persons carrying out internal supervision, would 
be  obliged  to  take  actions,  within  their  powers,  to  explain  the information  coming  from 
the collective entity’s employee, member of the body, a person acting on behalf of or in 
the interests of a collective entity on the basis of a legal transaction – if such information 
consists of: 

suspicion of preparation, attempt or committing a prohibited act; 
failure to fulfil obligations or abuse of rights by entities described in the Act; 
failure  to  observe  due  care  required  in  given  circumstances  in  the  activities  of 

 
 
 
collective body bodies or persons; 
 
to committing the prohibited act960. 

irregularities in the organization of the collective entity's activities that could lead 

Moreover, the bodies of the collective entity, and in particular the designated body of the 
collective entity supervising compliance, or the persons in charge of internal supervision, 
strive to provide protection (at least against the acts of repressive nature, discrimination 
or  other  types  of  unfair  treatment)  to  employees  who  report  abovementioned 
information961. 

Additionally, in case when the notification of the above-indicated information resulted in 
violation of employment rights of a person reporting information or in termination of the 
contract with that person, the court, upon application of the person, may decide to bring 
him/her  back  to  work,  or  award  the  compensation  –  if  the  information  reported  was 
justified and could have led to the prevention of a prohibited act or faster detection of an 
offence.  This  rule,  however,  does  not  apply  to  a  person  who  performed  the  infringing 
action, unless he or she revealed all of the salient details (circumstances) of the action to 
the collective entity and to the law enforcement body. The compensation is awarded in 
compliance  with  the  provisions  of  the  LC  and  might  be  granted  for  the  whole  period  of 
being unemployed by the person reporting the information962. 

Equal Treatment Act963 

Scope 

The  Equal  Treatment  Act  (EQA),  as  its  title  indicates,  implements  the  certain  EU 
directives  concerning  equal  treatment 964.  It  applies  to  natural  and  legal  persons  and 

957 Proposed article 87 of ATPL; 
958 http://www.europarl.europa.eu/news/en/press-room/20190410IPR37529/protecting-whistle-blowers-new-eu-wide-rules-
approved 
959 Cf. G. Makowski, Drakońskie kary dla firm i organizacji społecznych, 
http://www.batory.org.pl/forum_idei/blog_idei/grzegorz_makowski_drakonskie_kary_dla_firm_i_organizacji_spolecznych 
960 Proposed article 11 paragraph 1 of DALCE; 
961 Proposed article 11 paragraph 3 of DALCE; 
962 Proposed article 13 paragraph 3 of DALCE; 
963 Act on implementing certain European Union regulations in the field of equal treatment (Ustawa z dnia 3 grudnia 2010 roku 
o wdrożeniu niektórych przepisów Unii Europejskiej w zakresie równego traktowania, Dz.U.2016.1219, further as: EQA, 
http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU20102541700/U/D20101700Lj.pdf) 
964 Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective 
of racial or ethnic origin, Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal 
treatment in employment and occupation, Council Directive 2004/113/EC of 13 December 2004 implementing the principle of 
equal treatment between men and women in the access to and supply of goods and services, Directive 2006/54/EC of the 

224 

 
 
                                                        
organizational units that are not legal persons to whom the act grants legal capacity965. 
Provisions of chapter I and II of EQA are not applied to employees in the areas regulated 
by LC966. 

EQA is applied to the following: 

joining and acting in trade unions, employers' organizations and professional self-

undertaking  vocational  education,  including  further  education,  improvement, 

 
retraining, and apprenticeships; 
the  conditions  for  taking  up  and  pursuing  a  business  or  professional  activity,  in 
 
particular within the framework of an employment contract or a civil law contract which 
is a basis of employment; 
 
governments, as well as exercising the rights of members of these organizations; 
access  and  conditions  for  the  use  of  labour  market  and  labour  market  services 
 
instruments  offered  by  labour  market  institutions  and  instruments  labour  market  and 
labour  market  services  offered  by  other  entities  acting  for  employment,  human 
resources development and counteracting unemployment; social security; health care; 
education  and  higher  education;  services,  including  housing  services,  things  and  the 
acquisition of rights and energy, if they are offered to the public967. 

EQA defines the terms such as direct discrimination, indirect discrimination, molestation, 
sexual molestation, unequal treatment and the principle of equal treatment968. 

Content of Regulation 

According  to  the  EQA  it  is  forbidden  to  treat  unequally  natural  persons  based  on  sex, 
race, ethnicity or nationality regarding access to and  conditions of using social security, 
services,  including  housing  services,  property  and  the  acquisition  of  rights  or  energy,  if 
they are offered to the public, as well as in the field of health care, education and higher 
education969. 

It  is  also  forbidden  to  treat  unequally  natural  persons  based  on  sex,  race,  ethnicity, 
nationality,  religion,  religious  beliefs,  disability,  age  or  sexual  orientation  in  the  area  of 
undertaking  vocational  education,  including  further  education,  improvement,  retraining, 
and apprenticeship; the conditions for taking up and pursuing a business or professional 
activity;  joining  and  acting  in  trade  unions,  employers'  organizations  and  professional 
self-governments,  as  well  as  exercising  the  rights  of  members  of  these  organizations; 
access and conditions of using labour market instruments and labour market services970. 
It is also prohibited to encourage or require unequal treatment971. 

The above prohibitions are not  violated in the scope of taking necessary  measures in a 
democratic  state  for  its  public  safety  and  order,  protecting  the  health  or  protecting  the 
freedom and rights of others and preventing actions subject to criminal sanctions, within 
the scope specified in other regulations972. 

It is also forbidden to treat unequally legal persons and organizational units that are not 
legal  entities  to  which  the  law  grants  legal  capacity  if  the  violation  of  the  principle  of 
equal  treatment  takes  place  on  the  basis  of  race,  ethnic  origin  or  nationality  of  their 
members973. 

European Parliament and the Council of 5 July 2006 on the implementation of the principle of equal opportunities and equal 
treatment of men and women in matters of employment and occupation (recast) 
965 Article 2 paragraph 1 of EQA; 
966 Article 2 paragraph 2 of EQA; 
967 Article 4 of EQA; 
968 Article 3 point 1-6 of EQA; 
969 Article 6 and 7 of EQA. 
970 Article 8 paragraph 1 of EQA; 
971 Article 9 of EQA; 
972 Article 8 paragraph 2 of EQA; 
973 Article 10 of EQA; 

225 

 
 
                                                                                                                                                                            
Monitoring, sanction and enforcement 

Bodies performing tasks in the field of implementation of the principle of equal treatment 
are Ombudsman and Government Plenipotentiary for Equal Treatment974. The task of the 
second body is the implementation of the government's policy regarding the principle of 
equal treatment, including counteracting discrimination, in particular on grounds of sex, 
race,  ethnic  origin,  nationality,  religion,  religious  beliefs,  age,  disability,  and  sexual 
orientation975. 

Procedural Framework and available remedies 

In case of violation of the provisions of EQA, civil procedure is applicable. The burden of 
proof  to  substantiate  the  violation  of  the  principle  of  equal  treatment  lies  on  the 
claimant.  If  this  occurs,  then  the  accused  of  violating  this  principle  is  obliged  to  prove 
the lack of violation976. 

In case of violation of the principle of equal treatment described in EQA, in relation to a 
natural  person,  including  pregnancy,  maternity  leave,  leave  on  conditions  of  maternity 
leave, paternity leave, parental leave or extended post-maternity leave, natural persons 
are  granted  the  compensation  claim,  demanded  on  the  basis  of  provisions  of  the  Civil 
Code 977.  In  case  that  the  infringements  referred  above  occur,  the  legal  persons  and 
organizational units that are not legal persons to whom the act grants legal capacity are 
entitled  to  the  claim  referred  above,  if  the  violation  occurred  against  them 978 . 
Furthermore, everyone with respect to whom the principle of equal treatment has been 
violated has the right to compensation979. 

974 Article 18 of EQA; 
975 Article 21 paragraph 1 of EQA; 
976 Article 14 paragraph 2 and 3 of EQA; 
977 Article 12 paragraph 1 EQA in connection with article 13 paragraph 1 and 2 EQA; 
978 Article 12 paragraph 2 EQA; 
979 Article 13 paragraph 1 of EQA. 

226 

 
 
 
 
                                                        
SPAIN COUNTRY REPORT 

Maria Prandi and Daniel Iglesias Márquez 

I. OVERVIEW 

The  composition  of  the  business  sector  in  Spain  includes  a  large  portion  of 
companies  operating  in  sensitive  sectors  including  telecommunications,  energy,  oil 
and  gas,  building,  industrial  goods  and  services  and  banking  and  insurance. 
Spanish  companies  operate  around  the  world  through  networks  of  subsidiary 
companies  and  complex  supply  chains.  Through  their  transnational  business 
activities,  Spanish  companies  have  been  involved  in  human  rights  abuses  and 
environmental damages in third countries, particularly in Latin America.980 

The Spanish government has mainly relied on corporate social responsibility (CSR) 
as  a  mechanism  to  integrate  social  and  environmental  concerns  in  the  Spanish 
business operations.981 Thus, there has been a gradual evolution of CSR  initiatives 
and  institutions  in  Spain.  In  2008,  the  Spanish  government  created  the  State 
Council  on  CSR  to  advise  the  government  on  policy  and  regulation  regarding 
sustainability.  This  Council  integrates  national  and  regional  administrations, 
employer  federations,  trade  unions,  and  sustainability  experts.  In  2014,  following 
the  recommendations of the  European Union in the document  entitled “A renewed 
EU strategy 2011-2014 for CSR”, the Spanish government approved on October 24, 
2014  the  initiative  called  “Spanish  strategy  on  companies’  corporate  social 
responsibility practices 2014-2020”. 

The  Spanish  Strategy  on  CSR  aims  to  promote  actions  that  support  the 
development  of  responsible  practices  in  both  companies  (including  SMEs)  and 
Public  Administrations  in  order  that  they  become  a  significant  driver  of  the 
country’s  competitiveness  and  its  transformation  to  a  more  sustainable  society. 
However,  the  Strategy  relies  on  the  voluntary  integration  by  companies  into  their 
governance and management, strategy, policies and procedures, of societal, labour, 
environmental and human rights concerns. 

Meanwhile,  the  business  and  human  rights  agenda  develops  at  a  slower  rate  in 
Spain.  After  more  than  five  years  of  the  adoption  of  the  Guiding  Principles  on 
Business and Human Rights by the UN Human Rights Council in 2011, the National 
Action  Plan  on  Business  and  Human  Rights  (NAP)  for  Spain  was  endorsed  by  the 
Council of Ministers on 28 July 2017 and published in the Official State Gazette on 
14 September 2017. The Human Rights Office of the Ministry of Foreign Affairs and 
Cooperation  was  responsible  for  instigating  the  drawing  up  of  the  NAP  combined 
with  a  participatory  process  open  to  various  actors.  A  first  draft  of  the  NAP  was 
released on 17 June 2013, which was followed by a second draft on 26 June 2014 
that  was  to  be  approved  by  the  Council  of  Ministers.  Civil  society  organisations 
disassociated 
their 
contributions were ignored, in particular because of the fact that the requirements 
for  effectively  controlling  the  practices  of  transnational  companies  in  relation  to 
human rights had been relaxed, and there was an absence of transparency and real 
participation on the part of the social actors throughout the process. The Council of 

the  proposed  second  draft  because 

themselves 

from 

 Founder and Chief Executive Officer, Business and Human Rights (BHR) (Spain). Email: 
maria.prandi@businessandhumanrights.es.  
 Postdoctoral Researcher, Department of Public International Law and International Relations, University of Seville 
(Spain). Email; dimarquez@us.es. 
980 Iglesias Márquez, D. and Felipe Pérez, B. (2015). Corporate Social Responsibility: The Role of Codes of Conduct in 
Fostering Environmental Sustainability in Latin America. In: Vrdoljak Raguž, Ivona y Krželj-Čolović, Zorica (ed.) 
Innovation, Leadership & Entrepreneurship –Challenges of Modern Economy. Dubrovnik: Universidad de Dubrovnik, pp. 
113-126. 
981 Cantó-Milà, N., and Lozano, J. M. (2008). The Spanish Discourse on Corporate Social Responsibility. Journal of 
Business Ethics, 87(S1), 157-171. 

227 

 
 
 
 
                                                        
Ministers  finally  took  three  years  to  approve  a  new  text,  which  was  very  different 
from the second draft and much shorter.982 

The  Spanish  NAP  does  not  include  any  specific  policy  or  measure  addressed  to 
implement  the  second  pillar  of  the  Guiding  Principles.  In  this  regard,  there  is  not 
any  clear  commitment  for  public  and  private  enterprises  to  set  in  place  human 
rights  due  diligence  procedures  in  accordance  with  the  Guiding  Principles. 
Therefore,  there  is  a  marked  absence  of  legislative  reforms  and  proposals  to 
regulate  business  behaviour  to  ensure  compliance  and  thereby  respect  of  human 
rights.  The  only  measures  envisaged  are  awareness-raising,  information,  training 
and  promotion  of  business  respect  for  human  rights.  Under  the  Spanish  NAP,  the 
corporate  responsibility  to  respect  human  rights  maintains  a  voluntary  approach, 
which  has  been  repeatedly  proven  to  be  insufficient  to  prevent  and  remedy 
negative  impacts  on  human  rights  of  the  Spanish  business  activities  within  their 
territory and abroad. 

Against  this  background,  the  UN  Committee  on  Economic,  Social  and  Cultural 
Rights  welcomes  the  adoption  of  the  Spanish  NAP.  However,  it  is  concerned  that 
there are a number of legal gaps in terms of guarantees to ensure that companies 
comply  with  their  obligation  to  perform  human  rights  due  diligence.  It  is  also 
concerned  that  the  State  party’s  legislation  does  not  adequately  define  the  legal 
responsibility of companies, whether those operating in the State party or domiciled 
within its jurisdiction but operating abroad. Thus, the Committee recommends that, 
in  implementing  the  NAP,  Spain  should  establish  effective  mechanisms  to  ensure 
that  companies  perform  human  rights  due  diligence,  in  order  to  identify,  prevent 
and minimize the risk of violations.983 

Under  the  current  Spanish  regulatory  framework  there  are  no  regulations,  which 
require  companies,  in  a  binding  manner,  to  adopt  and  conduct  human  rights  due 
diligence  measures  in  relation  to  their  own  activities  and  its  business  relationship 
with  another  entity,  such  as  the  adoption  of  a  human  rights  policy  in  accordance 
with  international  standards;  the  establishment  of  a  human  rights  due  diligence 
framework;  an  impact  assessment  analysis  from  a  human  rights  perspective  and 
the  adoption  of  an  action  plan  on  how  the  risks  identified  will  be  addressed  and 
managed  and  human  rights  harm  will  be  prevented.  Nor  does  it  therefore  impose 
any sanctions in the absence thereof. Accordingly, the NAP is a missed opportunity 
to address these gaps in the Spanish legal system.984 

However,  there  are  some  legislations  and  regulations  that  impose  certain  due 
diligence and transparency requirements to companies in line with the human rights 
due  diligence  included  in  the  Guiding  Principles.  As  noted  below,  there  is  an 
important  fragmentation  of  human  rights  due  diligence  in  several  legislations  and 
regulations. Accordingly, there is significant divergence on how Spanish companies 
identify,  prevent,  mitigate  and  account  for  any  adverse  impacts  on  human  rights 
and the environment in their own operations or supply chain. 

It is also important to emphasise that Spain has a civil law and statute based legal 
system.  Therefore,  the  sources  of  Spanish  law  are  statutes,  custom  and  general 
legal  principles.  Court  decisions  are  not  a  source  of  law  but  are  of  interpretative 
value. The 1978 Spanish Constitution is the current supreme law. Human rights are 
protected  under  this  Constitution.  Spain  is  a  parliamentary  monarchy,  based  on 
parliamentary  representation.  Spanish  state  power  is  divided  between  the 

982 Pigrau Solé, A. (2018). “The Spanish National Action Plan on Business and Human Rights. An appraisal and 
imminent challenges”, available at: 
http://icip.gencat.cat/web/.content/continguts/publicacions/policypapers/2018/Policy_Paper_17_EN.pdf.  
983 Committee on Economic, Social and Cultural Rights (2018).” Concluding observations on the sixth periodic report of 
Spain”, available at: 
https://tbinternet.ohchr.org/_layouts/treatybodyexternal/Download.aspx?symbolno=E/C.12/ESP/CO/6&Lang=En. 
984 Amnesty International (2018). “Spain. Submission to the United Nations Committee on Economic, Social and 
Cultural Rights. 63rd Session, 12 – 29 MARCH 2018”, available at: 
https://www.amnesty.org/download/Documents/EUR4179202018ENGLISH.pdf. 

228 

 
 
                                                        
legislative,  executive  and  judiciary  powers.  The  territory  is  organised  into 
municipalities,  circuits  (partidos),  provinces  and  autonomous  communities.  Basic 
commercial,  corporate  and  intellectual  property  law  is  enacted  by  the  central 
government while autonomous community governments enact their own legislation 
for  matters  such  as  health,  education,  the  environment  and  consumer  affairs.  In 
this regard, this report is mainly based on the legislations and regulations enacted 
by  the  central  government,  which  lay  down  minimum  requirements  that  can  be 
regulated  by  the  autonomous  community  governments.  Additionally,  the  report 
describes  the  sanctions  and  the  legal  avenues  to  hold  companies  and/or  directors 
liable for failure to comply with their due diligence and transparency duties. 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS 
DUE  DILIGENCE  AND  ENVIRONMENTAL  DUE  DILIGENCE  IN  THE  SUPPLY 
CHAIN 

1.  Area of Regulatory Framework 

A.  Corporations Law 
-  Law 2/2011, of 4 March 2011, on Sustainable Economy985 

2.  Scope 
The aim of the law 2/2011 is to introduce the  structural reforms needed to create 
conditions  that  favour  sustainable  economic  development  into  the  legal  system 
(Article 1). The term 'sustainable economy' is understood to mean a growth pattern 
that  reconciles  economic,  social  and  environmental  development  in  a  productive 
and  competitive  economy  that  is  capable  of  favouring  quality  employment,  equal 
opportunities  and  social  cohesion  and  that  can  guarantee  respect  for  the 
environment  and  the  rational  use  of  natural  resources  in  such  a  way  as  to  enable 
the  needs  of  present  generations  to  be  met  without  compromising  the  options  for 
future generations to service their own requirements (Article 2). 

The  Law  has  four  sections.  The  first  is  dedicated  to  improving  the  economic 
environment  (Articles  4-39).  The  second  addresses  competitiveness  (Articles  40-
76) and the third focuses on environmental sustainability (Articles 77-111). Finally, 
the fourth deals with how to implement and evaluate the Law (Articles 112-114). 

The  Law  2/2011  states  some  provisions  to  influence  on  corporate  behaviour.  In 
relation  to  transparency  and  corporate  governance,  the  Law  encourages  listed 
companies  to  increase  transparency  in  relation  to  the  remuneration  of  their 
directors  and  senior  managers,  as  well  as  their  remuneration  policies.  Similarly, 
credit institutions and investment services companies should increase transparency 
in their remuneration policies, and their coherence with the promotion of solid and 
effective risk management (Article 27). 

Regarding  the  environmental  sustainability,  the  major  applicable  principles  in  this 
issue are the guarantee of a secure supply, economic efficiency and the respect for 
the environment, as well as the national objectives for 2020 on energy saving and 
efficiency  and  on  the  use  of  renewable  energies.  Energy  policy  should  promote 
renewable energy, strengthen predictability and efficiency in energy policy decisions 
and  cut  back  the  contribution  of  energies  with  higher  CO2  emission  potential.  The 
law  establishes  a  national  target  of  20%  of  energy  consumption  to  come  from 
renewable  energy  by  2020  for  both  homes  and  commercial  buildings  (Article  78). 
This implies that companies should meet sustainability criteria a view to optimising 
their  energy  consumption.  It  also  creates  the  Carbon  Fund  for  a  Sustainable 
Economy  (FES  –  CO2),  which  will  help  to  reduce  GHG  emissions  by  buying  carbon 
credits (Article 91). 

985 See Ley 2/2011, de 4 de marzo, de Economía Sostenible, available at: https://www.boe.es/buscar/act.php?id=BOE-
A-2011-4117. 

229 

 
 
 
 
                                                        
Content of Regulation 

3. 
The Law 2/2011 requires corporations to produce annual sustainability reports. 

Article  35  establishes  the  obligation  to  submit  annual  sustainability  reports  for 
state-owned  companies  in  accordance  with  commonly  accepted  standards,  with 
special  attention  to  effective  equality  between  women  and  men  and  the  full 
integration  of  people  with  disabilities  (Article  35.2.a).  Additionally,  state-owned 
companies  should  review  its  production  processes  of  goods  and  services  applying 
environmental  management  criteria  aimed  at  compliance  with  the  rules  of  the 
European management system and environmental audit (Article 35.2.b). Moreover, 
they  should  include  in  its  contracting  processes  conditions  related  to  the  emission 
level  of  greenhouse  gases  and  maintenance  or  improvement  of  environmental 
values that may be affected by the execution of the contract (Article 35.2.d). In this 
regard, they should optimize the energy consumption of its offices and facilities by 
signing  energy  service  contracts  that  reduce  energy  consumption,  paying  the 
contractor with savings obtained in the energy bill (Article 35.2.e). 

On  the  other  hand,  the  Law  2/2011  establishes  that  private  corporations  may 
publish annually report to make public their policies and results on Corporate Social 
Responsibility  (CSR).  Article  39.3  recommends  corporations  with  more  than  1,000 
employees  to  elaborate  an  annual  CSR  report  which  should  be  submitted  to  the 
State Council on CSR. 

The  minimum  content  of  the  sustainability  and  CSR  reports  is  established  in  the 
Order  ESS/1554/2016,  of  September  29,  which  regulates  the  procedure  for  the 
registration and publication of the reports of social responsibility and sustainability 
of  companies,  organizations  and  public  administrations.986 According  to  Article  3.1 
of  the  Order  ESS/1554/2016,  companies,  organizations  and  public  administrations 
must present reports of social responsibility and sustainability based on any of the 
existing national and international models, expressing the commitment of the entity 
with  the  social  responsibility  and  sustainability  policies,  as  well  as  the 
implementation in its organization of this type of policies, and  showing the results 
obtained. 

The  reports  must  include  information  on  at  least  some  of  the  following  topics 
(Article 3.2): 

  Transparency in management. 
  Good corporate governance 
  Fight against corruption and bribery. 
  Commitment to the local and the environment. 
 
  Policies  of  universal  accessibility  and  inclusion  of  groups  at  risk  of  social 

Improvement of labour relations. 

exclusion. 

  Diversity and equality policies. 
  Responsible and sustainable consumption. 
 
  Respect, protection and defence  of human rights, throughout the supply chain 

Information on environmental, social and good governance aspects. 

of the proposing entity. 

  Opinions of the interest groups. 
  Any  other  issues  that  show  a  commitment  to  the  values  and  principles  of 

corporate social responsibility and sustainability. 

Some academics studies have shown that the Law 2/2011 has limited effects on the 
reporting practices. This was because, after the Spanish law was enacted, the state 

986 See, Orden ESS/1554/2016, de 29 de septiembre, por la que se regula el procedimiento para el registro y 
publicación de las memorias de responsabilidad social y de sostenibilidad de las empresas, organizaciones y 
administraciones públicas, available at: https://www.boe.es/boe/dias/2016/10/01/pdfs/BOE-A-2016-8964.pdf. 

230 

 
 
                                                        
failed  to  implement  enforcement  mechanisms  such  as  the  guidelines  for  reporting 
metrics  and  the  system  for  the  submission  of  CSR  reports.  In  this  regard,  Luque-
Vílchez and Larrinaga argue that governmental regulation of CSR reporting does not 
guarantee alone better  disclosing levels and that a normative climate is necessary 
to accompany changes in the law. Additionally, the multiplicity of actors, pulling in 
different directions and with different levels of power, participated in the production 
of normativity and, eventually, molded the corporate response to the Law 2/2011. 
Their  findings  have  provided  insight  to  understand  why  Law  2/2011  approval  has 
not produced any significant increase in CSR disclosure in Spanish businesses.987 

Monitoring, sanction and enforcement 

4. 
The Law 2/2011 omits the consequences of non-compliance with the publication of 
sustainability and CRS reports. 

According  to  Article  2  of  the  Order  ESS/1554/2016,  the  publication  of  the  reports 
will  be  done  through  the  website  of  the  Ministry  of  Labour,  Migrations  and  Social 
Security  (former  Ministry  of  Employment  and  Social  Security),  in  accordance  with 
the provisions of the Ley 19/2013, de 9 de diciembre, de transparencia, acceso a la 
información pública y buen gobierno.988 

-  Law  11/2018,  of  December  28,  2018  amending  the  Commercial  Code, 
the  revised  Capital  Companies  Law  approved  by  Legislative  Royal 
Decree  1/2010,  of  July  2,  2010  and  Audit  Law  22/2015,  of  July  20, 
2015, as regards non-financial information and diversity989 

2.  Scope 
The  Law  11/2018  stems  from  Royal  Decree-Law  18/2017,  of  November  24,  which 
modified  the  Commercial  Code,  the  revised  text  of  the  Capital  Companies  Act 
approved by Royal Decree Legislative 1/2010, of July 2, and Law 22/2015, of July 
20,  on  Audit  of  Accounts,  regarding  non-financial  information  and  diversity.990 The 
Royal Decree-Law 18/2017 imposed obligations to certain entities of public interest 
(which  include  banks,  insurance  companies,  listed  companies,  investment  fund 
managers  and  pension  funds,  as  well  as,  in  general,  all  the  large  companies)  to 
disclose  non-financial  and  diversity  information,  in  the  terms  defined  by  Directive 
2013/34, of non-financial information of a social and environmental nature. 

The  Law  11/2018  increased  the  number  of  companies  required  to  file  the  non-
financial  information  statement,  in  comparison  with  Royal  Decree-Law  18/2007, 
which  only  applied  to  public-interest  entities  meeting  a  number  of  requirements. 
From the entry into force of Law 11/2018,991 companies will be required to file the 
non-financial information statement, individually or on a consolidated basis, if they 
meet the following requirements:992 

a)  The  average  number  of  workers  employed  by  the  company  or  the  group,  as 

applicable, during the year is greater than 500. 

987 See Luque-Vílchez, M. and Larrinaga, C. (2016). “Reporting Models do not Translate Well: Failing to Regulate CSR 
Reporting in Spain”. Social and Environmental Accountability Journal, vol. 36, núm. 1, pp. 56-75.  
988 The reports are available at: https://expinterweb.empleo.gob.es/memrse/entrada/listadoMemoriasPublicadas.action. 
989 See Ley 11/2018, de 28 de diciembre, por la que se modifica el Código de Comercio, el texto refundido de la Ley de 
Sociedades de Capital aprobado por el Real Decreto Legislativo 1/2010, de 2 de julio, y la Ley 22/2015, de 20 de julio, 
de Auditoría de Cuentas, en materia de información no financiera y diversidad, available at: 
https://www.boe.es/buscar/doc.php?id=BOE-A-2018-17989.  
990 See Real Decreto-ley 18/2017, de 24 de noviembre, por el que se modifican el Código de Comercio, el texto 
refundido de la Ley de Sociedades de Capital aprobado por el Real Decreto Legislativo 1/2010, de 2 de julio, y la Ley 
22/2015, de 20 de julio, de Auditoría de Cuentas, en materia de información no financiera y diversidad, available at: 
https://www.boe.es/buscar/doc.php?id=BOE-A-2017-13643.  
991 According to the transitional provision of Law 11/2018, the amendments it introduces will be applicable in the fiscal 
years beginning on or after January 1, 2018, and the two fiscal years to be taken for the purposes mentioned above will 
be that beginning on or after January 1, 2018 and the immediately preceding year. 
992 See Article 49.5 of Código de Comercio, aprobado por Real Decreto de 22 de agosto de 1885, available at: 
https://www.boe.es/buscar/act.php?id=BOE-A-1885-6627.  

231 

 
 
 
                                                        
b)  They  are  either  deemed  to  be  public-interest  entities  in  accordance  with  the 
audit legislation, or meet, for two consecutive years, at each of their year-end 
dates, at least two of the following tests: 

  Total asset items must amount to more than €20,000,000. 
  Annual net revenues must exceed €40,000,000. 
  The  average  number  of  workers  employed  during  the  year  must  be  greater 

than 250. 

3.  Content of Regulation 
Non-Financial Information Statement 

The  Law  11/2018  specifies  the  content  of  the  non-financial  information  statement 
to be included in the management report in order to understand the evolution, the 
results  and  the  situation  of  the  group,  and  the  impact  of  its  activity,  at  least,  on 
environmental  and  social  issues,  respect  for  human  rights  and  the  fight  against 
corruption  and  bribery,  as  well  as  on  the  personnel,  including  measures  that  have 
been  taken,  if  any,  to  promote  the  principle  of  equal  treatment  and  opportunities 
between  women  and  men,  non-discrimination  and  inclusion  of  persons  with 
disabilities and universal accessibility.993 

The following information regarding the company (in case of individual accounts) or 
the group (in case of consolidated accounts) must be included: 

  A brief description of the business model. 
  A  description  of  the  policies  pursued  in  relation  to  the  matters  set  out  above, 
including  the  due  diligence  processes  implemented  to  identify  and  assess  the 
risks  and  those  regarding  verification  and  control,  including  the  measures 
adopted. 

  The outcome of those policies, including relevant non-financial key performance 
indicators  allowing  for  monitoring  and  evaluation  of  progress  and  facilitating 
comparability between companies and sectors, in accordance with the national, 
European and international benchmark frameworks used for each matter. 

  The  main  risks  relating  to  those  matters  arising  in  connection  with  the 
operations 
its  business 
relationships, products and/or services which are likely to cause adverse impact 
in those areas of risk, and how it manages those risks. 

relevant  and  proportionate, 

including,  where 

  Non-financial  key  performance  indicators  relevant  to  the  particular  business. 
Generally  applied  standards  of  non-financial  key  performance  indicators  that 
fulfil the European Commission guidelines in these matters can be used. 

Moreover, as an addition with respect to Royal Decree-Law 18/2017, Law 11/2018 
details the significant information that the non-financial information statement must 
include  on:  (i)  environmental  matters,994 (ii)  social  and  employee-related  matters 
(taking in factors such as the pay gap and the implementation of policies promoting 
disconnection  from  work), 995 (iii)  respect  for  human  rights, 996 (iv)  anti-corruption 

993 See Article 49.6 of Código de Comercio. 
994 Detailed information on the current and foreseeable effects of the company's activities on the environment and, 
where applicable, health and safety, environmental assessment or certification procedures; the resources dedicated to 
the prevention of environmental risks; the application of the precautionary principle, the amount of provisions and 
guarantees for environmental risks. In this regard, the non-financial information statement should include the 
important elements of greenhouse gas emissions generated as a result of the company's activities, including the use of 
the goods and services it produces; the measures adopted to adapt to the consequences of climate change; the 
reduction goals established voluntarily in the medium and long term to reduce greenhouse gas emissions and the 
means implemented for that purpose (Article 49.6.I of Código de Comercio). 
995 Total number and distribution of employees by sex, age, country and professional classification; total number and 
distribution of work contract modalities, annual average of permanent contracts, temporary contracts and part-time 
contracts by sex, age and professional classification, number of dismissals by sex, age and professional classification; 
the average remunerations and their evolution disaggregated by sex, age and professional classification or equal value; 
salary gap, the remuneration of equal or average positions in the company, the average remuneration of directors and 

232 

 
 
 
                                                        
and  bribery  matters, 997  and  (v)  information  about  the  company  (taking  in  the 
company’s  sustainable  development  commitments,  subcontractors  and  suppliers, 
consumers, and tax information). 

In  the  event  that  the  group  of  companies  does  not  apply  any  policy  in  any  of  the 
non-financial  matters,  the  consolidated  non-financial  information  statement  will 
offer a clear and motivated explanation in this regard. 

When a company that is dependent on a group is, in turn, dominant of a subgroup, 
it  will  be  exempt  from  the  obligation  to  disclose  non-financial  information  if  the 
company  and  its  subsidiaries  are  included  in  the  consolidated  management  report 
of  another  company  in  which  the  obligation  is  fulfilled.  If  an  entity  accepts  this 
option, it must include in the management report a reference to the identity of the 
parent  company  and  the  Mercantile  Registry  or  other  public  office  where  its 
accounts must be deposited together with the consolidated management report or, 
in the assumptions of not being forced to deposit their accounts in any public office, 
or having opted for the preparation of a separate report. 

Without  prejudice  to  the  disclosure  requirements  applicable  to  the  consolidated 
non-financial  information  statement,  the  report  should  be  made  available  to  the 
public free of charge and be  easily accessible on the  company's  website within six 
months at the end of the financial year and for a period of five years. 

Annual Corporate Governance Report 

The  Law  11/2018  also  broaden  the  content  of  the  annual  corporate  governance 
report  of  listed  companies  in  order  to  include  a  description  of  the  applicable 
diversity  policy  applied  to  the  board  of  directors,  including  its  objectives,  the 
measures adopted, the  way in which they have been implemented and the results 
for  the  reporting  period,  as  well  as  the  measures  that,  if  applicable,  the 
appointment committee has agreed accordingly. If no diversity policy is applied, an 
explanation should be included in this respect. However, listed companies that meet 
the  conditions  to  be  qualified  as  “small  entity”  or  “medium-sized  entity”  in 
accordance  with  Spanish  accounts  auditing  legislation  shall  only  be  required  to 
include information about the measures adopted on gender, if any. 

Good Governance Code of Listed Companies998 

In  2006,  a  new  Corporate  Governance  Code  is  adopted:  the  Unified  Code,  which 
was  approved  by  the  Board  of  the  Comisión  Nacional  del  Mercado  de  Valores 
(CNMV)  as  a  single  document 
the  corporate  governance 
recommendations  pursuant  to  section  1.  f)  of  the  first  provision  of  Order 
ECO/3722/2003  of  26  December.  Therefore,  the  Unified  Code  is  a  harmonisation 
and  review  of  the  recommendations  and  principles  previously  stated  by  both  the 
Olivencia  and  the  Aldama  Committees.  It  included  modern  trends  in  corporate 
governance,  stated  by  different  entities  and  institutions  such  as  the  OECD,  the 
Basel  Committee  on  Banking  Supervision  and  the  European  Commission,  and  it 
takes into account the comments and proposals put forward by economic operators 

incorporating 

executives, including variable remuneration, allowances, indemnities, payment to long-term savings forecast systems 
and any other perception disaggregated by sex, implementation of employment disconnection policies (Article 49.6.II of 
Código de Comercio). 
996 Application of due diligence procedures in the field of human rights; prevention of the risks of violation of human 
rights and, where appropriate, measures to mitigate, manage and repair possible abuses; complaints about cases of 
violation of human rights; promotion and compliance with the provisions of the fundamental conventions of the 
International Labour Organization related to respect for freedom of association and the right to collective bargaining; 
the elimination of discrimination in employment and occupation; the elimination of forced or compulsory labour; the 
effective abolition of child labour (Article 49.6.III of Código de Comercio). 
997 Information related to the fight against corruption and bribery: measures taken to prevent corruption and bribery; 
measures to combat money laundering, contributions to foundations and non-profit entities (Article 49.6.IV of Código 
de Comercio). 
998 See Código de buen gobierno de las sociedades cotizadas, available at: 
https://www.cnmv.es/docportal/publicaciones/codigogov/codigo_buen_gobierno.pdf.  

233 

 
 
                                                                                                                                                                   
and  institutions. 999  Since  its  approval,  a  series  of  intervening  legal  texts  have 
affected  various  of  its  recommendations.  In  order  to  adapt  or  eliminate 
recommendations  affected  by  new  legislation,  in  June  2013  the  CNMV  Board 
approved a partial update of the Unified Code. 

In  2015,  the  Unified  Code  was  replaced  by  the  2015  Corporate  Governance  Code, 
which presents the following main novelties in comparison with the Unified Code: 

  The  Good  Governance  Code  employs  a  new  format  based  on  selecting  and 

identifying the principles informing each set of specific recommendations. 

  A  significant  number  of  the  Unified  Code  recommendations  have  since  been 
written into legislation, so do not form part of this Good Governance Code. 
  A  new  set  of  recommendations  deals  specifically  with  corporate  social 

responsibility. 

2. Scope 
The  2015  Corporate  Governance  Code  is  strictly  voluntary  in  nature,  though  the 
terms  considered  basic  and  indispensable  have  been  written  into  legislation.  It 
includes  the  64  voluntary  good  governance  recommendations  directed  at  all  listed 
companies,  whatever  their  size  and  market  capitalisation  (except  where  expressly 
indicated that a  recommendation is applicable only to large cap firms). This is not 
to deny that some recommendations may be unsuitable or excessively burdensome 
for  smaller  sized  firms.  In  such  cases,  however,  all  they  need  do  is  state  their 
reasons 
relevant 
for  non-compliance  and  any  alternatives  chosen.  The 
arrangements include: 

  When  various  listed  companies  belong  to  the  same  group,  they  should  take 
appropriate steps to safeguard the legitimate interests of all interested parties and 
to resolve conflicts of interest should they arise. 

  Companies  should  give  clear  information  to  the  general  meeting  concerning  their 

degree of compliance with Good Governance Code recommendations. 

  Listed companies should maintain a publicly disclosed policy for communication and 

contacts with shareholders, institutional investors and proxy advisors. 

3. Content of Code 

The risk control and management function 

According  to  Principle  21,  the  company  should  maintain  a  risk  control  and 
management  function  in  the  charge  of  an  internal  unit  or  department,  supervised 
directly  by  the  audit  committee  or,  where  appropriate,  another  dedicated  board 
committee.  This  Principle  contributes  to  implement  Company  legislation  which 
includes  the  approval  of  a  risk  control  and  management  policy  among  the  board’s 
non-delegable powers.1000 The Code goes a step further, in view of its importance, 
and  recommends  that  listed  companies  establish  a  risk  control  and  management 
function in the charge of an internal unit and under the supervision of a dedicated 
board committee. 

In this regard, the Code recommends: 

  Risk  control  and  management  policy  should  identify  at  least:  a)  the  different 
types  of  financial  and  non-financial  risk  the  company  is  exposed  to  (including 
operational,  technological,  financial,  legal,  social,  environmental,  political  and 

999 Paredes, C. and Núñez-Lagos R. (2015). “Spain”, in: Calkoen, W.J.L (ed.). The Corporate Governance Review. UK: 
Law Business Research. Available at: 
https://www.uria.com/documentos/publicaciones/4566/colaboraciones/1564/documento/Spain.pdf?id=5725.  
1000 See Article 529 ter of the Spanish Company Law, available at: https://www.boe.es/buscar/act.php?id=BOE-A-2010-
10544. 

234 

 
 
 
 
 
                                                        
reputational  risks),  with  the  inclusion  under  financial  or  economic  risks  of 
contingent liabilities and other off-balance-sheet risks; b) the determination of 
the  risk  level  the  company  sees  as  acceptable;  c)  the  measures  in  place  to 
mitigate the impact of identified risk events  should they occur; d) the internal 
control  and  reporting  systems  to  be  used  to  control  and  manage  the  above 
risks, 
risks 
(Recommendation 45). 

and  off-balance 

contingent 

including 

liabilities 

sheet 

  Companies  should  establish  a  risk  control  and  management  function  in  the 
charge  of  one  of  the  company’s  internal  department  or  units  and  under  the 
direct  supervision  of  the  audit  committee  or  some  other  dedicated  board 
committee.  This  function  should  be  expressly  charged  with  the  following 
responsibilities:  a)  ensure  that  risk  control  and  management  systems  are 
functioning correctly and, specifically, that major risks the company is exposed 
to  are  correctly  identified,  managed  and  quantified;  b)  participate  actively  in 
the preparation of risk strategies and in key decisions about their management; 
c)  ensure  that  risk  control  and  management  systems  are  mitigating  risks 
effectively in the frame of the policy drawn up by the board of directors. 

Corporate Social Responsibility 

The Code states that companies should accordingly take time to analyse how their 
business  impacts  on  society  and  vice  versa.  In  this  way,  taking  as  reference  their 
own  value  chain,  they  can  identify  social  issues  that  lend  themselves  to  shared 
value  creation.  In  this  regard,  Principle  24  points  out  that  companies  should 
accordingly  take  time  to  analyse  how  their  business  impacts  on  society  and  vice 
versa.  In  this  way,  taking  as  reference  their  own  value  chain,  they  can  identify 
social issues that lend themselves to shared value creation. 

The  Code  sets  out  what  should  be  the  minimum  content  of  the  corporate  social 
responsibility  policy  whose  approval  falls  to  the  board  of  directors  and  provides 
guidance  on  how  to  implement  the  principle  of  transparent  communication  with 
disclosure  of  non-financial  as  well  as  financial  information  on  the  company’s 
business. The Code recommends: 

  The  corporate  social  responsibility  policy  should  state  the  principles  or 
commitments  the  company  will  voluntarily  adhere  to  in  its  dealings  with 
stakeholder  groups,  specifying  at  least:  a)  the  goals  of  its  corporate  social 
responsibility  policy  and  the  support  instruments  to  be  deployed;  b)  the 
corporate  strategy  with  regard  to  sustainability,  the  environment  and  social 
issues;  c)  concrete  practices  in  matters  relative  to:  shareholders,  employees, 
clients,  suppliers,  social  welfare  issues,  the  environment,  diversity,  fiscal 
responsibility, respect for human rights and the prevention of illegal conducts; 
d) the methods or systems for monitoring the results of the practices referred 
to  above,  and  identifying  and  managing  related  risks.  e)  the  mechanisms  for 
supervising  non-financial  risk,  ethics  and  business  conduct;  f)  channels  for 
stakeholder  communication,  participation  and  dialogue;  g)  responsible 
communication  practices  that  prevent  the  manipulation  of  information  and 
protect the company’s honour and integrity. 

  The  company  should  report  on  corporate  social  responsibility  developments  in 
its  directors’  report  or  in  a  separate  document,  using  an  internationally 
accepted methodology. 

4. Monitoring, sanction and enforcement 
Spanish  legislation  leaves  it  up  to  companies  to  decide  whether  or  not  to  follow 
these  corporate  governance  recommendations,  but  requires  them  to  give  a 

235 

 
 
 
reasoned  explanation  for  any  deviation,  so  that  shareholders,  investors  and  the 
markets in general can arrive at an informed judgement. According to Article 540 of 
the Royal Legislative Decree 1/2010, of 2 July, Approving the Consolidated Text of 
the  Capital  Companies  Act,1001 the  “comply  or  explain”  principle  in  requiring  listed 
their  degree  of  compliance  with  corporate  governance 
firms 
recommendations,  justifying  any  failure  to  comply  in  the  pages  of  their  annual 
corporate governance reports. 

to  specify 

B.  Employment Law 
-  Law 31/1995, of 8 November, on Prevention of Occupational Risks1002 
Article  40.2  of  the  Spanish  Constitution  entrusts  to  the  public  powers  the 
responsibility for safeguard health and safety at work. This constitutional mandate 
implies the need to develop a policy and a normative framework for the protection 
of health of workers by means of risks prevention derived from work in accordance 
with  the  European  standards  and  international  commitments.  There  are  a  number 
of  ILO  Conventions  on  Occupational  Safety  and  Health  which  has  been  ratified  by 
Spain  (Conventions  Nos.  013,  062,  115,  119,  120,  127,  136,  148,  155,  162,  176 
and 187).1003 

2. Scope 
The  general  Occupational  Health  and  Safety  legislation  in  Spain,  transposing 
Directive 89/391/EEC (Framework Directive), is mainly covered by Law 31/1995 on 
the  Prevention  of  Work-Related  Risks.  It  establishes  the  general  principles  for 
health  monitoring  of  all  workers  (except  domestic  ones  and  self-employed).  This 
Law  does  not  apply  –  in  line  with  European  legislation  –  to  those  activities  whose 
characteristics  do  not  permit  it  in  the  field  of  public  service,  e.g.  police,  security, 
armed forces and military activities, as well as civil protection. Separate Resolutions 
and  Royal  Decrees  have  been  prepared  to  cover  these  latter  types  of  workers.1004 
The Law is executed by the authorities in the autonomous communities. The Law is 
further  complemented  by  various  Royal  Decrees  and  some  more  general  laws  on 
e.g. equality and free access to services.1005 

3. Content of Regulation 
From  the  recognition  of  the  workers'  rights  at  the  workplace  to  the  protection  of 
their  health  and  integrity,  the  Law  31/1995  establishes  the  various  duties,  which 
shall  guarantee  those  rights.  The  provisions  of  labour  character  contained  in  the 
Law and its regulations shall be in all case considered as the minimum compulsory 
essential requirements. 

Duty to Protect 

1001 See, Royal Legislative Decree 1/2010, of 2 July, Approving the Consolidated Text of the Capital Companies Act, 
available at: 
https://www.mjusticia.gob.es/cs/Satellite/Portal/1292428455808?blobheader=application%2Fpdf&blobheadername1=C
ontent-Disposition&blobheadervalue1=attachment%3B+filename%3DCorporate_Enterprises_Act_2015_-
_Ley_de_Sociedades_de_Capital.PDF.  
1002 See Ley 31/1995, de 8 de noviembre, de prevención de Riesgos Laborales, available at: 
https://www.boe.es/buscar/pdf/1995/BOE-A-1995-24292-consolidado.pdf.  
1003 ILO (2015). “Spain”, available at: 
https://www.ilo.org/dyn/legosh/en/f?p=14100:1100:0::NO:1100:P1100_ISO_CODE3,P1100_SUBCODE_CODE,P1100_
YEAR:ESP,,2015:NO. 
1004 Boronat, J. and González, S. (2015) Evaluation of the EU Occupational Safety and Health Directives Country 
Summary Report for Spain. Brussels: COWI-Milieu. 
1005 Additionally to the Law 31/1995, there is a specific Occupational Health and Safety decree for the National Police 
professionals; a decree establishing minimum Occupational Health and Safety provisions for the mines sector; a specific 
Occupational Health and Safety decree establishing minimum provisions for people working on fishing vessels; a decree 
regulation the transportation of dangerous substances; a decree requiring a minimal crew for fishing vessels to ensure 
safety; a decree regulating safety and health of workers against electrical risks; a specific decree on Occupational 
Health and Safety requirements for recruitment agencies. See: 
https://www.boe.es/legislacion/codigos/codigo.php?id=93&modo=1&nota=0&tab=2.  

236 

 
 
 
 
                                                        
Pursuant to the duty to protect, employers shall guarantee the health and safety of 
their  workers  in  all  work-related  matters.  To  this  end,  employers  shall,  within  the 
framework  of  their  own  responsibilities,  prevent  occupational  risks  by  integrating 
preventive  actions  into  the  company  and  by  adopting  all  necessary  measures  to 
protect  the  health  and  safety  of  workers.  These  measures  are  related  to 
occupational  risk  prevention  plans,  risk  assessment,  information,  consultation  and 
participation  and  training  of  workers,  actions  in  the  face  of  an  emergency  and  in 
case  of  a  serious  and  imminent  risk,  health  surveillance,  and  by  setting  up  an 
organization  and  the  resources.  Employers  shall  permanently  monitor  preventive 
actions for the continued improvement of the activities related to the identification, 
assessment  and  control  of  risks  that  could  not  have  been  avoided  and  of  the 
existing  levels  of  protection,  and  shall  make  all  necessary  arrangements  to  adapt 
the  prevention  measures  referred  to  in  the  previous  paragraph  to  those  changing 
circumstances that may affect work performance (Article 14.2). 

The employers must apply the measures, which are part of the general obligation to 
prevention in accordance with the following principles (Article 15.1): 

a)  Avoiding risks. 
b)  Evaluating the risks which cannot be avoided. 
c)  Combating the risks at source. 
d)  Adapting  the  work  to  the  individual,  especially  as  regards  the  design  of  the 
work  stations,  the  choice  of  work  equipment  and  the  choice  of  working  and 
production methods, with a purpose, in particular, to diminish monotonous and 
repetitive work and to reduce their effect on health. 

e)  Take into account the technical progress. 
f)  Replacing the dangerous by the non-dangerous or the less dangerous. 
g)  Planning  the  prevention  activities,  developing  a  coherent  overall  prevention 
policy  which  covers  technology,  work  organisation,  working  conditions,  social 
relationships  and  the  influence  of  the  environmental  factors  related  to  the 
work. 

h)  Giving priority to collective protective measures over the personal ones. 
i)  Giving appropriate instructions to the workers. 

Occupational  risk  prevention  plan,  risk  assessment  and  planning  of 
preventive actions (Article 16) 

Occupational  risk  prevention  shall  be  incorporated  into  the  company’s  general 
management  system,  both  into  all  its  activities  and  into  all  the  levels  of  its 
hierarchy.  This  occupational  risk  prevention  plan  shall  include  the  organizational 
structure,  responsibilities,  duties,  practices,  procedures,  processes  and  resources 
needed  to  carry  out  risk  preventive  actions  in  the  company,  as  set  forth  in  the 
regulations. 

The  basic  tools  for  managing  and  applying  risk  prevention  plans,  which  may  be 
implemented in stages on a scheduled basis, are the occupational risk assessment 
and the planning of preventive actions: 

a)  Employers  shall  carry  out  an  initial  assessment  of  the  risks  to  the  health  and 
safety of workers, taking into account, in general, the nature of the activities of 
the company, the characteristics of the existing jobs and the workers who shall 
perform  them.  A  similar  assessment  shall  be  made  when  choosing  work 
equipment,  chemical  substances  or  preparations  used  and  the  fitting-out  of 
workplaces. The initial assessment shall take into account all other actions that 
shall  be  implemented  in  accordance  with  the  regulation  on  the  protection 
against  specific  risks  and  particularly  dangerous  activities.  The  assessment 

237 

 
 
 
shall be updated where the working conditions change and shall, in any event, 
be  reconsidered  and  reviewed,  if  necessary,  where  health  damage  has 
occurred. 
Should  the  results  of  the  assessment  make  it  necessary,  employers  shall 
periodically  monitor  the  employees’  working  conditions  and  the  activities  they 
carry out, in order to identify potentially dangerous situations. 

b)  Where  the  results  of  the  assessment  reveal  situations  of  risk,  employers  shall 
take  all  necessary  preventive  actions  to  eliminate  or  reduce  and  control  said 
risk.  Such  preventive  actions  shall  be  planned  by  the  employer,  indicating  for 
each of the activities the implementation deadline, the designated officers and 
the human and material resources needed to implement them. Employers shall 
ensure  that  the  preventive  actions  included  in  the  planning  are  effectively 
implemented and, to that end, shall continuously monitor them. 

Preventive actions shall be modified where the employer, as a result of the periodic 
monitoring, appreciates that they fail to provide the intended protection. 

Regarding  the  general  content  of  the  occupational  risk  assessment,  the  Royal 
Decree 39/1997, of 17th January, by virtue of which the Regulations for Prevention 
services are approved,1006 states that the initial assessment of the risks which have 
not  been  possible  to  avoid  must  be  applied  to  each  one  of  the  posts  within  the 
company  in  which  such  risks  exist.  For  this  purpose,  the  following  must  be  taken 
into account (Article 4.1 of the Royal Decree 39/1997): 
  Existing and forecast working conditions, as defined in the Law 31/1995. 
  The possibility that the worker who occupies such a post or is going to occupy it 
is particularly sensitive to one or other of such conditions, by virtue of his/her 
personal characteristics or known biological state. 

On the basis of this initial assessment, reassessment must be made of those posts 
that could be affected by (Article 4.2 of the Royal Decree 39/1997): 

  The  choice  of  working  equipment,  chemical  substances  or  preparations,  the 
introduction  of  new  technologies  and  the  modification  of  the  conditions  in  the 
work place. 

  A change of working conditions. 
  The hiring of a worker whose personal characteristics or known biological state 

make him/her particularly sensitive to the conditions of the post. 

 
Obligations on manufacturers, importers and providers (Article 41) 

Manufacturers, importers and providers of machinery, equipments, tools and other 
means of production, are obliged to ensure that these are not a source of danger to 
the  worker,  provided  that  they  are  installed  and  used  in  accordance  with  the 
instructions  given  by  the  former.  Manufacturers,  importers  and  providers  of 
products  and  chemical  substances  for  use  at  work  are  obliged  to  pack  and  label 
them in such a way that allows their preservation and handling in safety conditions 
and their content can be clearly identified and also the risks whose storage or use 
may entail on the safety or health of workers. 

2.3. Information, consultation and participation of workers (Article 18) 

The employer shall consult workers, and allow them to take part in discussions on 
all questions relating to safety and health at work. In this regard, the workers shall 
be entitled to put forward proposals to the employer in order to improve the levels 
of protection of safety and health at work. 

1006 See Real Decreto 39/1997, de 17 de enero, por el que se aprueba el Reglamento de los servicios de prevención, 
available at: https://www.boe.es/buscar/act.php?id=BOE-A-1997-1853. 

238 

 
 
 
                                                        
According  to  Article  38,  workers  have  the  right  to  take  part  in  discussions  in  the 
enterprise  on  questions  relating  to  the  risks  prevention  at  work.  In  enterprises  or 
establishments  with  six  or  more  workers,  their  participation  shall  be  channelled 
through  their  representatives  and  the  specialised  representation  regulated  in  this 
chapter. 

4. Monitoring, sanction and enforcement 

Labour and Social Security Inspectorate 

It  concerns  to  the  Labour  and  Social  Security  Inspectorate  the  activity  of 
surveillance  and  control  of  the  legislation  on  the  risks  prevention  at  work.  In 
compliance with this role, it shall carry out the relevant following functions: 

a)  To notify to the labour authority about fatal, very serious and serious accidents 
at  work,  and  about  those  others  which,  because  of  their  characteristics  or 
affected persons, it is considered necessary such a notification, and also about 
occupational  diseases  which  meet  those  qualifications  and,  in  general, 
whenever  the  said  authority  asks  for  it  in  relation  to  the  fulfilment  of  the 
legislation on the risks prevention at work. 

b)  To  control  and  to  promote  the  fulfilment  of  the  obligations  taken  on  by  the 

prevention services set up by the Law 31/1995. 

c)  To  order  the  immediate  stoppage  of  work  where,  according  to  the  inspector's 
opinion, it has been noticed the existence of a serious and imminent risk to the 
safety or health of workers. 

Liabilities and Sanctions 

The  failure  to  comply  with  their  obligations  in  the  prevention  of  occupational  risks 
area by employers gives rise to administrative liabilities, and so, where appropriate, 
to  criminal  and  civil  liabilities  for  damages  which  can  be  derived  from  such  non-
fulfilment. The administrative liabilities derived from the disciplinary procedure shall 
be  compatible  with  the  compensation  for  damages  and  the  surcharge  of  the 
economic  benefits  of  the  Social  Security  System  which  can  be  established  by  the 
competent  body  in  accordance  with  the  rules  and  regulations  of  the  said  system 
(Article 42). 

Under the Spanish legislation, the duty of care has been further developed with the 
addition of the EU directives on work safety. The labour risk prevention legislation 
emphasizes the liability of employers for any lack of preventive safety measures. It 
is  compulsory  law  which  establishes  sanctions  in  response  to  non-compliance.  For 
example,  when  employers  fail  to  take  due  protective  measures  or  fail  to  provide 
works with training and information. 

Civil liability of employers can arise for omitting to take preventive measure. When 
a worker has an accident due to the lack of compulsory risk prevention measures, 
the  employer  has  to  compensate  the  worker.  The  damages  suffered  by  the 
employee  has  to  be  compensated.  Additionally,  even  in  cases  where  preventive 
measures are taken as required, if the accident occurs, the employer is considered 
liable because of the ineffectiveness of the preventive measures. In these cases, it 
is  sufficient  for  the  claimant  to  establish  that  the  breach  of  duty  contributed 
substantially to the injury. Employers can be exempted from liability in cases where 
the fault is attributed to the employee.1007 

1007 Infantino, M. and Zervogianni, E. (2017). Causation in European Tort Law. Cambridge: CUP, pp. 444-445. 
Moreover, The Labor Risk Prevention Law is the primary Spanish legislation that emphasizes the employers’ Duty of 
Care through special risk assessment and training measures. The penal code provides criminal penalties for a breach of 
the Labor Risk Prevention Law. Workers´ statutes define jurisdiction using conflicts of law principles for Spanish citizens 
working abroad. The law on the judiciary also sets out rules regarding jurisdiction in employment contract disputes. 

239 

 
 
 
 
                                                        
According  to  the  Spanish  Supreme  Court,  when  an  accident  at  workplace  occurs, 
the  liability  of  the  employer  arises  if:  a)  the  defendant  company  has  no  taken 
general  o  specific  prevention  measures.  Since  there  are  infinite  type  for  non-
compliance,  there  was  no  need  for  the  legislator  to  draw  up  a  list.  All  that  is 
requires  is  a  breach  of  duty  by  the  employer  to  care  for  his  employees;  b)  an 
effective link has to exist between the injury and the action or omission. The link is 
broke if the injury is the result of the exclusive fault of the victim.1008 

In  this  sense,  the  Spanish  Supreme  Court  held  that  as  long  as  employees  are 
subject  to  company  decisions,  an  accident  while  on  a  mission  abroad  is  an 
“occupational”  accident  as  defined  in  the  Labour  Risk  Prevention  Law  and  the 
employer has a duty of security to the employee.1009 

Sanctioning procedure (Article 45) 

According to Article 43, where the Labour and Social Security Inspector establishes 
the existence of a breach of the legislation on the prevention of occupational risks, 
the Inspector shall request the employer to correct the faults observed, unless due 
to  the  seriousness  and  imminence  of  the  risks  he  decided  to  proceed  with  the 
stoppage.  The  request  made  by  Inspector  shall  be  notified  in  writing  to  the 
supposedly  responsible  employer  pointing  out  the  anomalies  and  deficiencies 
observed  with  information  of  the  deadline  to  correct  them.  If  the  request  is  not 
complied  with,  and  the  deficiencies  continue  the  Labour  and  Social  Security 
Inspector, should he have not done it before,  shall draw up a formal statement of 
breach of statutory duty. 

5.  Other relevant legislation: 
-  Royal  Decree  1311/2005,  of  November  4,  on  the  Protection  of  the  Health  and 
Safety  of  Workers  against  Risks  derived  or  that  may  arise  from  Exposure  to 
Mechanical Vibrations1010 

-  Royal Decree 374/2001, of April 6, on the Protection of the  Health and Safety 

of Workers against the Risks related to Chemical Agents during Work1011 

-  Organic  Law  3/2007,  of  22  March,  for  Effective  Equality  between  Women  and 

Men1012 

C.  Environmental Law 
Article 45 of the Spanish Constitution sets out that everyone has the right to enjoy 
an environment suitable for personal development, and the duty to preserve it. The 
public  authorities  must  safeguard  the  rational  use  of  all  natural  resources  with  a 
view  to  protect  and  improve  the  quality  of  life  and  to  preserve  and  restore  the 
environment, through reliance on collective solidarity.1013 Persons who violate these 

Spanish case law extends the rights to workers on a mission abroad, but restricts it to injuries sustained at work.” See, 
Claus, L. (2009). “Duty of Care of Employers for Protecting International Assignees, their Dependents, and International 
Business Travelers”, available at: https://higherlogicdownload.s3.amazonaws.com/RIMS/b69e0893-271d-4b2a-9c81-
df3986421bbe/UploadedImages/ISOS%20Duty_of_Care_whitepaper.pdf. 
1008 See, STS de 2 de octubre de 2000; STS 26 de marzo de 1999. 
1009 STS de 4 de marzo 1998. 
1010 See, Real Decreto 1311/2005, de 4 de noviembre, sobre la protección de la salud y la seguridad de los trabajadores 
frente a los riesgos derivados o que puedan derivarse de la exposición a vibraciones mecánicas, available at: 
https://www.boe.es/buscar/pdf/2005/BOE-A-2005-18262-consolidado.pdf.  
1011 See, Real Decreto 374/2001, de 6 de abril, sobre la protección de la salud y seguridad de los trabajadores contra 
los riesgos relacionados con los agentes químicos durante el trabajo, available at: 
https://www.boe.es/buscar/pdf/2001/BOE-A-2001-8436-consolidado.pdf.  
1012 See, Ley Orgánica 3/2007, de 22 de marzo, para la igualdad efectiva de mujeres y hombres, available at: 
https://www.boe.es/buscar/pdf/2007/BOE-A-2007-6115-consolidado.pdf.  
1013 The central state, the autonomous communities and municipalities share legislative and enforcement powers 
(Articles 148 and 149 of the Spanish Constitution). The central state has exclusive competence over: “… Legislation, 
regulation and concession of hydraulic resources and development where the water-streams flow through more than 
one Self-governing Community, and authorization for hydro-electrical power plants whenever their operation affects 
other Communities or the lines of energy transportation are extended over other Communities. 23. Basic legislation on 
environmental protection, without prejudice to powers of the Self-governing Communities to take additional protective 
measures; basic legislation on woodlands, forestry and cattle trails” (Articles 149.22 and 149.23 of the Spanish 
Constitution). The autonomous communities are responsible for the legislative and regulatory implementation and 
enforcement of primary legislation in their territory. They can also establish additional rules on environmental 

240 

 
 
 
                                                                                                                                                                   
principles  are  liable  to  criminal  or  administrative  sanctions,  and  must  repair  the 
damage caused in accordance with the applicable legal provisions.1014 

Following  the  constitutional  provisions  and  the  framework  developed  by  the  EU 
legislation,  environmental laws  and  regulations  include  due  diligence  requirements 
for adverse impacts on the environment. 

-  Law 21/2013, of 9 December 2013, on Environmental Assessment1015 
The  basic  legislation  on  the  matter  of  the  environmental  assessment  of  plans, 
programmes  and  projects  is  contained  in  the  Law  21/2013  on  Environmental 
Assessment,  which  ensures 
is 
homogenous around the whole country and guarantees citizen participation in these 
procedures,  designed  to  analyse  the  environmental  impact  of  said  plans, 
programmes and projects. 

that  environmental  assessment 

legislation 

2.  Scope 
The Law 21/2013 aims at raising the level of environmental protection, in order to 
promote sustainable development (Article 1), through: 

 

 
 

 

the  integration  of  environmental  aspects  in  the  preparation  and  adoption, 
approval and authorization of plans, programs and projects; 
the analysis and selection of alternatives that are environmentally viable; 
the  establishment  of  measures  that  must  prevent,  correct  and,  where 
appropriate, compensate for adverse effects on the environment; 
the  establishment  of  the  monitoring,  sanction  and  enforcement  measures  to 
comply with the purposes of this law. 

This  basic  legislation  and  its  subsequent  regional  regulations 1016  set  a  list  of 
activities and conditions that governs the administrative procedure for evaluating: 

  Plans  and  programmes,  which  are  subjects  to  a  strategic  environmental 

evaluation (evaluación ambiental estratégica), and 

  Projects,  which  are  subjects  to  an  environmental 

impact  assessment 

(evaluación de impacto ambiental). 

A  strategic  environmental  assessment  shall  be  carried  out  for  all  plans  and 
programmes,  which  are  prepared  for  agriculture,  livestock,  forestry,  livestock, 
industry,  transport,  waste 
forestry,  aquaculture, 

fisheries,  energy,  mining, 

protection (article 148 of the Spanish Constitution). Municipalities hold environmental competences in certain matters 
such as urban waste prevention and management, atmospheric and noise pollution, granting local licenses authorizing 
construction and the operation of certain activities, and use of the local public domain. 
1014 See Constitución Española, «BOE» núm. 311, de 29 de diciembre de 1978, páginas 29313 a 29424 (112 págs.), 
available at: https://www.boe.es/diario_boe/txt.php?id=BOE-A-1978-31229. On the constitutional protection of the 
environment see Jordano Fraga, J. (1995). La protección del derecho a un medio ambiente adecuado. Barcelona: J. M. 
Bosch. 
1015 See Ley 21/2013, de 9 de diciembre, de evaluación ambiental, available at: https://www.miteco.gob.es/es/calidad-
y-evaluacion-ambiental/temas/evaluacion-ambiental/ley212013textoconsolidado_tcm30-190698.pdf. For critical 
analysis of the Law 21/2013, see de la Varga Pastor, A. (2017). “Análisis jurídico de la Ley 21/2013, de 9 de diciembre, 
de evaluación ambiental y de las competencias autonómicas en materia de EIA de proyectos”. Revista d'estudis 
autonòmics i federals, num. 25, pp. 11-50. 
1016 The autonomous communities that have passed regulations on the matter of the environmental assessment of 
plans, programmes and projects are: Andalucía - Ley 7/2007, de 9 de julio, de gestión integrada de la calidad 
ambiental; Aragón - Ley 11/2014, de 4 de diciembre, de prevención y protección ambiental de Aragón; Canarias - Ley 
14/2014, de 26 de diciembre, de armonización y simplificación en materia de protección del territorio y de los recursos 
naturales; Cantabria - Ley 17/2006, de 11 de diciembre, de control ambiental integrado; Castilla y León - Decreto 
Legislativo 1/2015, de 12 de noviembre, por el que se aprueba el texto refundido de la Ley de prevención ambiental de 
Castilla y León, Cataluña - Ley 20/2009, de 4 de diciembre, de prevención y control ambiental de las actividades; 
Castilla-La Mancha - Ley 4/2007, de 8 de marzo, de evaluación ambiental en Castilla-La Mancha; Extremadura - Ley 
16/2015, de 23 de abril, de protección ambiental de la Comunidad Autónoma de Extremadura; Galicia - Ley 1/1995, de 
2 de enero, de protección ambiental de Galicia; Islas Baleares - Ley 11/2006, de 14 de septiembre, de evaluaciones de 
impacto ambiental y evaluaciones ambientales estratégicas en las Islas Baleares; Madrid - Ley 2/2002 de evaluación 
ambiental de Madrid; Región de Murcia - Ley 4/2009, de 14 de mayo, de protección ambiental integrada; Comunidad 
Foral de Navarra - Ley 4/2005, de 22 de marzo, de intervención para la protección ambiental; País Vasco - Ley 3/1998, 
de 27 de febrero, de protección del medio ambiente del País Vasco; La Rioja —Ley 5/2002, de 8 de octubre, de 
protección del medio ambiente de La Rioja; Comunidad Valenciana - Ley 2/1989, de 3 de marzo, de impacto ambiental. 
See: Código de Evaluación y Control Ambiental, available at: 
https://www.boe.es/legislacion/codigos/codigo.php?id=111&modo=1&nota=0&tab=2.  

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management,  water  resources  management,  maritime  terrestrial  public  domain, 
use  of  the  marine  environment,  telecommunications,  tourism,  urban  and  rural 
territory  planning,  or  the  use  of  ground  (Article  8  of  the  Law  21/2013  on 
Environmental Assessment). 

The business activities and sectors subject to an environmental impact assessment 
are listed in Annex I to the Law 21/2013:1017 

Intensive livestock installations 

 
  Extractive industry 
  Mineral and steel industries. Production and processing of metals 
  Chemical, petrochemical, textile, paper industries industry 
 
  Hydraulic engineering and water management projects 
  Waste disposal and recovery projects 
  Other projects developed in sites protected under the Natura 2000 Network and 

Infrastructure projects 

in protected areas by international instruments 

According to the Law 21/2013, the requests for strategic environmental evaluations 
and  environmental  impact  assessments  should  take  into  account  the  likely 
significant  effects  of  the  project  on  the  environment  resulting  from,  including  the 
impact  of  the  project  on  climate.1018 Spain  has  one  of  the  most  advanced  laws  in 
terms  of  the  obligation  to  incorporate  climate  change  in  the  environmental 
assessment. However, in practice, only a few projects submitted for environmental 
impact  assessments  include  references  to  climate  change,  and  in  many  cases,  the 
topic is merely cited.1019 

The Law 21/2013 do not delimit the territorial scope of “environmental impacts” to 
be assessed. However, Article 49 states that when the execution in Spain of a plan, 
a program or a project may have significant effects on the environment of another 
Member  State  of  the  European  Union  or  of  another  State  to  which  Spain  has  an 
obligation to consult under international instruments, Spain, through the Ministry of 
Foreign  Affairs  and  Cooperation  (Ministerio  de  Asuntos  Exteriores  y  de 
Cooperación), will notify the State of the existence of the plan, program or project, 
and  the  procedure  of  adoption,  approval  or  authorization  to  which  it  is  subject, 
giving  it  a  period  of  thirty  days  to  decide  on  its  intention  to  participate  in  the 
environmental  assessment  procedure.  This 
the  assessment  of 
extraterritorial environmental impact in third countries outside the European Union. 

implies 

3.  Content of regulation 
The Law 21/2013 is an administrative regulation to prevent environmental impacts 
through  assessing  in  advance  the  likely  environmental  effects  of  certain  projects 
and  activities  carried  out  by  private  entities.  The  Law  establishes  two  types  of 
processes,  ordinary  (Annex  I)  and  simplified  (Annex  II).  Each  annex  has  a  list  of 
projects  and  thresholds,  using  a  mixed  model  of  thresholds  and  case-by-case 
consultation in Annex II projects, as with most EU Member States. It also indicates 
that  projects  that  may  be  presented  in  segmented  form  but  that  jointly  reach  the 
thresholds  of  Annexes  I  or  II,  must  be  submitted  to  environmental  impact 
assessments, but there is no mechanism for detecting this situation.1020 

The stages of the ordinary EIA process are as follows: 

1017 Article 7 of the Law 21/2013 on Environmental Assessment. 
1018 See Articles 18, 29, 35 and 45 of the Law 21/2013 on Environmental Assessment. 
1019 Enríquez-de-Salamanca A, Martín-Aranda R.M., Díaz-Sierra, R. (2016.). “Consideration of climate change on 
environmental impact assessment in Spain”. Environmental Impact Assessment Review, núm. 57, pp. 31-39. 
1020 See Enríquez-de-Salamanca, A. (2016). “Project splitting in environmental impact assessment”, Impact Assessment 
and Project Appraisal, vol. 34, núm. 2, pp. 152-159. 

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1.  The  developer  requests  the  substantive  body  to  determine  the  scope  of  the 
environmental  impact  study,  and  submit  the  initial  documents  on  the  project. 
Once it has verified the adequacy and conformity of the documents submitted, 
the substantive body sends them to the environmental body (Article 34.1). 
The  initial  documents  on  the  project  should  contain,  as  a  minimum,  the 
following information (Article 34.2): 

  A  description  and  specific  characteristics  of  the  project,  including  its  location, 
technical  feasibility  and  its  probable  impact  on  the  environment,  as  well  as  a 
preliminary  analysis  of  the  foreseeable  effects  on  the  environmental  factors 
derived from the vulnerability of the project in the event of serious accidents or 
catastrophes. 

  The  main  alternatives  considered  and  an  analysis  of  the  potential  impacts  of 

each of them. 

  A diagnosis of the territorial and environmental affected by the project. 
2.  The  environmental  body  determines  the  scope  of  the  environmental  impact 
study,  after  consulting  the  public  administrations  concerned  and  interested 
parties (Articles 34.3 and 34.4). 

3.  The  project  developer  submits  its  environmental  impact  study  to  the 

substantive body (Article 35 and Annex VI). 
The  environmental  impact  study  that  will  contain,  at  least,  the  following 
information: 

 

  A description of the project that includes information about its location, design, 
dimensions and other relevant characteristics of the project; and forecasts over 
time  on  the  use  of  land  and  other  natural  resources.  Estimation  of  the  types 
and amounts of waste generated and emissions of matter or energy resulting. 
  Description  of  the  various  reasonable  alternatives  studied  that  are  related  to 
the  project  and  its  specific  characteristics,  including  the  zero  alternative,  or 
non-implementation  of  the  project,  and  a  justification  of  the  main  reasons  for 
the  choice  adopted,  taking  into  account  the  effects  of  the  project  on 
environment. 
Identification, description, analysis and, if applicable, quantification of possible 
direct  or  indirect,  secondary,  cumulative  and  synergistic  effects  of  the  project 
on  the  following  factors:  population,  human  health,  flora,  fauna,  biodiversity, 
geodiversity , soil, subsoil, air, water, the marine environment, climate, climate 
change,  landscape,  material  goods,  cultural  heritage,  and  the  interaction 
between  all  the  factors  mentioned,  during  the  execution  phases,  exploitation 
and, where appropriate, during the demolition or abandonment of the project. 
o  The description of the possible significant effects should cover the direct effects 
and  indirect  secondary,  cumulative,  transboundary,  short,  medium  and  long 
term,  permanent  and  temporary,  positive  and  negative  effects  of  the  project. 
This  description  must  take  into  account  environmental  protection  objectives 
established  at  Union  or  Member  State  level,  and  significant  for  the  project 
(Annex VI). 

o 

  A  description  of  the  measures  envisaged  in  order  to  avoid,  reduce  and,  if 
possible, remedy significant adverse effects on the environment and landscape. 
In  particular,  the  measures  will  be  defined  to  alleviate  the  adverse  effects  on 
the  state  or  potential  of  the  water  masses  affected.  The  compensatory 
measures  shall  consist,  whenever  possible,  of  restoration  actions,  or  of  the 
same nature and effect contrary to that of the action taken. The project budget 
will  include  these  measures  with  the  same  level  of  detail  as  the  rest  of  the 

243 

 
 
project, in a specific section, which will be included in the environmental impact 
stud (Annex VI). 

  Environmental monitoring program. 
o  The  environmental  monitoring  program  should  establish  a  system  that 
guarantees  compliance  with  the  indications  and  the  measures  envisaged  to 
prevent,  correct  and,  where  appropriate,  compensate,  contained  in  the 
environmental  impact  study,  both  in  the  execution  phase  and  in  the 
implementation exploitation, dismantling or demolition phase. The aims  of the 
program  are  environmental  monitoring  during  the  construction  phase  and 
during the exploitation phase (Annex VI). 

  Non-technical  summary  of  the  environmental  impact  study  and  conclusions  in 

easily understandable terms. 

 

4.  The  substantive  body  carries  out  public  information  and  consultations 
procedures  with  the  relevant  public  administrations  and  interested  persons. 
Both procedures can be performed simultaneously (Article 37): 
the  public  information  procedure  consists  of  disclosing  the  environmental 
impact study and the project to the public for a period of at least 30 days; 
the  consultation  procedure  involves  the  administrations  and  interested  parties 
that have been consulted in relation to the scope of the environmental impact 
study. 

 

5.  The  substantive  body  submits  the  results  of  the  public  information  and 

consultation procedure to the promoter (Articles 39 and 40). 

6.  The  substantive  body  requests  an  environmental  impact  statement  from  the 

environmental body (Article 41). 

7.  The  environmental  body  issues  an  environmental  impact  statement  (Article 

42). 

4. Monitoring, sanction and enforcement 

Monitoring 

Two  regulatory  authorities  take  part  in  this  administrative  procedure,  the 
substantive competent body (for example, the mining regional authority in the case 
of a mining project) and the environmental body. The substantive body grants the 
authorisation  for  the  activity,  while  the  environmental  authority  sets  out 
environmental  conditions  (which  are  incorporated  in  the  authorisation).  The 
substantive body or the bodies designated by the autonomous communities follow-
up  of  the  compliance  with  the  environmental 
impact  statement  or  the 
environmental impact report (Article 52.1). 

The  environmental  impact  statement  or  the  environmental  impact  report  may 
define,  if  necessary,  the  monitoring  requirements  for  compliance  with  the 
conditions  established  therein,  as  well  as  the  type  of  parameters  that  must  be 
monitored  and  the  duration  of  the  monitoring,  which  will  be  proportionate  to  the 
nature,  location  and  size  of  the  project  and  the  significance  of  its  effects  on  the 
environment. 

Sanction and enforcement 

The  substantive  body  can  exercise  its  sanctioning  power  in  private  projects  that 
must  be  authorized  by  the  General  State  Administration  as  well  as  the  bodies 
designated  by  the  autonomous  communities  in  their  area  of  competence  (Article 
53). 

Developers  of  projects  that  have  the  status  of  a  private  individual  or  legal  entity 
may  be  sanctioned  for  the  administrative  infractions  provided  for  in  the  Law 

244 

 
 
 
 
21/2013. In the case that the fulfilment of a legal obligation corresponds to several 
persons  jointly,  they  will  respond  in  a  joint  manner  of  the  infractions  that  are 
committed and of the sanctions that are imposed (Article 54). 

infringements:  240,401-2,404,000  euros;  serious 

  Fines:  the  developers  that  fail  to  meet  their  obligations  can  be  fined  (very 
infringements: 

serious 
24,000-240,400 euros; minor infringements: 24,000 euros) (Article 56.1). 
  Exclusion  from  public  procurement:  the  imposition  of  a  sanction  for  the 
commission  of  very  serious  infringement  will  entail  the  prohibition  of 
contracting  in  accordance  with  the  Law  of  the  Public  Sector  Contracts  (Article 
56.3). 

  Damages:  if  the  infringements  have  caused  damages  or  harm  to  the  Public 
Administration  or  the  environment,  the  developer  should  return  to  its  original 
state the situation altered by the infringement or compensate for the damages 
and losses caused (article 53.4). 

1)  Sanctioning  procedures  are  always  initiated  ex  officio,  by  agreement  of  the 
competent  body,  either  on  their  own  initiative  or  as  a  consequence  of  higher 
order of other bodies or complaint (Article 58). 

2)  The competent body for the investigation of the sanctioning procedure, in cases 
of  urgency  and  for  the  provisional  protection  of  the  interests  involved,  may 
adopt  provisional  measures  prior  to  the  initiation  of  the  sanctioned  procedure 
(Article 59). 

3)  Interested  parties  have  a  period  of  fifteen  days  to  provide  as  allegations, 
documents  or  information  as  they  deem  appropriate  and,  where  appropriate, 
propose evidence specifying the means of which they intend to use (Article 60). 
4)  The  investigating  body  will  formulate  a  resolution  proposal  in  which  describe 
the facts that are considered proven and their exact legal qualification and the 
infraction, specifying the  sanction proposed to  be imposed and the provisional 
measures that have been adopted, where appropriate, by the competent body 
to initiate the procedure or by the instructor thereof (Article 62). 

5)  The  resolution  proposal  notified  to  the  interested  parties,  indicating  the 

clarification of the procedure (Article 63). 

6)  The  competent  body  issue  a  resolution  that  decide  all  the  questions  raised  by 
the interested parties and those derived from  the procedure.  The resolution is 
adopted within one month from the reception of the resolution proposal and the 
documents, allegations and information contained in the procedure (Article 64). 

5.Other Legislation 
-  Royal  Legislative  Decree  1/2016,  of  December  16,  approving  the  revised  text  of 
the Law on Integrated Pollution Prevention and Control1021 

-  Law 26/2007, of October 23, on Environmental Liability 
2.  Scope 
Law  26/2007  transposes  the  European  Directive  2004/35/EC,  of  the  European 
Parliament  and  of  the  Council,  of  April  21,  on  environmental  responsibility  in 
relation  to  the  prevention  and  repair  of  environmental  damage,  establishing  an 
administrative  regime  of  objective  and  unlimited  environmental  liability  based  on 
the  prevention  and  “polluter  pays”  principles.  In  this  regard,  Article  1  states  that 

1021 See Real Decreto Legislativo 1/2016, de 16 de diciembre, por el que se aprueba el texto refundido de la Ley de 
prevención y control integrados de la contaminación, available at: https://www.boe.es/buscar/pdf/2016/BOE-A-2016-
12601-consolidado.pdf.  

245 

 
 
 
 
                                                        
Law  26/2007  This  law  regulates  the  responsibility  of  operators  to  prevent,  avoid 
and repair environmental damage, in accordance with Article 45 of the Constitution 
and with prevention and “polluter pays” principles. 

Thus,  the  Law  establishes  a  whole  set  of  administrative  powers  for  public 
authorities  to  guarantee  compliance  with  its  provisions.  It  is  therefore  separated 
from civil liability in which conflicts between the party causing the damage and the 
injured party are settled in the courts. 

For  the  purposes  of  Law  26/2007,  ‘operators’  means  any  natural  or  legal  person, 
public  or  private,  who  carries  out  an  economic  or  professional  activity  or  who,  by 
virtue of any title, controls over such activity or has a determining economic power 
over  its  technical  operation.  For  its  determination  will  be  taken  into  account  what 
sectoral, state or autonomous legislation, for each activity on the holders of permits 
or  authorizations,  registration  or  communications  to  the  Administration  (Article 
2.10). 

The Law applies to environmental damage and the imminent threat of such damage 
occurring  when  it  is  caused  by  economic  or  professional  activities  listed  in  Annex 
III, even if there is no intent, fault or negligence (Article 3.1). The activities listed in 
Annex III are: 

The  Law  also  applies  to  environmental  damage  and  the  imminent  threat  of  such 
damage  occurring  caused  by  other  economic  or  professional  activities  than  those 
listed  in  Annex  III,  when  there  is  misconduct,  fault  or  negligence,  preventive, 
avoidance  and  reparation  measures  will  be  required;  or  when  there  is  no  fraud, 
fault  or  negligence,  preventive  and  avoidance  measures  will  be  required  (Article 
3.2). 

The  Law  does  not  apply  to  damage,  if  more  than  30  years  have  passed  since  the 
emission, event or incident, resulting in the damage, occurred. 

3.  Content of regulation 
The  operators  of  the  economic  or  professional  activities  included  in  this  law  are 
obliged to adopt and execute the measures of prevention, avoidance and repair of 
environmental damage and to defray their costs, whatever their amount, when they 
are responsible for them (Article 9). 

Obligations of prevention and avoidance of new damages 

In  the  face  of  an  imminent  threat  of  environmental  damage  caused  by  any 
economic or professional activity, the operator has the duty to adopt without delay 
and  without  the  need  for  a  warning,  request  or  prior  administrative  act,  the 
appropriate preventive measures. Likewise, when environmental damage has been 
caused by any economic or professional activity, the operator has the duty to adopt 
in the same terms the appropriate measures to avoid new damages, regardless of 
whether  or  not  it  is  subject  to  the  obligation  to  adopt  reparation  measures  by 
application of the provisions of this law (Article 17). 

Obligations of reparation 

The  operator  of  any  of  the  economic  or  professional  activities  listed  in  Annex  III 
that  causes  environmental  damage  is  obliged  to  inform  the  competent  authority 
immediately and to take the necessary reparation, even if there has been no fraud, 
fault or negligence (Article 18): 

  Adopt  all  provisional  measures  necessary  to  immediately  repair,  restore  or 

replace natural resources and damaged natural resource services. 

  Submit  to  the  approval  of  the  competent  authority  a  proposal  for  remedial 

measures for environmental damage caused. 

Environmental Risk Assessment 

246 

 
 
Annex  III  operators are obliged to  carry out an Environmental Risk Assessment in 
order to (Article 24): 

  Determine  if  are  under  the  obligation  to  have  a  financial  guarantee  or  are 

exempted, and calculate its amount 
It is a prevention tool (risk management decision-making tool). 

 
According  to  Article  34  of  the  Royal  Decree  2090/2008,  of  December  22,  which 
approves the Regulation of partial development of Law 26/2007, of October 23, on 
Environmental  Responsibility, 1022  the  environmental  risk  assessment  should  be 
carried out by the operator or a third party contracted by it, following the scheme 
established  by  the  UNE  150.008  norm1023 or  other  equivalent  standards.  Likewise, 
with a degree of detail appropriate to the hypothetical nature of the damage, in the 
preparation of the  risk  assessment the  criteria set out in Royal Decree 2090/2008 
must be used with respect to the following parameters: 

  The characterization of the environment where the installation is located. 
  The  identification  of  the  agent  causing  the  damage  and  the  resources  and 

services affected. 

  The  extent,  intensity  and  time  scale  of  the  damage,  for  the  scenario  with  the 

highest environmental damage index. 

  An evaluation of the significance of the damage. 
The  risk  analysis  will  take  into  account  to  what  extent  the  prevention  and  risk 
management  systems  adopted  by  the  operator,  in  a  permanent  and  continuous 
manner,  reduce  the  potential  environmental  damage  that  may  arise  from  the 
activity. 

Financial Guarantee 

Annex  III  operators  must  ensure  they  have  the  financial  guarantee  to  cover  the 
environmental  liability  inherent  in  their  intended  activities  (Article  24.1).  The 
financial  guarantee  forms  are  insurance  policy  or  contracts,  guarantee  or  adhoc 
technical  reserves  (Article  26).  The  coverage  of  the  financial  guarantee  will  never 
exceed 20,000,000 euros (Article 30). 

According  to  Article  33  of  the  Royal  Decree  2090/2008,  the  calculation  of  the 
amount  of  the  financial  guarantee  is  calculated  by  the  environmental  risks 
assessment of the activity that will contain the following operations: 

 

Identify the accidental scenarios and establish the probability of occurrence  of 
each scenario. 

  Estimate  an  environmental  damage  index  associated  with  each  accidental 

scenario following the steps established in Annex III. 

  Calculate  the  risk  associated  with  each  accidental  scenario  as  the  product 
between  the  probability  of  occurrence  of  the  scenario  and  the  environmental 
damage index. 

  Select  the  scenarios  with  the  lowest  associated  environmental  damage  index 

that group 95 percent of the total risk. 

  Establish  the  amount  of  the  financial  guarantee,  such  as  the  environmental 
damage  value  of  the  scenario  with  the  highest  environmental  damage  index 
among the selected accidental scenarios. 

4.  Monitoring, sanction and enforcement 

1022 See Real Decreto 2090/2008, de 22 de diciembre, por el que se aprueba el Reglamento de desarrollo parcial de la 
Ley 26/2007, de 23 de octubre, de Responsabilidad Medioambiental, available at: 
https://www.boe.es/buscar/doc.php?id=BOE-A-2008-20680. 
1023 See Norma UNE 150008:2008. Análisis y evaluación del riesgo ambiental, available at: 
https://www.une.org/encuentra-tu-norma/busca-tu-norma/norma?c=N0040747. 

247 

 
 
 
                                                        
Enforcement 

The  competent  authority  shall  ensure  that  the  operator  adopts  the  measures  of 
prevention, avoidance or repair of environmental damage, as well as to observe the 
other obligations established in the Law 26/2007: 

  Legislative development and implementation of the Law 26/2007: autonomous 

communities in whose territory damage or harm-threats are located. 

  Central  Government  executive  competence:  Law  application  of  executive 
competence  in  terms  of  state  owned  public  property  (water  and  coasts)  and 
mandatory report in case of damage or the imminent threat of damage affects 
state-managed water basins or state-owned public property 

  Where the territories of more than one autonomous community are affected or 
where  autonomous  communities  must  act  in  cooperation  with  the  Central 
Government,  the  Administrations  concerned  shall  establish  the  cooperation 
mechanisms considered appropriate for the effective exercise of the powers set 
out in the Law 26/2007. 

Sanctions 

The  liability  established  in  the  Law  26/2007  shall  be  compatible  with  penal  or 
administrative  penalties  imposed  for  the  actions  giving  rise  to  the  liability  (Article 
6.1).  According  to  Article  35,  natural  and  legal  persons  who  are  operators  of 
economic  or  professional  activities  and  who  are  responsible  for  them  may  be 
sanctioned for the facts constituting the administrative infractions regulated in Law 
26/2007. The infractions typified in the Law 26/2007 are classified as very serious 
and serious (Article 37) and, in the case of infractions, the following sanctions can 
be imposed (Article 38): 

  Fine 
  Termination of the authorization 
  Suspension of the authorization 
If  the  same  act  or  omission  was  constitutive  of  two  or  more  infractions,  only  the 
one  that  carries  the  greatest  sanction  will  be  taken  into  consideration. The  facts 
that  have  been  sanctioned  criminally  or  administratively  will  not  be  sanctioned,  in 
the cases in which the identity of the subject, fact and foundation is appreciated. In 
the  cases  in  which  the  infractions  could  constitute  an  offense  or  a  fault,  the 
competent  authority  will  pass  the  fault  to  the  competent  jurisdiction  and  refrain 
from proceeding with the sanctioning procedure while the judicial authority has not 
ruled (Article 36). 

Types of Liability for Environmental Damage 

In  Spain,  there  are  three  types  of  liabilities  linked  to  environmental  incidents  or 
damage:  civil,  criminal  and  administrative  liability.  Civil  liability  is  limited  to  the 
damages caused to another individual in tort or in contract. However, Law 26/2007 
limits the rights of third parties to seek compensation (or imposes the obligation to 
return  such  compensation)  as  far  as  the  damages  caused  have  been  remedied 
through  the  actions  taken  under  the  environmental  liability  regulation.  Thus,  civil 
liability  is  in  fact  limited  to  monetary  damages  arising  from  loss  of  profit  or  other 
damages directly linked to the individual.1024 

Regarding  criminal  liability,  the  proper  defence  regarding  criminal  offences  would 
normally  involve  the  lack  of  negligence  or  participation  in  the  commission  of  the 
crime, the lack of evidence against the operator, the measures taken to repair the 

1024 Baño León, J. M. (2018). “Environmental Law 2019”, available at: https://practiceguides.chambers.com/practice-
guides/comparison/376/2038/3945-3966-3976-3984-3986-3990-3993-3996-3999-4004-4007-4015-4020-4026-4030-
4034-4042-. 

248 

 
 
 
                                                        
damage  or  the  statute  of  limitations.  Criminal  offences  are  limited  in  time 
depending  on  the  seriousness  of  the  infringement.  In  short,  the  statute  of 
limitations will range from five to ten years.1025 

Regarding administrative liability, it is important to bear in mind that administrative 
liability  for  restoring  the  environment  must  be  differentiated  from  the  applicable 
administrative  sanctioning  regime.  Therefore,  the  obligation  to  restore  and 
compensate for all damages caused to the environment is perfectly compatible with 
the 
the  relevant 
environmental regulation. 

imposition  of  administrative  penalties  upon  breach  of 

The obligation to restore the environment expires after 30 years of the completion 
of  the  'incident',  whereas  liability  for  each  specific  infringement  depends  on  the 
sectoral norm, but in general very serious infringements are subject to a three-year 
limitation period, serious infringements to a two-year limitation and minor to a six-
month limitation. 

Similar  to  any  other  administrative  proceeding,  the  defences  are  both  substantive 
and procedural. The parties will challenge the conclusions of the administration and 
try to demonstrate (through expert reports or other mechanisms) the lack of harm 
to  the  environment  or  the  fulfilment  of  the  administrative  requirements.  However, 
given the inquisitorial nature of the proceeding, it is difficult to overcome the initial 
finding of the administration, which is why procedural arguments regarding the way 
in which the proceeding was carried out tend to gain more importance, particularly 
as the decision reaches judicial review.1026 

In  the  cases  of  concurrence  of  environmental  responsibility  with  criminal  or 
sanctioning procedures, the following rules will apply (Article 6.2): 

a)  The  Law  26/2007  shall  apply,  in  any  case,  to  the  repair  of  environmental 
damage  caused  by  the  operators  of  economic  or  professional  activities  listed  in 
Annex III, regardless of the processing of the remaining procedures. 

b)  The  Law  26/2007  shall  apply,  in  any  case,  to  the  adoption  of  preventive 
measures  and  avoidance  of  new  damages,  by  all  operators  of  economic  or 
professional activities, regardless of the processing of the remaining procedures. 

c) The adoption of measures to  repair environmental damage caused by economic 
or  professional  activities  other  than  those  listed  in  Annex  III  shall  be  enforceable 
only  when  the  fraud  or  negligence  has  been  determined  in  the  corresponding 
administrative or criminal procedure. 

In  any  case,  the  compensatory  measures  that  are  necessary  to  avoid  double 
recovery of costs will be adopted. 

Corporate Environmental Liability 

There are particular rules concerning liability of a corporate entity for environmental 
damage  or  breaches  of  environmental  law  in  administrative  and  criminal  law. 
According  to  Law  26/2007,  if  the  harm  is  caused  by  a  subsidiary  of  a  parent 
company  under  the  instructions  of  such  parent  company  or  using  the  subsidiary 
fraudulently  to  limit  liability,  the  parent  company  will  be  vicariously  liable  (Article 
10). 

Likewise,  the  Law  expands  corporate  liability  to  managers  and  directors  whose 
conduct has been determinant of the responsibility of the company in that they will 
be  responsible  for  their  obligations  and  liabilities.  This  is  without  prejudice  to 
potential  corporate  liability  claims  against  managers  and  directors  for  failure  to 
meet  their  fiduciary  duties  or  civil  liability  arising  from  a  criminal  sentence. 
Therefore, directors or managers of a corporation whose conduct has been a driving 

1025 Idem. 
1026 Idem. 

249 

 
 
                                                        
factor in the damage caused,  as well as liquidators in the case  of bankruptcy, can 
be held personally liable (Article 13). 

According  to  the  Spanish  Criminal  Code,  corporations  can  be  held  guilty  of 
committing  a  crime  to  the  environment  and  sanctioned  accordingly.  There  are  six 
possible measures that the Criminal Code allows to be imposed on a corporation: 

  dissolution of the legal entity, which will produce the definitive loss of its legal 
personality, as well as its capacity to act in any way in the legal traffic, or carry 
out any kind of activity, even if it is lawful; 
suspension of its activities for a term that may not exceed five years; 
closure  of  its  premises  and  establishments  for  a  period  that  may  not  exceed 
five years; 

 
 

 

  prohibition  to  carry  out  in  the  future  the  activities  within  the  field  where  the 
offence  was  committed  or  covered  up,  which  may  be  temporary  or  definitive, 
but if it is temporary, the term may not exceed 15 years; 
inability  to  obtain  subsidies  and  public  aid,  to  contract  with  the  public  sector 
and  to  enjoy  benefits  and  tax  incentives  or  social  security,  for  a  period  that 
may not exceed 15 years; and 
judicial intervention to safeguard the rights of  workers  or  creditors for as long 
as deemed necessary, which may not exceed five years. 

 

Some cases regarding environmental law application in Spain are the 'Prestige' case 
and  the  Aznalcollar  case.  The  'Prestige'  case  was  one  of  the  most  serious 
environmental  disasters  in  European  history.  The  oil  tanker  accident  caused  more 
than 63,000 tonnes of fuel oil to spill along the north coast of Spain and southwest 
coast  of  France.  The  amount  of  oil  was  more  than  the  'Exxon  Valdez'  and  the 
toxicity  considered  higher,  because  of  the  higher  water  temperatures.  On  14 
January  2016,  the  Spanish  Supreme  Court  delivered  its  judgment.  This  was  a 
criminal case where the Supreme Court sentenced the captain of the ship to a two-
year  imprisonment  for  negligence  and  neglect  of  duties.  The  ruling  held  that  the 
captain  of  the  'Prestige'  vessel  and  the  insurance  company  were  directly  liable, 
declaring  also  the  secondary  liability  of  the  owners  of  the  vessel.  Moreover,  the 
International Fund for Compensation for Oil Damage was also held liable within the 
terms  of  the  International  Convention  on  Civil  Liability  for  Bunker  Oil  Pollution 
Damage (Bunkers Convention).1027 

The  Aznalcollar  case  concerns  the  accident  that  occurred  in  the  natural  park  of 
Doñana  on  25  April  1998,  when  a  dam  burst  at  the  Los  Frailes  mine,  releasing 
heavy  metals into the  Guadiamar river. As a  result, there were 37 tonnes  of dead 
fish  and  heavy  metals  found  in  the  liver  and  muscle  tissue  of  species  throughout 
the  food  chain.  The  criminal  judicial  proceeding  finished  in  2002  without  any 
individuals being found guilty. Since then, the Spanish central government and the 
Andalusian government have been litigating in civil courts against the company that 
ran 
its  Spanish  subsidiary  shortly 
afterwards.1028 

the  mining  operations,  which  closed 

Sanctioning procedure under Law 26/2007 

The procedures for the requirement of environmental responsibility regulated in the 
Law  26/2007  shall  be  initiate:  a)  ex  officio  by  reasoned  agreement  of  the 
competent body, either on its own initiative, or as a consequence of a higher order, 
or  at  the  reasoned  request  of  other  bodies  or  by  means  of  a  complaint  that 
transfers  facts that, in the  opinion of the competent body, be enough to agree  on 
the start; b) at the request of the operator or any other interested person (Article 
41). 

1027 Idem. 
1028 Idem. 

250 

 
 
                                                        
When the initiation of environmental liability procedures is initiated by an interested 
party1029 other  than  the  operator,  the  request  shall  be  formalized  in  writing  and 
shall  specify  in  any  case  the  damage  or  threat  of  environmental  damage  for  the 
purposes  provided  in  the  Law  26/2007.  The  request  should  specify  the  following 
aspects: 

  The action or omission of the alleged perpetrator. 
  The identification of the alleged perpetrator. 
  The date on which the action or omission took place. 
  The place where the damage or the threat of damage has occurred. 
  The  causal  relationship  between  the  action  or  the  omission  of  the  presumed 

responsible party and the damage or threat of harm. 

The competent body will decide on the admission of the request for the initiation of 
the  environmental  liability  procedure  and  will  inform  the  applicant  within  10 
working  days  of  receiving  the  request.  In  the  procedures  that  are  initiated  at  the 
request  of  the  interested  party  other  than  the  operator,  if  the  competent  body 
verifies  that  the  request  for  initiation  does  not  include  the  elements  indicated 
above,  it  will  require  the  applicant  to  accompany  the  required  documents  within a 
period  of  If  the  competent  body  verifies  that  the  request  for  initiation  does  not 
include  the  elements  indicated in  the  previous  section,  it  will  require  the  applicant 
to accompany the required documents within a period of ten working days. In cases 
where  such  a  correction  does  not  occur,  your  application  will  be  considered  as 
abandoned. In cases where such a correction does not occur, the application will be 
considered as abandoned. 

The  competent  body  may  refuse  to  grant  the  request,  by  means  of  a  reasoned 
decision,  in  the  cases  of  those  applications  that  manifestly  lack  of  foundation  or 
have  been  rejected  on  the  merits  by  previous  firm  resolution  other  substantially 
identical  requests.  Faced  with  this  resolution  of  inadmissibility,  the  legally 
appropriate remedies may be filed through the administrative and judicial avenues, 
as the case may be. 

-  Draft Bill on Climate Change and Energy Transition1030 
2. Scope 
In February 2019, the Spanish the Council of Ministers has approved the Draft Bill 
on  Climate  Change  and  Energy  Transition  at  the  proposal  of  the  Ministry  for 
Ecological  Transition.  This  regulation  provides  for  the  decarbonisation  of  the 
Spanish economy by 2050 and gives a decisive boost to renewable energies (Article 
1). 

The  Draft  Bill  establishes  the  following  national  objectives  by  2030  in  order  to 
comply with the international commitments: 

  Reduce  by  2030  the  greenhouse  gas  emissions  of  the  Spanish  economy  as  a 

whole by at least 20% compared to 1990. 

  Reach by 2030 an energy penetration of energy from renewable sources in the 

final energy consumption of at least 35%. 

  Achieve  by  2030  an  electrical  system  with  at  least  70%  generation  from 

energies from renewable sources. 

1029 According to Article 42 of the Law 26/2007, the interested parties are any individual or legal entity in which any of 
the circumstances set forth in article 31 of Law 30/1992, of November 26, or any non-profit legal entities that prove 
compliance with the following requirements: a) that they have among the purposes accredited in their statutes the 
protection of the environment in general or that of any of its elements in particular; b) that they were legally 
constituted at least two years before the exercise of the action and that they have been actively exercising the activities 
necessary to achieve the purposes set forth in their bylaws; c) that according to its statutes they develop their activity 
in a territorial area that is affected by the environmental damage or the threat of damage. 
1030 See, Anteproyecto de Ley de Cambio Climático y Transición Energética, available at: 
https://elperiodicodelaenergia.com/wp-content/uploads/2019/02/Anteproyecto-Ley-CC-y-TE-.pdf. 

251 

 
 
                                                        
 

Improve  energy  efficiency  by  reducing  the  consumption  of  primary  energy  by 
at least 35%, with respect to the baseline according to community regulations. 

3.Content of regulation 
The  companies  that  formulate  consolidated  accounts  and  the  companies  that  are 
not part of a consolidated group shall publish, within their management report, an 
annual  report  that  assesses  the  financial  impact  on  society  of  the  risks  associated 
with climate change, including risks of the transition to a sustainable economy and 
the measures that are adopted to deal with those risks. The report will be published 
on the corporate website of the companies (Article 26.4). 

The content of the reports will be determined by regulation, within two years from 
the approval of the Law, and will include the following aspects (Article 26.5): 

  The  governance  structure  of  the  organization,  including  the  role  that  its 
different  bodies  play,  in  relation  to  the  identification,  evaluation  and 
management of risks and opportunities related to climate change. 

  The  strategic  approach,  both  in  terms  of  adaptation  and  mitigation,  of  the 
entities  to  manage  the  financial  risks  associated  with  climate  change,  taking 
into  account  the  risks  already  existing  at  the  time  of  writing  the  report,  and 
those that may arise in the future, identifying the actions required at that time 
to mitigate such risks. 

  The actual and potential impacts of the risks and opportunities associated with 
climate change in the activities of the organization and its strategy, as well as 
in its financial planning. 

  The  processes  of  identification,  evaluation,  control  and  management  of  risks 
related  to  the  climate  and  how  they  are  integrated  in  their  analysis  of  global 
business  risk  and  their  integration  in  the  global  management  of  risk  by  the 
organization. 

  The metrics, scenarios and objectives used to assess and manage the relevant 

risks and opportunities related to climate change. 

D.  Administrative Law 
-  Law  9/2017,  of  November  8,  on  Contracts  of  the  Public  Sector,  by 
which  the  European  Directives  of  the  Parliament  and  Council 
2014/23/EU  and  2014/24/EU,  of  February  26,  2014  are  transposed 
into the Spanish legal system1031 

- 
2.  Scope 
This Law applies to procurement proceedings that are commenced after it has come 
into  effect,  commencement  being  understood  as  the  publication  of  the  call  for 
competition.  Contracts  awarded  before  the  entry  into  force  of  the  Law  9/2017  are 
governed  by  the  previous  regulation  with  regard  to  their  effects,  compliance  and 
termination, duration and regime for extensions. 

The  Law  9/2017  introduces  stricter  rules  for  the  benefit  of  companies  and  their 
workers, so that the new rules tighten the provisions on this matter in the so-called 
“abnormally low” offers. This establishes that the contracting authorities will reject 
the  offers  if  they  prove  that  they  are  abnormally low  because  they  do  not  comply 
with  the  applicable  environmental,  social  or  labour  obligations.  In  this  regard, 
considerations  of  a  social,  environmental  and  innovation  and  development  nature 

1031 See, Ley 9/2017, de 8 de noviembre, de Contratos del Sector Público, por la que se transponen al ordenamiento 
jurídico español las Directivas del Parlamento Europeo y del Consejo 2014/23/UE y 2014/24/UE, de 26 de febrero de 
2014, available at: https://www.boe.es/buscar/pdf/2017/BOE-A-2017-12902-consolidado.pdf.  

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are  included  in  public  contracts.  These  considerations  may  be  included  both  when 
designing  the  award  criteria,  as  qualitative  criteria  to  evaluate  the  best  value  for 
money, or as special execution conditions, although their introduction is subject to 
their being related to the object of the contract to be executed.1032 

In  the  environmental  field,  environmental  management  certificates  are  required 
from bidding companies, as a condition of technical solvency, that is, to accredit the 
experience or "good work" of that company in the field of environmental protection 
In addition, with the aim of promoting respect for human rights, and especially the 
basic labour rights of working people and small producers in developing countries, 
the  possibility is  introduced  that  both  the  award  criteria  and  the  special  execution 
conditions  incorporate  social  aspects  of  the  production  and  marketing  process 
referring  to  the  works,  supplies  or  services  to  be  provided  under  the  contract  in 
question, and in particular may require that said process comply with the principles 
of  fair  trade  establishes  the  European  Parliament  Resolution  on  Fair  Trade  and 
Development (2005/2245 (INI)). 

It  also  introduces  a  special  rule  regarding  the  fight  against  corruption  and  the 
prevention  of  conflicts  of  interest,  whereby  the  contracting  bodies  are  obliged  to 
take  the  appropriate  measures  to  fight  against  fraud,  favouritism  and  corruption, 
and to prevent, detect and effectively resolve conflicts of interest that may arise in 
the  bidding  procedures.  In  line  with  measures  to  fight  against  corruption,  a  new 
regulation  of  hiring  prohibitions  is  made  that  increases  the  cases  of  prohibition 
modifying  the  competence,  the  procedure  and  the  effects  of  a  declaration  of  this 
type.  At  the  same  time,  it  transposes  those  referred  to  by  the  Community 
Directives as  "self-correcting measures", so that certain prohibitions of contracting 
either  will  not  be  declared  or  will  not  be  applied,  as  the  case  may  be,  when  the 
company  has  adopted  compliance  measures  aimed  at  repairing  the  damages 
caused  by  their  unlawful  conduct,  under  the  conditions  that  are  regulated  in  this 
Law. 

According to Article 1 of the Law 9/2017, the purpose of this Law is to regulate the 
public  procurement,  in  order  to  guarantee  that  it  complies  with  the  principles  of 
freedom  of  access  to  bids,  publicity  and  transparency  of  procedures,  and  non-
discrimination  and  equal  treatment  among  bidders;  and  to  ensure,  in  connection 
with the objective of budgetary stability and expenditure control, and the principle 
of  integrity,  an  efficient  use  of  the  funds  destined  to  the  execution  of  works,  the 
acquisition of goods and the contracting of services by means of the requirement of 
prior definition of the needs to be met, the safeguarding of free competition and the 
selection  of  the  most  economically  advantageous  offer.  In  this  regard,  public 
procurement  should  incorporate  social  and  environmental  criteria  in  a  transversal 
and mandatory manner, provided that it is related to the object of the contract, in 
the  conviction  that  their  inclusion  provides  a  better  quality-price  ratio  in  the 
contractual provision, as well as a greater and better efficiency in the use of public 
funds. 

The  Law  9/2017  has  slightly  extended  the  scope  of  application  of  the  rules. 
Included  within  its  subjective  scope  are  political  parties,  trade  union  and  business 
organisations,  and  foundations  and  associations  related  to  any  of  these  entities 
where they fulfil the requirements to be considered a contracting authority (Article 
3).  As  regards  the  objective  scope  of  application,  excluded  contracts  and  legal 
transactions  have  been  structured  in  a  more  organised  and  defined  manner.  In 

1032 In Catalonia, civil society organizations published the document entitled “Guide for the protection and promotion of 
human rights in public procurement” as a tool to Catalan public administrations so that they can incorporate 
instruments for protection and development of human rights. The Guide seeks to facilitate the incorporation of social 
clauses for the guarantee of human rights by business contractors in all stages of the tender procedure. These clauses 
may be introduced as admission criteria, award criteria or special mandatory execution conditions. Tornos, J., 
Fernández, A., Calvete, A. and Ambrós, J. (2017). “Guide for the protection and promotion of human rights in public 
procurement”, available at: http://993responsable.org/en/. 

253 

 
 
                                                        
addition  to  expressly  excluding  circumstances  such  as  contracts  for  political 
campaign services (Article 2).1033 

3.Content of regulation 
Public  sector  can  only  contract  with  natural  or  legal  persons,  Spanish  or  foreign, 
who have full capacity to act, are not subject to any prohibition to hire, and prove 
their  economic  and  financial  and  technical  or  professional  solvency  or,  in  cases 
where that this Law so requires, are properly classified (Article 65). 

Legal  persons  may  only  be  awarded  contracts  whose  benefits  are  included  within 
the purposes, object or scope of activity according to their statutes or foundational 
rules  (Article  66).  Regarding  foreign  legal  persons,  without  prejudice  to  the 
application  of  Spain's  obligations  deriving  from  international  agreements,  legal 
persons of States not belonging to the European Union or of signatory States of the 
Agreement on the European Economic Area must justify by means of a report that 
the  State  of  origin  of  the  foreign  company  admits  the  participation  of  Spanish 
companies in contracting with public sector entities. In addition, the list of specific 
administrative  clauses  may  require  non-EU  companies  that  are  awarded  contracts 
to open a branch in Spain, with the delegation of agents or representatives for their 
operations, and that are registered in the Commercial Registry (Article 68). 

However,  public  sector  entities  cannot  contract  legal  persons  in  whom  any  of  the 
following circumstances concur (Article 71): 

  They  have  been  convicted  by  a  final  judgment  for  terrorism  offenses, 
constitution  or  integration  of  a  criminal  organization  or  group,  illegal 
association,  illegal  financing  of  political  parties,  trafficking  in  human  beings, 
corruption  in  business,  influence  peddling,  bribery,  fraud,  crimes  against  the 
Public  Treasury  and  Social  Security,  crimes  against  the  rights  of  workers, 
prevarication,  embezzlement,  negotiations  prohibited  to  officials,  money 
laundering, crimes related to the planning of the territory and urban planning, 
the  protection  of  historical  heritage  and  the  environment,  or  the  penalty  of 
special  disqualification  for  the  exercise  of  profession,  trade,  industry  or 
commerce. In the case of legal persons, the prohibition reaches administrators 
or representatives that are declared criminally responsible. 

  They  have  been  sanctioned  for  serious  infringement  in  professional  matters 
that  jeopardizes  their  integrity,  market  discipline,  distortion  of  competition, 
labour  integration  and  equal  opportunities  and  non-discrimination  of  persons 
with disabilities, or aliens, in accordance with what is established in the current 
regulations;  or  for  very  serious  infringement  in  environmental  matters  in 
accordance  with  the  established in  the  current  regulations,  or  for  very  serious 
infringement in labour or social matters. 

  The have requested the voluntary bankruptcy  declaration, have been  declared 
insolvent  in  any  proceeding,  have  been  declared  bankrupt,  unless  an 
agreement has been effective or a file of extrajudicial payment agreement has 
been initiated, or have been disabled. 

  They have not complied with the tax or Social Security obligations imposed by 
the  provisions  in  force,  in  the  terms  that  are  statutorily  determined;  or  in  the 
case of companies with 50 or more workers, not meet the requirement that at 
least 2 percent of their employees are workers with disabilities; or in the case 
of companies with more than 250 workers, not complying with the obligation to 
have an equality plan. 

1033 Uria Mendez (2017). “The main innovations of Law 9/2017 of 8 November on public sector contracts”, available at: 
https://www.uria.com/documentos/circulares/955/documento/7259/UMBriefing.pdf. 

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  They  are  affected  by  a  prohibition  to  hire  imposed  by  an  administrative 

sanction. 

The prohibitions to contract will also affect those companies from which, by reason 
of the persons that govern them or of other circumstances, it can be presumed that 
they  are  continuation  or  that  derive,  by  transformation,  merger  or  succession,  of 
other companies in which they had attended those. 

In  order  to  enter  into  contracts  with  the  public  sector,  legal  persons  must  prove 
that they are in possession of the minimum economic and financial and professional 
or  technical  solvency  conditions  determined  by  the  contracting  authority  (Article 
74). Moreover, the capacity to act of legal persons shall be evidenced by means of 
the deed or constitution document or the  founding charter, in which the norms by 
which  their  activity  is  regulated  are  duly  registered,  as  the  case  may  be,  in  the 
corresponding  Public  Registry,  according  to  the  type  of  legal  entity  in  question 
(Article 84). 

In contracts subject to harmonized regulation, when contracting bodies require the 
presentation of certificates issued by independent bodies that prove that the bidder 
meets  certain  environmental  management  standards  as  a  means  of  proving 
technical  or  professional  solvency,  they  shall  make  reference  to  the  Community 
system of environmental management and auditing (EMAS) of the European Union, 
or  other  environmental  management  systems  recognized  in  the  European 
Regulation  (EC)  No.  1221/2009  of  25  November  2009,  or  other  environmental 
management  standards  based  on  European  standards  or  relevant  international 
organizations accredited (Article 94). 

Regarding  Law  9/2017,  Amnesty  International  considers  that  “[a]though  the 
progress of the enactment of this regulation is noteworthy, the  [Law 9/2017] does 
not  consider  an  obstacle  to  public  procurement  that  a  company  has  failed  or  is 
failing  to  comply  with  its  responsibility  to  respect  human  rights.  Neither  is  this 
made a selection criterion nor a condition for contracting. It is necessary that public 
administrations  contracting  with  private  companies,  giving  permits  or  awarding 
grants or other benefits or special regimes, or assuming public activities or services 
should  be  subject  to  criteria/conditions  and  terms  of  performance  that  ensure 
respect for human rights.”1034 

Public Administration Contracts 

The  Law  9/2017  reinforces  the 
importance  of  social  and  environmental 
considerations  in  public  contracts.  Contracting  bodies  may  establish  these 
considerations  as  qualitative  award  criteria  for  evaluating  the  best  price-quality 
ratio  or  as  special  performance  conditions,  provided  that  these  are  linked  to  the 
object of the contract,  are not discriminatory,  are compatible with EU law and are 
established in the procurement documents or in the contract notice. 

In  the  specifications  of  particular  administrative  clauses,  the  social,  labour  and 
environmental  considerations  should  be 
included  as  criteria  of  solvency, 
adjudication or as special conditions of  execution. Thus, the contracting body may 
indicate in the document the body or bodies from which the candidates or tenderers 
can  obtain  the  pertinent  information  on  the  obligations  related  to  taxation, 
environmental  protection,  and  the  current  provisions  on  employment  protection, 
equality  of  gender,  working  conditions  and  prevention  of  occupational  risks  and 
socio-occupational insertion of people with disabilities, and the  obligation to hire a 
specific  number  or  percentage  of  people  with  disabilities  that  will  be  applicable  to 
the work carried out on the site or to the services provided during the execution of 
the contract (Article 129). 

1034 Amnesty International (2018). “Spain. Submission to the United Nations Committee on Economic, Social and 
Cultural Rights. 63rd Session, 12 – 29 MARCH 2018”, available at: 
https://www.amnesty.org/download/Documents/EUR4179202018ENGLISH.pdf.  

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4. Sanctions 

The contracts will be terminated by their compliance or by resolution (Article 209). 
The  breach  of  the  main  obligation  of  the  contract  is  cause  of  resolution  as  well  as 
the breach of the remaining essential obligations provided that the latter had been 
classified as such in the specifications or in the corresponding descriptive document 
(Article 211). 

The  specifications  or  the  descriptive  document  may  provide  for  penalties  for  the 
case  of  defective  performance  of  the  benefit  subject  to  it  or  for  the  case  of  non-
compliance  with  the  commitments  or  the  special  conditions  of  execution  of  the 
contract  that  had  been  established.  These  penalties  must  be  proportional  to  the 
gravity of the non-compliance and the amounts of each of them may not exceed 10 
percent  of  the  contract  price,  VAT  excluded,  nor  the  total  of  them  exceed  50 
percent  of  the  contract  price  (Article  192).  When  the  contractor,  for  reasons 
attributable to it, has partially breached the execution of the benefits defined in the 
contract, the Administration may opt, depending on the circumstances of the case, 
for its resolution or for the imposition of the penalties that, for such cases, they are 
determined  in  the  particular  administrative  clauses  document  or  in  the  descriptive 
document. 

Additionally,  the  specifications  may  establish  penalties  in  case  of  non-compliance 
with  the  special  execution  conditions.  When  the  breach  of  these  conditions  is  not 
defined  as  a  cause  of  termination  of  the  contract,  it  may  be  considered  in  the 
specifications, in the terms established by regulation (Article 202). 

In  the  event  of  partial  noncompliance  or  defective  performance  or  delay  in  the 
execution  in  which  no  penalty  is  foreseen  or  in  which  it  is  not  cover  the  damage 
caused  to  the  Administration,  this  will  require  the  contractor  compensation  for 
damages (Article 194). 

E.  Stock Exchange Listing 

-  Royal  Legislative  Decree  4/2015,  of  October  23,  whereby  Approving 

the Consolidated Text of the Law of the Stock Market1035 

2.  Scope 
The  Royal  Legislative  Decree  4/2015  covers,  among  others,  any  investment 
company that, in an organized, frequent and systematic way, negotiates on its own 
account  when  executing  customer  orders  outside  of  a  regulated  market,  a 
Multilateral  Negotiation  System  (Sistema  Multilateral  de  Negociación)  or  an 
Organized Contracting System (Sistema Organizado de Contratación)  (Article 2.5). 
According to Article 132, investment companies are those whose main activity is to 
provide  investment  services,  on  a  professional  basis,  to  third  parties  on  financial 
instruments.  The  investment  companies  are  securities  companies,  securities 
agencies,  portfolio  management  companies  and  financial  advisory  companies 
(Article 143). 

Thus,  the  provisions  of  the  Royal  Legislative  Decree  4/2015  apply  to  investment 
companies  domiciled  in  Spain.  Additionally,  they  apply  to  companies  from  third 
countries  that  provide  investment  services  and  activities  or  carry  out  investment 
activities  through  the  establishment  of  a  branch  or  under  the freedom  to  provide 
services without a branch (Article 4). 

3.Content of regulation 

1035 See Real Decreto Legislativo 4/2015, de 23 de octubre, por el que se aprueba el texto refundido de la Ley del 
Mercado de Valores, available at: https://www.boe.es/buscar/act.php?id=BOE-A-2015-11435.  

256 

 
 
 
 
 
 
                                                        
Corporate Governance Obligations 

Investment  companies  must  have  strong  corporate  governance  procedures, 
including a clear organizational structure that is adequate and proportionate to the 
nature,  scale  and  complexity  of  their  activities  and  with  well-defined,  transparent 
lines  of  responsibility  (Article  182).  For  this  purpose,  the 
and  coherent 
administration  body  of  any  investment  company  shall  define  a  corporate 
governance  system  that  guarantees  an  efficient  and  prudent  management  of  the 
entity, and that includes the proper distribution of functions in the organization and 
the prevention of conflicts of interest, promoting the integrity of the market and the 
interest of the clients. 

The  corporate  governance  system  will  be  governed  by  the  principles  of 
responsibility  and  supervision  of  the  administrative  body,  and  the  integrity  of  the 
accounting  and  financial information  systems.  The  administrative  body  periodically 
monitors  and  evaluates  the  adequacy  and  application  of  the  effectiveness  of  the 
corporate  governance  system.  The  investment  companies  should  have  a  website 
where they disseminate the public information on how they comply with corporate 
governance obligations (Article 183). 

Diligence and Transparency Obligations 

investment  companies  should  act  with  honesty, 

The 
impartiality  and 
professionalism,  in  the  best  interest  of  their  clients  (Article  208).  In  this  regard, 
companies that provide investment services and activities must organize and adopt 
measures  to  prevent,  detect  and  manage  potential  conflicts  of  interest  between 
their  clients  and  the  company  or  its  group  (Article  208  bis).  Moreover,  they  must 
keep  their  clients  adequately  informed  at  all  times.  All  information  addressed  to 
clients,  including  advertising,  must  be  impartial,  clear  and  not  misleading  (Article 
209).  Additionally,  investment  companies  must  ensure  at  all  times  that  they  have 
all  the  necessary  information  about  their  clients  (Article  212).  Finally,  companies 
must  create  a  register  that  includes  the  agreements  that  establish,  in  writing  and 
on  paper  or  any  other  durable  medium,  the  essential  rights  and  obligations  of  the 
company and the client (Article 218). 

4.Monitoring, sanction and enforcement 
Investment  companies  are  subject  to  the  supervision,  inspection  and  sanction 
regime of the National Securities Market Commission (Article 233), which has some 
of the following powers of supervision and inspection: 

  Adopt  any  type  of  measure  to  ensure  that  the  persons  and  entities  subject  to 
its  supervision  comply  with  the  applicable  rules  and  regulations,  or  with  the 
correction or correction requirements made, and may require such persons and 
entities,  individually  or  collectively  and  for  that  purpose,  the  contribution  of 
reports  from  independent  experts,  auditors  or  their  internal  control  bodies  or 
regulatory compliance. 

  Agree  the  suspension  or  limitation  of  the  type  or  volume  of  operations  or 

activities that individuals or legal entities can do in the stock market. 

  Agree the suspension or exclusion of the negotiation of a financial instrument, 

whether in a regulated market or in other trading systems. 

  Request  any  person  to  take  measures  to  reduce  the  volume  of  a  position  or 

exposure. 

  Submit issues for criminal prosecution. 
  Limit the capacity of any person to sign a derivative contract on raw materials. 
  Publish notices. 
  Suspend the marketing or sale of financial instruments or structured deposits. 

257 

 
 
  Suspend  the  commercialization  or  sale  of  financial  instruments  or  structured 
deposits  when  an  investment  company  has  not  developed  or  applied  an 
effective product approval process. 

  Authorize auditors or experts to carry out verifications or investigations. 
The  investment  companies  that  infringe  the  rules  of  order  or  discipline  of  the 
Securities Market incur in administrative responsibility (Article 271), which shall be 
independent  of  the  possible  occurrence  of  crimes  or  offenses  of  a  penal  nature 
(Article 272). 

The following types of sanctions can be imposed (amongst others): 

  Fines 
  Suspension  or  limitation  of  the  type  or  volume  of  operations  or  activities  that 
the offender may  carry out in the securities markets for a term not exceeding 
five years. 

  Suspension  of  membership  of 

the  official  secondary  market  or 

the 

corresponding multilateral trading system for a term not exceeding five years. 
  Exclusion  of  trading  a  financial  instrument  in  a  secondary  market  or  in  a 

multilateral trading system. 

  Revocation  of  the  authorization  in  the  case  of  investment  companies.  In  the 
case  of  investment  companies  authorized  in  another  Member  State  of  the 
European Union, this sanction of revocation shall be replaced by the prohibition 
to initiate new operations in Spanish territory. 

  Suspension  in  the  exercise  of  the  administration  or  management  position 
occupied by the offender in a financial institution for a term not exceeding five 
years. 

  Separation of the position of administration or address occupied by the offender 
in  a  financial  institution,  with  disqualification  from  holding  administrative  or 
management positions in the same entity for a term not exceeding five years. 
  Separation of the position of administration or address occupied by the offender 
in  any  financial  institution,  with  disqualification  to  exercise  administrative  or 
management positions in any other entity for a term not exceeding ten years. 
  Restitution  of  the  benefits  obtained  or  of  the  losses  avoided  with  the 

commission of the infraction, in case it can be determined. 

  Suspension  not  exceeding  ten  years  of  the  authorization  to  a  company  of 
investment services and activities or of other entities registered in the records 
of the National Securities Market Commission. 

  Prohibition  of  negotiating  on  own  account  for  a  term  not  exceeding  ten  years 
any person with management responsibilities in an investment company or any 
other natural person who is considered responsible for the infraction. 
Inability to exercise management positions in investment companies for a term 
not  exceeding  ten  years  or  permanently  in  case  of  infractions  committed 
repeatedly. 

 

  Public  warning  in  the  "Official  State  Gazette"  that  will  indicate  the  responsible 

person and the nature of the infraction. 

F.  Third State, EU and International Regulation 
-  Law 2/2014, of 25 March, on External Action and Service of the State 

2.  Scope 
The Law 2/2014 is designed to make foreign policy ties more coherent, coordinating 
its activity with the European Union and the new European External Action Service, 

258 

 
 
 
 
and, at an internal level, with the regional governments. The application of the Law 
is  designed  through  the  Foreign  Action  Strategy.  Thus,  the  Law  is  conceived  as  a 
flexible instrument that pays special attention to five fundamental requirements. 

Firstly, the Law affirms and promotes the values and interests of Spain with the aim 
of  strengthening  its  international  presence  and  reinforcing  its  image  in  the  world. 
Secondly, it consolidates and strengthens the credibility of Spain abroad since, as a 
consequence of globalization and the exponential growth of international economic 
relations,  this  credibility  is  undoubtedly  important  to  increase  the  export  of  goods 
and  services,  attract  capital  with  which  to  finance  Spanish  economy  and  facilitate 
the  implantation  and  expansion  of  Spanish  companies.  Thirdly,  it  strengthens  the 
participation in the European integration process and coordinates an External Action 
that  is  in  harmony  with  the  Common  Foreign  and  Security  Policy  of  the  European 
Union, as well as with the aims of the European External Action Service. Fourth, it 
coordinates  the  External  Action  of  Spain  with  that  of  the  States  that  make  up  the 
Ibero-American  Community  of  Nations.  This  genuine  dimension  of  Spain,  derived 
from  history  and  cultural  and  linguistic  affinity,  of  which  Spanish  is  a  substantive 
part  as  a  common  language,  constitutes  an  unwavering  commitment  for  Spain. 
And, finally, it guarantees adequate assistance and protection for Spaniards and to 
support Spanish citizens and companies abroad. 

3.  Content of regulation 
State Companies 

State companies should act abroad, in the exercise of their respective functions and 
competencies, in accordance with the principles established in the Law 2/2014 and 
subject  to  the  guidelines,  the  aims  and  objectives  of  Foreign  Policy  set  by  the 
Government  and  the  planning  instruments  of  the  External  Action  prepared  and 
approved  in  accordance  with  the  provisions  of  this  law.  Additionally,  they  should 
provide information to the ministerial department on which they depend or to which 
they  are  attached,  on  their  actions  abroad,  purposes  and  objectives  thereof, 
adequacy to the guidelines and planning documents and results obtained, which will 
be incorporated into the reports that are periodically prepared on External Action of 
the State, in accordance with current regulations. 

External Action in the field of human rights. 

The  External  Action  in  the  field  of  human  rights  should  promote  the  extension, 
recognition  and  effective  compliance  with  the  fundamental  principles  defended  by 
the  international  community  of  democratic  States  and  recognized  in  the  Spanish 
Constitution itself, in the Universal Declaration of Human Rights and in others pacts 
and treaties ratified by Spain in this matter, especially the Human Rights Guidelines 
of the European Union. Likewise, it should promote international cooperation in the 
defence  and  guarantee  of  human  rights  and  will  have  the  work  of  external 
projection of the constitutional bodies. 

According  to  the  Spanish  Ministry  of  Foreign  Affairs  and  Cooperation,  Spanish 
external policy reflects  the evolution of the concept of human rights and, together 
with  the  promotion  and  protection  of  basic  rights,  sets  as  a  priority  the  topic  of 
Business and Human Rights: business activity generates wealth, creates jobs and is 
an element of social progress. But to fully implement this role, companies must also 
be socially responsible, particularly in transnational business.1036 

Additionally,  Spanish  external  policy  sets  as  a  priority  the  topic  of  human  rights 
defenders:  these  individuals,  groups  or  institutions  protect  and  defend  universally 
recognised  human  rights.  They  often  face  threats  and  attacks  and  deserve  our 

1036 Ibid, p. 14. 

259 

 
 
                                                        
respect,  admiration  and  solidarity.  Accordingly,  Spain  manages  a  programme  to 
assist them when threats are made or situations of high risk encountered.1037 

G.  Criminal Law 
-  Organic Law 10/1995, of November 23, on the Criminal Code1038 

In  2010,  corporate  criminal  liability  was  introduced  in  the  Spanish  Criminal  Code 
(Article  31  bis).1039 In  2015,  the  Criminal  Code  was  amended  by  a  reform  which 
defined  more  accurately  the  liability  of  companies  for  criminal  offences. 1040  In 
addition, in 2016 the Crown Prosecution Service (Fiscalía General del Estado) issued 
an  instruction  addressed  to  public  prosecutors,  providing  details  on  the  practical 
application of this liability regime.1041 

All  legal  entities  are  subject  to  criminal  liability.  However,  according  to  Article  31 
quinquies  of  the  Criminal  Code,  this  liability  will  not  apply  to  the  state,  local  and 
institutional  public  authorities,  regulatory  authorities,  public  entrepreneurial 
agencies  and  entities,  international  public  organizations,  and  entities  that  exercise 
sovereignty or administrative privileges. 

The Spanish Criminal Code sets out the specific offences for which a company can 
be  held  criminally  liable.  These  include,  among  others,  illegal  trafficking  of  human 
organs  (Article  156  bis.3),  trafficking  in  human  beings  (Article  177  bis.7), 
Prostitution / sexual exploitation / corruption of minors (Article 189 bis), discovery 
and  disclosure  of  secrets  (Article  197  quinquies),  fraud  (Article  251  bis),  crimes 
related  to  intellectual  and  industrial  property,  the  market  and  consumers  (Article 
288),  money  laundering  (Article  302.2),  crimes  against  the  environment  (Article 
328),  bribery/corruption  offences  (Article  427  bis).  It  is  required  that  the  offences 
are committed for the benefit of the company. 

A  company  can  be  held  criminally  liable  for  crimes  committed  by  either:  (i)  the 
members  of  its  managing  body,  its  legal  representatives  or  those  members  of  a 
body  within  the  company  that  are  authorised  to  take  decisions  on  behalf  of  the 
company or that have organisational or control powers within the company; or (ii) 
its employees while carrying out corporate activities and provided that the offence 
was  committed  as  a  result  of  a  gross  lack  of  due  supervision  and  control  of  such 
employees (Article 31.1 bis). 

As a general rule, provided that part of the conduct constituting the offence takes 
place in Spain or the perpetrator of the offence is a Spanish national (or a company 
registered  in  Spain,  the  Spanish  courts  will  have  jurisdiction  over  the  conduct. 
However, in cases where the conduct takes place outside Spain, such conduct must 
also  be  an  offence  in  the  country  where  it  took  place;  the  perpetrator  must  have 
not been acquitted or already served the relevant sentence; and either the affected 
person or the Public Prosecutor must bring a criminal action against the perpetrator 
before the Spanish courts. 

In  relation  to  certain  criminal  offences,  Spanish  courts  will  have  jurisdiction, 
provided  that  either  the  affected  person  or  the  Public  Prosecutor  brings  a  criminal 

1037 Idem. 
1038 See Ley Orgánica 10/1995, de 23 de noviembre, del Código Penal, available at: 
https://www.boe.es/buscar/pdf/1995/BOE-A-1995-25444-consolidado.pdf.  
1039 See Ley Orgánica 5/2010, de 22 de junio, por la que se modifica la Ley Orgánica 10/1995, de 23 de noviembre, del 
Código Penal, available at: https://www.boe.es/buscar/doc.php?id=BOE-A-2010-9953.  
1040 See Ley Orgánica 1/2015, de 30 de marzo, por la que se modifica la Ley Orgánica 10/1995, de 23 de noviembre, 
del Código Penal, available at: https://www.boe.es/buscar/act.php?id=BOE-A-2015-3439.  
1041 See Circular 1/2016, sobre la responsabilidad penal de las personas jurídicas conforme a la reforma del Código 
Penal efectuada por Ley Orgánica 1/2015, available at: 
https://www.fiscal.es/fiscal/PA_WebApp_SGNTJ_NFIS/descarga/Circular_1-2016.pdf?idFile=81b3c940-9b4c-4edf-afe0-
c56ce911c7af.  

260 

 
 
 
 
                                                        
action against the perpetrator before the Spanish courts and where at least one of 
the following conditions is met: 

 

 

the  proceedings  must  be  against  a  Spanish  national  or  a  foreign  national  with 
permanent residence in Spain; or 
the offence must have been committed by: (i) the officer, manager, employee 
or an associate of an entity with its registered office, or based, in Spain; or (ii) 
a legal entity based or having its registered office in Spain. 

The Spanish Criminal Code does not contain rules extending the criminal liability of 
the  subsidiary  to  its  parent  company.  Therefore,  the  general  rule  is  that  criminal 
offenses committed by the representatives, directors, managers or employees of a 
company  should  not  result  in  criminal  liability  for  the  parent  company.  However, 
according  to  the  memo  (“circular” 1042)  of  the  Crown  Prosecution  Service  (Fiscal 
General  del  Estado)  dated  1  June  2011,  corporate  criminal  liability  may  be 
attributed  to  a  parent  company  when  it  is  the  representative  or  manager  of  the 
subsidiary  and  when  it  would  also  benefit  from  the  offense.  This  extension  of 
liability  would  apply  to  Spanish  and  foreign  companies  alike.  Moreover,  a  parent 
company  could  also  be  held  criminally  liable  as  author  of  crimes  (that  trigger 
corporate  criminal 
the  directors,  managers  or 
representatives of its subsidiary if the parent company has breached a contractual 
or legal duty of preventing the commission of such crimes.1043 

liability)  committed  by 

In  this  sense,  the  Supreme  Court  ruling  number  274/96  applied  the  doctrine  of 
lifting the veil to charge a tax offense to a natural person who was not the obliged, 
but  who  from  a  factual  perspective  had  used  the  legal  personality,  abusing  it  to 
avoid him/her obligations and hide him/her status as an administrator in fact. The 
ruling  highlights  that  neither  the  tax  regime  nor  any  other  tax  or  commercial 
instrument  prevent  the  criminal  courts  from  lifting  the  corporate  veil  to  have 
knowledge  of  the  underlying  economic  reality. 1044 Moreover,  the  Supreme  Court 
ruling number 952/2006 applied the doctrine of lifting in case of a front company. 

The following types of sanctions can be ordered against a company: 

fines 

 
  winding up of the legal entity 
 
 

suspension of activities of up to five years 
closure of the company’s premises and establishments for a period of up to five 
years 

  prohibition  from  carrying  out  in  the  future  any  activities  during  whose 
performance the crime was committed, favoured or concealed. This prohibition 
may be temporary  or definitive.  If it were temporary, the term  cannot exceed 
15 years 

  disqualification  from  obtaining  subsidies  and  public  aid,  from  entering  into 
contracts  with  the  public  sector  and  from  enjoying  tax  or  social  security 
benefits and incentives for a period of up to 15 years 
judicial intervention 

 

Compliance System (modelos de organización y gestión) 

1042 The “Circular” can be defined as a set of guidelines on evaluation and interpretation of substantive and procedural 
provisions to which the members of the Public Prosecutor's Office must meet. It is not binding and is motivated by the 
publication of a transcendent legislative reform. 
1043 See Circular 1/2011, de 1 de junio, relativa a la responsabilidad penal de las personas jurídicas conforme a la 
reforma del Código Penal efectuada por Ley Orgánica número 5/2010, available at: 
https://www.fiscal.es/fiscal/PA_WebApp_SGNTJ_NFIS/descarga/memoria2012_vol1_circu_01.pdf?idFile=7ed535ae-
8bf0-4aa5-b219-618b3ac7420f, pp. 1294-1295.  
1044 “ni el régimen de transparencia fiscal ni ningún otro instituto fiscal o mercantil impiden a los tribunales penales 
levantar el velo societario para tener conocimiento de la realidad económica subyacente”. See STS 274/1996, 20 de 
Mayo de 1996, available at: https://supremo.vlex.es/vid/53585866#section_6.  

261 

 
 
 
                                                        
Since 2015, the existence of an effective compliance system may serve to mitigate 
or  exclude  criminal  corporate  liability.  The  Criminal  Code  includes  a  defence  of 
adopting  and  effectively  having  in  place,  before  the  offence  was  committed,  an 
adequate  organisational  and  management  system  to  prevent  offences  of  the  kind 
committed  or  to  significantly  reduce  the  risk  of  such  offences  (Article  31  bis.2.1). 
The  systems  must  be  clear,  precise  and  effective  and,  of  course,  written  up.  It  is 
not enough the existence of a system, whichever it is, but it must be accredited its 
suitability to prevent the specific crime that has been committed, for which purpose 
a  suitability  judgment  must  be  made  between  the  content  of  the  system  and  the 
infraction.  Therefore,  the  organisational  and  management  systems  must  be 
perfectly adapted to the company and its specific risks.1045 

The  supervision  of  the  functioning  and  compliance  of  the  organisational  and 
management  system  should  be  entrusted  to  a  body  of  the  legal  entity  with 
autonomous  powers  of  initiative  and  control  or  that  has  the  legal  responsibility  to 
supervise  the  effectiveness  of  the  internal  controls  of  the  legal  person  (Article  31 
bis.2.2).  The  Spanish  Criminal  Code  does  not  refer  to  a  "Compliance  Officer",  but 
rather  to  an  in-house  body  which  supervises  and  controls  the  accomplishment  of 
the  organisational  and  management  system.  This  corporate  structure 
is 
differentiated  from  other  foreigner  models  which  give  to  internal  managers 
(Compliance Officer) the responsibility to supervise and control the activities of the 
company on a global or local level.1046 Small companies could relay the monitoring 
task  to  the  management  of  the  company.  It  is  essential  that  the  body  develop 
proactive tasks consisting of:1047 

  Receiving  notices  of  infringement  of  the  compliance  “model”  and  other 

incidents 

  Establishing monitoring protocols and periodic controls 
 
  Updating all the models and protocols with view to new laws or changes in the 

Informing periodically on compliance 

activity or corporate structure and organization 
The  organisational  and  management  system  should  meet  the  following 
requirements (Article 31 bis.5): 

Identify activities within the scope of which crimes may be committed.1048 

 
  Establish  procedures  to  define  the  decision-making  process  of  the  corporate 

will.1049 

  Have appropriate financial resources to prevent the commission of crimes. 
 

Impose  the  obligation  of  reporting  potential  risks  and  breaches  to  the  body 
entrusted with monitoring the observance of the compliance “model”.1050 

1045 See Circular 1/2016, sobre la responsabilidad penal de las personas jurídicas conforme a la reforma del Código 
Penal efectuada por Ley Orgánica 1/2015, available at: 
https://www.fiscal.es/fiscal/PA_WebApp_SGNTJ_NFIS/descarga/Circular_1-2016.pdf?idFile=81b3c940-9b4c-4edf-afe0-
c56ce911c7af, p. 43. 
1046 Interlegal (2017). “Corporate Criminal Compliance in Spain”, available at: 
http://www.escura.com/archivos/pdf/Corporate_Criminal_Compliance-Interlegal-News-Spain.pdf.  
1047 Pastor, C. (2016). “Corporate Liability in Spain”, available at: https://globalcompliancenews.com/white-collar-
crime/corporate-liability-in-spain/.  
1048 The legal entity must establish, apply and maintain effective risk management procedures to identify, manage, 
control and communicate the real and potential risks arising from its activities in accordance with the level of global risk 
approved by the top management of the entities, and with the specific risk levels established. For this the analysis will 
identify and evaluate the risk by types of clients, countries or geographic areas, products, services, operations, etc., 
taking into account variables such as the purpose of the business relationship, its duration or the volume of operations. 
See Circular 1/2016, sobre la responsabilidad penal de las personas jurídicas conforme a la reforma del Código Penal 
efectuada por Ley Orgánica 1/2015, available at: 
https://www.fiscal.es/fiscal/PA_WebApp_SGNTJ_NFIS/descarga/Circular_1-2016.pdf?idFile=81b3c940-9b4c-4edf-afe0-
c56ce911c7af, pp. 43-44. 
1049 Procedures must guarantee high ethical standards, particularly in the hiring and promotion of managers and in the 
appointment of members of the administrative bodies. In addition to the obligation to meet the eligibility criteria set by 
the sectoral regulations and, in the absence of such criteria, the legal entity must take into consideration the 
professional career of the applicant and reject those who, due to their background, lack the required qualifications. 
Ibid., p. 44. 

262 

 
 
                                                        
  Establish disciplinary measures to penalize the infringement of the  compliance 

“model”.1051 

  Verify  the  effectiveness  and  efficiency  of  the  compliance  “model”  periodically 
and  amend  it  when  important  infringements  of  the  model  arise  or  when  the 
organization or the company’s control structure or its activity changes.1052 
There  is  no  specific  offense  with  regards  to  directors  or  managers  who  fail  to 
implement  controls  or  compliance  programs  that  could  prevent  the  commission  of 
an offense. However, individuals could be held civilly liable for damages caused to 
the company due to negligence in their duties. 

In addition to that, individuals within the company could be held criminally liable as 
perpetrators,  accomplices  or  instigators  of  a  criminal  offense  when,  with  their 
actions (intentionally or negligently), they commit a crime. 

-  Law 10/2010, of 28 April 2010, on the Prevention of Money Laundering 

and Terrorist Financing1053 

In  Spain,  the  money  laundering  prevention  policy  emerged  in  the  late  1980s  in 
response  to  growing  concerns  raised  by  the  financial  crime  resulting  from  drug 
trafficking.  The  Spanish  anti-money  laundering  and  counter-terrorist  financing 
legislation is the result of the transposition of EU legislation on the subject. 

In  September  2018,  the  Spanish  Official  Gazette  published  the  Royal  Decree-Law 
11/2018,1054 which  implement  Directive  (EU)  2015/849  on  the  prevention  of  the 
use  of  the  financial  system  for  the  purposes  of  money  laundering  or  terrorist 
financing, amending Regulation (EU) No 648/2012 of the European Parliament and 
of the Council, and repealing Directive 2005/60/EC of the European Parliament and 
of  the  Council  and  Commission  Directive  2006/70/EC.  The  Royal  Decree-Law 
11/2018 amended the Law 10/2010. 

2.  Scope 
According  to  article  1,  the  Law  10/2010  aims  at  safeguarding  the  integrity  of  the 
financial  system  and  other  economic  sectors  by  establishing  obligations  in  respect 
of the prevention of money laundering and terrorist financing. 

Moreover, the Law 10/2010 covers entities that, through branches or agents or the 
provision of services without permanent establishment, carry out activities in Spain 
(Article  2.1).  Moreover,  it  covers  natural  persons  that  act  as  employees  of  a  legal 
person,  or  provide  permanent  or  occasional  services  for  the  latter,  the  obligations 
imposed  under  the  Law  shall  correspond  to  such  legal  person  in  respect  of  the 
services rendered (Article 2.2). 

3.Content of regulation 
Due diligence 

1050 The existence of channels for reporting internal breaches or illicit activities of the company is one of the key 
elements of prevention models. However, However, in order for the obligation imposed on employees to be required, it 
is essential for the entity to have a specific protective regulation for the complainant (whistleblower), which allows 
reporting on several breaches, facilitating confidentiality through systems that guarantee it in communications 
(telephone calls, emails ...) without risk of retaliation. Ibid., p. 45. 
1051 The obligation to establish an adequate disciplinary system that sanctions non-compliance with the measures 
adopted in the model presupposes the existence of a code of conduct in which the obligations of managers and 
employees are clearly established. The most serious infractions, logically, will be those constituting a crime, and those 
behaviours that contribute to preventing or hindering their discovery must also be contemplated, as well as the 
violation of the specific duty to inform the control body of detected breaches. Idem. 
1052 Although the Criminal Code does not establish any term or procedure for revision, an adequate model of 
organization must contemplate them expressly. In addition, the model must be reviewed immediately if certain 
circumstances that may influence the risk analysis occur, which must be detailed and that will include, in addition to 
those indicated in this requirement, other situations that significantly alter the risk profile of the legal entity. Idem. 
1053 See Ley 10/2010, de 28 de abril, de prevención del blanqueo de capitales y de la financiación del terrorismo, 
available at: https://www.boe.es/buscar/pdf/2010/BOE-A-2010-6737-consolidado.pdf.  
1054 See Real Decreto-ley 11/2018, de 31 de agosto, de transposición de directivas en materia de protección de los 
compromisos por pensiones con los trabajadores, prevención del blanqueo de capitales y requisitos de entrada y 
residencia de nacionales de países terceros y por el que se modifica la Ley 39/2015, de 1 de octubre, del Procedimiento 
Administrativo Común de las Administraciones Públicas, available at: 
https://www.boe.es/boe/dias/2018/09/04/pdfs/BOE-A-2018-12131.pdf.  

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The Law 10/2010 provides, depending on the risk, different levels of application of 
due  diligence  measures:  normal  due  diligence,  simplified  due  diligence  and 
enhanced due diligence measures.1055 

Normal due diligence 

The entities covered by the Law 10/2010 shall identify the natural or legal persons 
intending to enter into business relations or to act in any transaction (Article 3.1.) 
and  the  identity  of  the  participants  using  reliable  and  irrefutable  documentary 
evidence  (Article  3.2).  Additionally,  they  shall  identify  the  beneficial  owner, 
understood  as:  a)  natural  person  or  persons  on  whose  behalf  a  transaction  or 
activity  is  being  conducted  or  intervene  in  any  transaction;  b)  Natural  person  or 
persons  who  ultimately  owns  or  controls,1056 directly  or  indirectly,  a  percentage  of 
more  than  25  percent  of  the  capital  or  voting  rights  of  a  legal  person,  or  who 
otherwise  exercises  control,  directly  or  indirectly,  over  the  management  of  a  legal 
person;  c)  In  the  case  of  trusts,  such  as  the  Anglo-Saxon  trust,  all  the  following 
persons will be considered as real owners: the settlor, the trustee(s), the protector 
(if any), the beneficiaries and any other natural person  exercising ultimate control 
over the trust by means of direct or indirect ownership or by other means (Article 
4.2). 

According  to  the  Law  10/2010,  the  entities  shall  gather  information  on  clients  to 
determine  whether  they  are  acting  on  their  own  or  for  third  parties.  Where  there 
are indications or certainty that clients are not acting on their own, the entities shall 
gather  the  information  required  in  order  to  find  out  the  identity  of  the  persons  on 
whose  behalf  they  are  acting  (Articles  4.3).  The  entities  covered  by  the  Law 
10/2010  shall  take  appropriate  steps  to  identify  the  structure  of  ownership  and 
control  of  legal  persons.  In  cases  that  the  ownership  or  control  structure  has  not 
been  possible  to  ascertain  within  a  legal  person,  the  obliged  entities  should  not 
establish or maintain business relationships with these legal persons (Article 4.4). 

The obliged entities shall obtain information on the purpose and intended nature of 
the  business  relationship.  In  particular,  information  from  their  clients  in  order  to 
find  out  the  nature  of  their  professional  or  business  activities  and  shall  take 
reasonable steps to verify the accuracy of this information (Article 5). 

The  obliged  entities  shall  conduct  ongoing  monitoring  of  the  business  relationship 
including  scrutiny  of  transactions  undertaken  throughout  the  course  of  that 
relationship  to  ensure  that  the  transactions  being  conducted  are  consistent  with 
their knowledge of the customer, the business and risk profile, including the source 
of funds and to ensure that the documents, data and information held are kept up-
to-date (Article 6). 

Application of due diligence measures (Article 7). 
The  obliged  entities  shall  apply  due  diligence  measures,  but  may  determine  the 
degree  of  application  of  the  measures  on  a  risk-sensitive  basis  depending  on  the 
type  of  customer,  business  relationship,  product  or  transaction.  However,  the 
obliged  entities  hall  be  able  to  demonstrate  to  the  competent  authorities  that  the 
extent of the measures is appropriate in view of the risks of money laundering and 
terrorist  financing  through  a  prior  risk  analysis  which  must,  in  any  event,  be  set 
down  in  writing.  The  obliged  entities  shall  apply  the  due  diligence  measures  not 
only to all new customers but also to existing customers, on a risk-sensitive basis. 

1055 The legislation uses the term “diligencie debida”= due diligence (See Capitulo II de la dedida diligencia: 
https://www.boe.es/buscar/act.php?id=BOE-A-2010-6737. 
1056 According to Article 42 of the Spanish Commercial Code, it is presumed that there is control when a company, 
which will be classified as dominant, is in relation to another company, which will be classified as a dependent, in any of 
the following situations: a) holds a majority of voting rights; b) has the power to appoint or dismiss the majority of the 
members of the administrative body; c) may have, by virtue of agreements entered into with third parties, the majority 
of voting rights; d) has appointed with its votes the majority of the members of the administrative body, who hold 
office at the time the consolidated accounts are to be formulated and during the two immediately preceding fiscal 
years. 

264 

 
 
                                                        
The  obliged  entities  shall  not  enter  into  business  relationships  or  execute 
transactions  when  they  cannot  apply  the  due  diligence  measures  required  in  the 
Law 10/2010. The refusal to enter into business relations or execute transactions or 
the termination of the business relationship due to the impossibility of applying the 
due  diligence  measures  hereunder  shall  not  entail  any  liability  for  the  obliged 
persons, except if this should involve unfair enrichment. 

The  obliged entities may rely on third parties to apply the due diligence measures 
provided in the Law 10/2010. Nonetheless, they shall maintain full responsibility for 
the business relationship or transaction, even when the breach is attributable to the 
third  party,  without  prejudice,  where  applicable,  to  the  liability  of  the  latter.  The 
obliged  entities  may  also  rely  on  third  parties  covered  by  the  legislation  on 
prevention  of  money  laundering  and  terrorist  financing  of  other  Member  States  of 
the  European  Union  or  equivalent  third  countries,  even  if  the  documents  or  data 
required by the latter are different to those under the Law 10/2010. 

Simplified due diligence 

Obliged entities may apply, in the terms established in Articles 9 and 10 of the Law 
10/2010,  simplified  due  diligence  measures  with  respect  to  those  customers, 
products  or  transactions  that  involve  a  low  risk  of  money  laundering  or  terrorist 
financing. 

The application of simplified due diligence measures shall be graduated in line with 
the risk, according to the following criteria: 

 

  Prior  to  the  application  of  simplified  due  diligence  measures  with  respect  to  a 
particular customer, product or transaction, defined in the relevant regulations, 
obliged  persons  shall  verify  that  such  customer,  product  or  transaction 
effectively involves a low risk of money laundering or terrorist financing. 
In  any  case,  the  application  of  simplified  due  diligence  measures  shall  be 
consistent  with  the  risk.  Obliged  entities  shall  refrain  from  applying  or  shall 
cease  to  apply  simplified  due  diligence  as  soon  as  they  perceive  that  a 
customer,  product  or  transaction  does  not  involve  a  low  risk  of  money 
laundering or terrorist financing. 
In  any  case,  obliged  persons  shall  maintain  a  continuous  level  of  monitoring 
which is sufficient in order to detect transactions warranting special reviewing. 

 

According  to  the  Article  17  of  the  Regulation  of  the  Law  10/2010,1057 the  obliged 
entities  may  apply,  according  to  the  risk,  one  or  more  of  the  following  simplified 
measures of due diligence: 

a)  Check  the  identity  of  the  client  or  the  real  owner  only  when  a  quantitative 
threshold is exceeded after the establishment of the business relationship. 

b)  Reduce the periodicity of the document review process. 
c)  Reduce  the  monitoring  of  the  business  relationship  and  the  scrutiny  of 

operations that do not exceed a quantitative threshold. 

d)  Not  collect  information  on  the  professional  or  business  activity  of  the  client, 
inferring  the  purpose  and  nature  of  the  type  of  operations  or  business 
relationship established. 

Enhanced due diligence measures 

In  addition  to  the  normal  due  diligence  measures,  obliged  entities  must  apply 
enhanced  measures  in  those  cases  provided  in  Section  3  of  Chapter  II  of  Law 

1057 See Real Decreto 304/2014, de 5 de mayo, por el que se aprueba el Reglamento de la Ley 10/2010, de 28 de abril, 
de prevención del blanqueo de capitales y de la financiación del terrorismo, available at: 
https://www.boe.es/boe/dias/2014/05/06/pdfs/BOE-A-2014-4742.pdf.  

265 

 
 
 
                                                        
10/2010.  In  general  terms,  enhanced  due  diligence  measures  must  be  applied  in 
relation  to  countries  with  strategic  deficiencies  in  their  systems  for  combating 
money  laundering  and  terrorist  financing  and  that  are  included  in  the  decision 
adopted by the European Commission in accordance with the provisions of article 9 
of  Directive  (EU)  2015/849  of  the  European  Parliament  and  of  the  Council  of  20 
May 2015. 

Likewise,  obliged  entities  shall  apply  enhanced  due  diligence  measures  in  those 
areas of business, activities, products, services, distribution or marketing channels, 
business relationships, clients and transactions with a high risk of money laundering 
or terrorist financing. 

According  to  the  Article  20  of  the  Regulation  of  the  Law  10/2010, 1058  obliged 
entities shall apply, in addition to the normal measures of due diligence, enhanced 
measures  of  due  diligence  in  the  areas  of  business,  activities,  products,  services, 
distribution  or  commercialization  channels,  business  relations  and  operations  that 
present a higher risk of money laundering or financing of terrorism: 

a)  Update the data obtained in the customer acceptance process. 
b)  Obtain documentation or additional information about the purpose and nature of 

the business relationship. 

c)  Obtain documentation or additional information about the origin of the funds. 
d)  Obtain  documentation  or  additional  information  about  the  origin  of  the  client's 

assets. 

e)  Obtain documentation or information about the purpose of the operations. 
f)  Obtain  managerial  authorization  to  establish  or  maintain  the  business 

relationship or execute the operation. 

g)  To carry out a reinforced monitoring of the business relationship, increasing the 
number  and  frequency  of  the  applied  controls  and  selecting  patterns  of 
operations for examination. 

h) Examine  and  document  the  congruence  of  the  business  relationship  or 
operations with the documentation and information available about the client. 

i)  Examine and document the economic logic of operations. 
j)  Require that payments or income made in an account in the name of the client, 
opened in a credit institution domiciled in the European Union or in equivalent 
third countries. 

k)  Limit the nature or amount of the operations or means of payment used. 

Reporting obligations 

The Law 10/2010 imposes certain reporting obligations to obliged entities. Obliged 
entities  shall  pay  special  attention  to  any  event  or  transaction,  regardless  of  its 
size,  which,  by  its  nature,  could  be  related  to  money  laundering  or  terrorist 
financing, and record the results of their analysis  in writing and shall report to the 
Servicio  Ejecutivo  de  la  Comisión  de  Prevención  del  Blanqueo  de  Capitales  e 
Infracciones Monetarias (Executive Service) those transactions revealing an obvious 
inconsistency  with  the  nature,  volume  of  activity  or  customer  operating  history, 
provided that after the  special review, have no economic, professional or business 
appreciable justification for the execution of those transactions (Article 17). 

In accordance with Article 18 of the Law 10/2010, suspicious transactions reporting 
shall  be  made  with  no  delay.  The  communications  will  contain,  in  any  case,  the 
following information: 

1058 See Real Decreto 304/2014, de 5 de mayo, por el que se aprueba el Reglamento de la Ley 10/2010, de 28 de abril, 
de prevención del blanqueo de capitales y de la financiación del terrorismo, available at: 
https://www.boe.es/boe/dias/2014/05/06/pdfs/BOE-A-2014-4742.pdf.  

266 

 
 
 
                                                        
a)  List  and  identification  of  the  natural  or  legal  persons  taking  part  in  the 

transaction and the nature of their participation. 

b)  The activity which the natural or legal persons participating in transactions are 
known  to  engage  in,  and  the  congruence  between  this  activity  and  the 
transactions made. 

c)  A list of transactions and their dates stating their nature, the currency in which 
they were transacted, the amounts and place or places involved, their purpose 
and the means of payment or collection used. 

d)  The steps taken by the entity to investigate the transactions being notified. 
e)  A  statement  of  all  the  circumstances  of  whatever  kind  giving  rise  to  the 
suspicion or certainty of a link with money laundering, or evidencing the lack of 
economic, professional or business justification for the activities carried out. 
f)  Any  other  data  relevant  to  the  prevention  of  money  laundering  or  terrorist 

financing determined in the regulations. 

In  all  events,  the  obliged  entities  shall  report  the  Executive  Service  at  the 
established  frequency  on  the  transactions  determined  in  the  regulations  (Article 
20). 

Obliged  entities  must  supply  the  documentation  and  information  required  of  them 
by the Commission for the Prevention of Money Laundering and Monetary Offences 
and  its  support  bodies  in  the  exercise  of  their  powers.  The  aforementioned 
requirements  shall  specify  the  documentation  to  be  supplied  or  the  circumstances 
that have to be reported, and shall expressly state the term in which these should 
be presented (Article 21). 

Internal control measures 

The obliged entities must apply the following measures on internal control: 

record  keeping, 

internal  control, 

  Policies  and  procedures:  the  obliged  entities  must  adopt  in  writing  and 
implement  adequate  policies  and  procedures  of  customer  due  diligence, 
information, 
risk  assessment  and 
management,  compliance  ensuring,  reporting  and  customer  acceptance  in 
order  to  prevent  and  forestall  transactions  related  to  money  laundering  or 
terrorist  financing.  The  policies  and  procedures  will  be  applicable  to  the 
branches  and  subsidiaries  of  the  group  located  in  third  countries,  without 
prejudice to the necessary adaptations for compliance with the specific rules of 
the host  country, with the specifications that are determined by  regulation. In 
the  case  of  branches  and  subsidiaries  of  the  group  in  other  Member  States  of 
the  European  Union,  the  obligated  parties  shall  comply  with  the  obligations 
contained in the host country (Articles 26.1 and 26.3). 

  Prevention  Handbook:  the  obligated  entities  must  approve  an  adequate 
handbook  for  the  prevention  of  money  laundering  and  the  financing  of 
terrorism,  which  will  be  kept  up  to  date,  with  complete  information  on  the 
internal  control  measures  referred  to  in  the  previous  sections.  In  order  to 
exercise its supervisory and inspection function, the manual will be available to 
the Executive Service of the Commission and, in the case of an agreement, to 
the supervisory bodies of financial entities (Article 26.5). 
Internal  procedures  for  reporting  potential  breaches:  the  obliged  entities  shall 
establish internal procedures so that their employees, managers or agents can 
communicate, even anonymously, relevant information about possible breaches 
of the Law 10/2010 (Article 26 bis.1). In this regard, the obliged entities must 
adopt  measures  to  guarantee  that  the  employees,  managers  or  agents  who 

 

267 

 
 
inform  of  the  infractions  committed  in  the  entity  are  protected  against 
reprisals,  discriminations  and  any  other  type  of  unfair  treatment  (Article  26 
bis.3). 

  Representative  to  the  Executive  Service:  the  obliged  entities  must  appoint  a 
director  or  senior  manager  residing  in  Spain  to  act  as  a  representative  to 
Executive  Service  (Article  26  ter.1).  The  representative  is  responsible  for  the 
fulfilment of the reporting obligations set out in Law 10/2010 (Article 26 ter.2). 
The  obliged  entities  carrying  out  activities  in  Spain  through  agents  or  ways  of 
establishment  other  than  branches  must  appoint  a  representative  residing  in 
Spain who shall be considered central contact point. In this sense, the obliged 
subjects  carrying  out  activities  in  Spain  through  the  provision  of  services 
without a permanent establishment must appoint a representative to Executive 
Service  who  may  be  non-resident  in  Spain.  In  groups  integrating  several 
obliged entities, the representative shall be unique and hold an administration 
or management position in the parent company of the group (Article 26 ter.3). 
Internal Compliance Committee: the obliged entities shall establish an Internal 
Compliance  Committee  consisting  of  representatives  from  the  different 
business  areas  of  the  obliged  entity  that  will  be  responsible  for  implementing 
the  policies  and  procedures  on  the  prevention  of  money  laundering  and 
terrorist  financing  (Article  26  ter.4).  For  the  exercise  of  its  functions,  the 
Committee  must  have  the  necessary  material,  human  and  technical  resources 
(Article 26 ter.5). 

 

  External examination: the internal controls adopted by obliged entities shall be 
subject  to  an  annual  examination  by  an  external  expert.  The  results  of  the 
examination  shall  be  documented  in  a  report  detailing  the  internal  control 
measures  in  place,  assessing  their  operational  efficiency  and,  eventually 
proposing  changes  or  improvements  as  required.  However,  in  the  two  years 
following  the  issue  of  this  report,  it  may  be  replaced  by  a  monitoring  report 
issued  by  the  external  expert,  dealing  only  with  the  appropriateness  of  the 
measures taken by obliged person to remedy the deficiencies detected (Article 
28). 

  Employee  training:  the  obliged  entities  shall  take  appropriate  measures  to 
ensure  that  their  employees  are  aware  of  the  requirements  of  Law  10/2010 
(Article 29). For this purpose, obliged entities shall  approve an annual training 
plan  in  prevention  of  money  laundering  and  terrorist  financing  in  accordance 
with article 39 of the Regulation of Law 10/2010. 

  Whistleblower  protection:  the  obliged  entities  shall  adopt  the  appropriate 
measures  to  maintain  the  confidentiality  of  the  identity  of  the  employees, 
managers or agents who have made an operational communication that shows 
signs  or  certainty  of  being  linked  to  money  laundering  or  the  financing  of 
terrorism to the organs of internal control (Article 30). 

  Subsidiaries in third countries: the obliged entities shall apply in their branches 
and subsidiaries with majority participation located in third countries measures 
to  prevent  money  laundering  and  financing  of  terrorism  at  least  equivalent  to 
those established by European law. When the law of the third country does not 
allow  the  application  of  measures  equivalent  to  those  established  by 
Community  law,  the  obliged  entities  shall  adopt  in  respect  of  their  branches 
and  subsidiaries  with  majority  participation  additional  measures  to  effectively 
deal with the risk of money laundering or financing of the terrorism, and inform 
the  Executive  Service  of  the  Commission,  which  may  propose  to  the  Standing 

268 

 
 
Committee  of  the  Commission  for  the  Prevention  of  Money  Laundering  and 
Monetary  Offenses  the  formulation  of  requirements  for  the  adoption  of 
mandatory measures (Article 31). 

4. Sanction and enforcement 
In  addition  to  the  liability  corresponding  to  the  obliged  person  even  by  way  of 
simple  failure  to  comply,  those  holding  administrative  or  management  positions  in 
the  latter,  whether  sole  administrators  or  collegiate  bodies,  shall  be  liable  for  any 
breach  should  this  be  attributable  to  the  latter's  wilful  misconduct  or  negligence 
(Article 54). 

For the commission of offences, the following sanctions may be imposed: 

  Public and private reprimand 
  Fines 
  Withdrawal of this authorisations 
  Temporary suspension 
The Council of Ministers, on a proposal from the Minister of Economy and Finance, 
shall have competence to impose penalties for very serious breaches. The Minister 
of Economy and Finance, on a proposal from the Commission for the Prevention of 
Money  Laundering  and  Monetary  Offences,  shall  have  competence  to  impose 
penalties for serious breaches. The Director-General for the Treasury and Financial 
Policy,  on  a  proposal  from  the  instructor,  shall  have  competence  to  impose 
penalties for minor breaches. 

The  offences  and  sanctions  provided  in  the  Law  10/2010  shall  be  interpreted 
without  prejudice  to  those  laid  down  in  other  laws  and  the  acts  and  omissions 
described  as  crimes  and  the  penalties  laid  down  in  the  Criminal  Code  and  special 
criminal laws (Article 62.). Sanctioning procedure is: 

1)  The Standing Committee, on a proposal from the Commission Secretariat, shall 
initiate  and,  where  applicable,  dismiss  the  sanction  proceedings  as  may  be 
appropriate for the commission of offences under the Law 10/2010. 

2)  The Commission Secretariat shall carry out the preliminary investigation of the 
sanction  proceedings  as  may  be  appropriate  for  the  commission  of  offences 
under the Law 10/2010. The competent body for initiating sanction proceedings 
may  agree,  when  beginning  the  proceedings  or  during  the  latter,  to  the 
provision of a sufficient guarantee to deal with the potential liabilities incurred. 
The  sanction  proceedings  applicable  to  failures  to  comply  with  the  obligations 
under the Law 10/2010 shall be those set down, in general, in the exercise of 
punitive powers by the Public Administration. 

3)  In  the  sanction  proceedings  initiated  by  the  Commission  Secretariat,  the 
deadline for ruling on proceedings and reporting the decision shall be one year 
from the date of notification of the commencement of proceedings. 

4)  The  implementation  of  final  penalty  rulings  in  sanction  proceedings  shall 
correspond  to  the  Commission  Secretariat.  The  penalty  of  public  reprimand, 
once  it  has  become  final  in  sanction  proceedings,  shall  be  enforced  in  the 
manner established in the decision and, in any event, shall be published in the 
Boletín Oficial del Estado. 

-  Law 5/2014, of 4 April 2014, on Private Security1059 
In  Spain,  there  has  been  remarkable  progress  in  the  citizens’  esteem  and  in  the 
rethinking of the security private sector role. It has been recognized the efficiency, 

1059 See Ley 5/2014, de 4 de abril, de Seguridad Privada, available at: https://www.boe.es/buscar/pdf/2014/BOE-A-
2014-3649-consolidado.pdf.  

269 

 
 
 
 
                                                        
importance and effectiveness of public-private partnerships as a means to face and 
solve the pressing and diverse problems of security and safety that are taking place 
in our society. The private security industry has been increasingly considered as a 
part  of  the  array  of  measures  aimed  at  protecting  the  society  and  defending  the 
legitimate rights and interests of citizens. 

2.  Scope 
The  Law  5/2014  and  its  regulation  depict  a  comprehensive  and  total  approach  of 
private security as a whole, and aims to encompass all the sector reality existing in 
Spain. The Law envisages, among other aims, the improvement of efficiency in the 
provision of private security services concerning organization and planning, training 
and private staff motivation, elimination of terms that facilitate both companies and 
staff intrusiveness; provision of the needed legal support to exert their legal duties, 
and also the cooperation tools between the private and public security. 

The  Regulation  of  the  Law  5/20141060 establishes  requirements  and  characteristics 
of security companies; the conditions that must be fulfilled in the provision of their 
services  and  in  the  development  of  their  activities,  and  the  functions,  duties  and 
responsibilities of private security personnel. 

3.  Content of Regulation 
Private  security  companies  must  fulfil  at  least  the  following  general  obligations 
(Article 21): 

  To develop the private security activities under this Act terms and following the 
conditions established by the granted authorization or by the submitted liability 
declaration. 

  To  guarantee  training  and  refreshment  professional  courses  of  their  private 
security  staff  and  of  the  company’s  staff  who  is  in  need  of  private  security 
training.  Keeping  its  skills  in  the  use  of  fire  guns  will  be  made  with  the 
participation of qualified shooting instructors. 

  To submit yearly to the Minister of the Interior or to the competent autonomic 
body  a  report  on  their  activities  and  a  summary  dully  audited  of  their  annual 
accounts  when  it  is  required  including  the  information  and  statutory  required 
data.  In  no  case  that  account  summary  will  have  personal  data.  Yearly,  the 
Ministry  of  the  Interior  and  relevant  autonomic  bodies  will  inform,  on  this 
business  to  the  Cortes  Generales  (national  Spanish  legislature)  and  to  the 
corresponding autonomic Parliaments, respectively. 

4.  Monitoring, sanction and enforcement 

Infringements  to  the  Law  5/2014  can  be  minor,  serious  or  very  serious.  The 
following sanctions may be imposed: 

  Fines 
  Extinction of the license or close of the company or office 
  A  ban  for  holding  legal  representation  job  positions  in  private  security 

companies ranging from one to two years 
  Temporal suspension of the authorization 

H.  Other Initiatives 
-  AECID  Protocol 

for  Managing  Public-Private  Partnerships 

for 

Development (PPPD)1061 

1060 See Real Decreto 2364/1994, de 9 de diciembre, por el que se aprueba el Reglamento de Seguridad Privada, 
available at: https://www.boe.es/buscar/pdf/1995/BOE-A-1995-608-consolidado.pdf.  
1061 Agencia Española de Cooperación Internacional para el Desarrollo (2013). “AECID Protocol for Managing Public-
Private Partnerships for Development”, available at: http://www.aecid.es/Centro-

270 

 
 
 
 
                                                        
In  2013,  the  Spanish  Agency  for  International  Development  Cooperation  (AECID), 
which  is  attached  to  the  Ministry  of  Foreign  Affairs  and  Cooperation  (MAEC), 
published  the  Protocol  for  the  management  of  public-private  partnerships  for 
development.  This  instrument  includes  a  series  of  exclusion  criteria  and  other 
assessment criteria in relation to partner or participant companies in public-private 
partnerships  for  development,  establishing  one  common  objective  and  having  a 
demonstrable  impact  on  development.  In  this  partnership  responsibilities  are 
defined jointly, and resources, risks and achievements are shared. 

The minimum requirements regarding companies are divided into exclusionary and 
evaluation-based criteria. 

Exclusionary  criteria  Entities  which  carry  out  procedures  or  practices  listed  below 
will  be  excluded,  from  the  start,  and  it  will  be  impossible  for  them  to  form  any 
partnership or alliance with AECID. 

  Manufacture,  purchase  or  sale  of  weapons  as  well  as  financing  of  related 

activities 

  Direct or indirect use of child labour, forced labour or slave labour 
  Anti-union practices 
  Acts classified as bribery and corruption 
  Acts against the environment 

Although not of compulsory compliance, the AECID evaluator will look on very 
favourably the respect of the following practices: 

  Adoption  or  adhesion  to  the  following internationally  recognised  principles  and 

guidelines for businesses: 
-  Fundamental ILO conventions 
-  OECD Guidelines for Multinational Enterprises 
-  10 Principles of the United Nations Global Compact 
- 
- 
-  UN Guiding Principles on Business and Human Rights 
  Presentation  by  the  firm  of  both  a  sustainability  report  and  Corporate  Social 

ISO 26000 Standards on Corporate Social Responsibility 
ILO Tripartite Declaration on Multinational Enterprises and Social Policy 

Responsibility reports. 

-  Strategy  2014-2020  for  businesses,  public  administrations  and  other 
organisations  to  advance  towards  a  more  competitive,  productive, 
sustainable and inclusive society and economy1062 

The  Spanish  CRS  Strategy  was  adopted  in  2014.  It  is  a  non-binding  public  policy 
instrument  that  establishes  a  common  framework  to  harmonize  the  different 
practices of social responsibility undertaken by the private and public sectors. One 
of the principles of the Spanish CRS Strategy is that social responsibility policies are 
adopted voluntarily. 

The  document  has  been  drawn  up  by  the  State  Council  for  Corporate  Social 
Responsibility  (CERSE)  and  coordinated  by  the  General  Department  for  Self-
Employment,  the  Social  Economy  and  Corporate  Social  Responsibility,  which 
belongs  to  the  Ministry  of  Employment  and  Social  Security.  It  aims  to  promote 
social  responsibility  among  the  largest  possible  number  of  organisations,  so  that 
they all include initiatives in this area within their own culture and values. It should 

Documentacion/Documentos/Informes%20y%20gu%C3%ADas/Protocolo%20AECID_Todos%20los%20actores_Ingles.
pdf.  
1062 Ministerio de Empleo y Seguridad Social (2014). “Strategy 2014-2020 for businesses, public administrations and 
other organisations to advance towards a more competitive, productive, sustainable and inclusive society and 
economy”, available at: http://www.mitramiss.gob.es/ficheros/rse/documentos/eerse/EERSE-Ingles-web.pdf. 

271 

 
 
 
 
                                                                                                                                                                   
also serve as an effective tool for compliance with the principles of Act 20/2013 of 9 
December on the Guarantee of Market Unity in this area. The Strategy is not limited 
to businesses. It also aims to promote the adoption of responsible policies by Public 
Administrations and by public and private organisations so that they can become a 
driver  for  transformation  of  the  country  into  a  more  competitive,  productive, 
sustainable and inclusive society and economy. 

This  document  includes  60  measures  aims  to  promote  actions  to  achieve  the 
following objectives: 

  To strengthen the commitment of businesses and of the Public Administrations 
to meet the needs and concerns of Spanish society, including job creation. 
  To  strengthen the sustainable management models that help companies to be 

more competitive and help make Public Administrations more efficient. 

  To  promote  corporate  responsibility  programmes  that  will  foster  international 
credibility  and  the  competitiveness  of  the  Spanish  economy,  as  well  as 
sustainability and social cohesion. 

The 10 lines of action covering all the measures are the following: 1. Promotion of 
CSR  as  a  driver  for  more  sustainable  organisations.  2.  Inclusion  of  CSR  in 
education, training and research. 3. Good governance and transparency as tools for 
boosting  confidence.  4.  Responsible  management  of  human  resources  and 
employment.  5.  Socially  responsible  investment  in  R&D+i.  6.  Relations  with 
suppliers.  7.  Responsible  consumption.  8.  Respect  for  the  environment.  9. 
Development cooperation. 10. Coordination and participation. 

The  Strategy  refers  to  respect  for  and  protection  of  human  rights  throughout  the 
value  chain.  Especially  at  the  international  level,  companies  must  cooperate  to 
ensure  respect  for  human  rights  within  their  sphere  of  influence,  paying  particular 
attention to  environments in which there are insufficient guarantees  regarding the 
respect and protection of human rights. Some of the measures to achieve this goal 
are: 

Measure  15.  To  guarantee  that  public  sector  enterprises  draw  up  corporate 
governance and sustainability reports. 

As prescribed in Act 2/2011, of 4 March, on the Sustainable Economy, state-owned 
companies  must  submit  annual  reports  both  on  corporate  governance  and 
sustainability.  The  objective  is  to  promote  this  exercise  both  among  State-owned 
companies  and  public  enterprises  attached  to  the  General  State  Administration, 
following  the  model  established  within  the  CERSE.  This  practice  will  also  be 
promoted  at  every  level  of  the  Public  Administration,  the  aim  being  that  such 
reports  will  be  submitted  to  their  highest  management  bodies,  to  express  the 
support  and  effective  adoption  of  social  responsibility  policies 
in  Public 
Administrations. 

Measure  20.  To  promote  the  drafting  of  annual  reports  including  transparent 
information on social and environmental aspects and good governance. 

their  environmental 

These  reports  should  also  include  policies  for  creating  and  maintaining  jobs;  for 
gender  equality; 
the  human  resources 
programmes  that  do  most  to  promote  worker  employability  through,  for  example, 
training, workforce diversity and the inclusion of persons at risk of social exclusion 
and  persons  with  disabilities.  The  opinions  of  interest  groups  should  also  be 
included in such reports, especially that of workers’ legal representatives. Actions in 
this field will pay special attention to the Directive of the European Parliament and 
Council as regards the disclosure of nonfinancial and diversity information which is 
to be transposed to Spanish legislation. 

impact;  and 

Measure 35. To ensure compliance with the principles of CSR throughout the value 
chain. 

272 

 
 
The aim is to promote a commitment by socially responsible enterprises to ensure 
compliance with the principles and values of CSR also among enterprises that form 
part  of  their  supply  chain,  taking  into  account  the  proportionality  of  the  different 
models  in  response  to  the  size  and  resources  of  the  company.  Tools  will  be 
developed  and  venues  arranged  in  which large  enterprises  can  share  their  socially 
responsible practices with other actors in the production fabric. 

Measure  38.  To  promote  the  inclusion  of  social,  environmental,  human  rights  and 
ethical  criteria  in  tenders  and  public  procurement  in  line  with  the  object  of  the 
contract. 

The  aim  is  that  at  every  level  of  the  Public  Administration,  all  the  possibilities 
offered  by  the  current  legal  framework,  both  national  and  international,  for  public 
procurement  should  be  known  and  used.  Also  criteria  covering  social, 
environmental  and  good  governance  aspects  should  be  promoted,  in  line  with  the 
object of the contract, ensuring that SME’s, self-employed and entrepreneurs were 
not  disadvantaged  by  these  criteria  against  big  enterprises.  The  Public 
Administrations should be involved in extending CSR practices to their suppliers. In 
addition, as required by the current legislation, it may be reserved the participation 
in public procurement to special employment centres, or the implementation in the 
context  of  sheltered  employment  programs  where  at  least  70%  of  the  workers 
concerned  were  people  with  disabilities  who,  because  of  the  nature  or  severity  of 
their disabilities, cannot carry on occupations under normal conditions. 

Measure 44. To reduce the environmental impact of organisations. 

In  enterprises  and  public  administrations,  actions  should  be  taken  to  adopt 
sustainability  criteria,  to  achieve  energy  efficiency,  to  guarantee  controlled 
consumption  of  natural  resources  and  to  minimise  the  environmental  impact  of 
their activities. 

Measure 45. To increase information on the responsible control and consumption of 
natural resources. 

Environmental awareness should be promoted and training provided among interest 
groups and enterprises. 

Measure  46.  To  continue  supporting  measures  to  protect  the  environment, 
minimising  environmental  impact  and  to  introduce  programmes  to  prevent  and 
mitigate environmental pollution. 

This  may  cover  programmes  to  protect  biodiversity,  to  achieve  re-equilibrium  in 
order  to  avoid  the  loss  of  population  and  business  relocation  and  to  guarantee 
environmental quality. Special emphasis will also be placed on programmes for the 
prevention  and  management  of  environmental  aspects  –  the  fight  against 
atmospheric  pollution,  water  contamination,  contamination  of  the  soil  and  ground 
water, noise contamination, the prevention and proper management of waste, etc. 

Measure  47.  To  monitor  and  strengthen  programmes  for  the  prevention  and 
management of waste through the use of appropriate technologies. 

The  aim  is  that  both  public  administrations  and  enterprises  and  organisations 
should  contribute  to  sustainability  by  adopting  appropriate  waste  management 
policies in line with their specific characteristics and with the aim of preventing and 
minimising the generation of waste and fostering re-cycling and separating. 

Measure  48.  To  adopt  programmes  to  reduce  and  minimise  direct  and  indirect 
emissions. 

Specific measures should be adopted to act on greenhouse gas emissions. 

273 

 
 
 
-  Catalan  strategy  for  business  and  human  rights  of  the  Generalitat  of 

Catalonia 

The Catalan strategy for business and human rights of the Generalitat of Catalonia 
is based on the United Nations Guiding Principles on Business and Human Rights. It 
is non-binding a public policy instrument that describes a series of measures for the 
Generalitat of Catalonia, as well as Catalan business enterprises and organisations, 
to assume their respective obligations to protect and respect human rights. 

The  goal  of  the  Strategy  is  to  put  Catalonia  and  its  business  network  in  a  leading 
position regarding the development of business activities respecting human rights, 
provide  clarifications  to  and  supporting  Catalan  enterprises  and  organisations  on 
this issue as well as on how to reduce the risks linked to their activities. 

On  the  other  hand,  the  Strategy  establishes  the  basis  for  drafting  a  future  action 
plan on business and human rights in Catalonia. 

The  Strategy  has  a  similar  structure  to  that  of  the  Guiding  Principles  and  includes 
four parts. 

1.  The first part introduces the  context, main themes, time frame and  objectives 

of the Strategy. 

2.  The second part presents additional measures, regarding the principles relative 

to the States’ obligation to protect human rights. 

3.  The third part explains in detail the expectations of the Generalitat of Catalonia 
on the responsibility of business enterprises and other organisations to respect 
human rights. 

4.  Finally,  the  fourth  part  describes  the  additional  measures  the  Generalitat  of 
Catalonia  adopts  to  facilitate  access  to  judicial  and  extrajudicial  remedy 
mechanisms  for  persons  potentially  affected  by  negative  business  impacts,  as 
set  out  in  the  third  pillar  of  the  Guiding  Principles  on  access  to  remedy 
mechanisms. 

Regarding  the  responsibility  of  business  enterprises  to  respect  human  rights,  the 
Generalitat  of  Catalonia  establishes  that  all  enterprises  and  organisations, 
regardless of their size, sector, operational context and structure, must be aware of 
the responsibilities, reflected in the second pillar of the Guiding Principles. 

One  of  the  innovative  aspects  of  the  strategy  is  the  fact  that  it  not  only  refers  to 
businesses  but  also  to  any  other  type  of  organisation  with  an  economic  activity 
including NGOs or universities. 

I.  Directors Duties and Liabilities 
Director’s Due Diligence Duties 

According  to  Article  225  of  the  Royal  Legislative  Decree  1/2010,  of  2  July, 
Approving  the  Consolidated  Text  of  the  Capital  Companies  Act,1063 directors  must 
carry  out  their  role  and  fulfil  their  tasks  in  accordance  with  the  laws  and  by-laws, 
with the diligence of an orderly business person, taking into account the nature of 
the  role  and  the  duties  inherent  in  each  one.  Moreover,  they  must  possess  the 
appropriate  dedication  and  adopt  the  necessary  measures  for  good  management 
and control of the company. 

1063 See, Royal Legislative Decree 1/2010, of 2 July, Approving the Consolidated Text of the Capital Companies Act, 
available at: 
https://www.mjusticia.gob.es/cs/Satellite/Portal/1292428455808?blobheader=application%2Fpdf&blobheadername1=C
ontent-Disposition&blobheadervalue1=attachment%3B+filename%3DCorporate_Enterprises_Act_2015_-
_Ley_de_Sociedades_de_Capital.PDF.  

274 

 
 
 
 
                                                        
Director’s Liability 

Therefore, directors shall answer to the company and its partners and creditors for 
any damage caused by their acts or omissions contrary to the law or  the by-laws, 
or for having failed to complete any duties inherent to their  roles, assuming there 
has  been  misconduct  or  negligence.  When  the  act  is  contrary  to  the  law  or  the 
company by-laws, guilt shall be presumed, until proven otherwise.1064 

Joint and Several Liability 

All members of the governing body adopting the detrimental decision or performing 
the respective act shall answer jointly and severally, unless they prove that having 
taken no part in its adoption or implementation, they were unaware of its existence 
or, if aware, took all reasonable measures to prevent the damage or at least voice 
their objection thereto. 

Director’s Liability under Specific Rules 

Under the Criminal Code, a complete breach of the duties of supervision and control 
can  result  in  criminal  responsibility  for  directors  for  crimes  committed  by  the 
individuals  who  were  under  their  authority.  The  Criminal  Code  regulates  specific 
crimes that may be apply to directors, including: 

  Misrepresenting  annual  accounts  or  other  documents  that  should  reflect  the 

legal or financial position of the company. 
Imposing damaging resolutions. 
Imposing damaging resolutions approved by a fictitious majority. 

 
 
  Refusing to allow a shareholder to exercise his/her rights. 
  Refusing access to inspecting or supervisory persons, bodies or entities. 
Director’s civil liability may be of two types: 

 

Internal:  directors  are  liable  for  a  breach  of  their  duties,  vis-à-vis  the 
shareholders and the company itself; and 

  External:  directors  are  liable  to  any  third  party  whose  interests  have  been 

directly harmed, and particularly the company’s creditors. 

Thus,  directors  are  civilly  liable  if  they  intentionally  or  negligently  carry  out  an 
illegal act which directly harms the company, or indirectly harms its shareholders or 
third parties, or if this act is directly detrimental to the interests of shareholders or 
third parties. 

For  a  director  to  be  held  civilly  liable,  the  following  conditions  must  to  be  met  in 
addition to the general rules on civil liability: 

  An act or omission by the director. 
  The  act  or  omission  is  contrary  to  applicable  regulations  or  the  company’s 

articles of association, or constitutes a breach of director duties. 

  The act or omission causes actual damage that can be quantified economically, 
either  to  the  company  or  to  the  interests  of  its  shareholders  or  third  parties; 
the  damage  caused  includes  both  actual  damage  (an  actual  and  effective 
decrease  in  equity)  and  lost  profit  (the  profit  that  in  all  likelihood,  or  almost 
certainly, the damaged party would have no longer obtained). 

  The director’s conduct is intentional or negligent (it is presumed, unless there is 
evidence  to  the  contrary,  that  negligence  exists  if  the  act  or  omission  is 
contrary to applicable legislation or the company’s articles of association). 

1064 See, Article 236 of the Royal Legislative Decree 1/2010. 

275 

 
 
                                                        
  The damage caused is a consequence of the director’s act or omission, in such 
a  way  that  a  causal  link  exists  with  his/her  conduct  (excluding  any  damage 
caused  by  unforeseeable  events  or  which,  although  foreseeable,  were 
unavoidable).1065 

The  Credit  Institutions  Law, 1066 Royal  Legislative  Decree  4/2015,  of  23  October, 
approving  the  recast  text  of  the  Securities  Market  Act,1067 and  Law  20/2015  of  14 
July,  regarding  the  ordinance,  supervision  and  solvency  of  insurers, 1068 all  have 
similar  provisions  regulating  the  liability  of  directors  of  entities  regulated  under 
each of these laws. They state that the directors  of these  entities will be liable for 
infringements  when  such  infringements  were  as  a  result  of  the  directors’  wilful  or 
negligent conduct. 

According to Article 5 of the Law 22/2003, of 9 July, on Insolvency Proceedings,1069 
The debtor company is legally required to petition for insolvency proceedings within 
two months of the date on which it became aware, or should have become aware, 
of its state of insolvency. However, Article 5 bis of the Insolvency Act also provides 
the possibility of notifying the court of the initiation of negotiations with creditors to 
reach  a  refinancing  agreement  or  obtain  sufficient  approval  for  an  early 
composition. Failure to comply with this obligation entails a rebuttable presumption 
of intent or gross negligence in the creation or aggravation of the insolvency, which 
can lead to the insolvency being classified as at-fault. 

An  at-fault  insolvency  finding  may  lead  to  the  directors  being  disqualified  from 
administering third party assets, the loss of any rights they may have as creditors, 
an  order  for  the  return  of  assets  or  rights  wrongfully  obtained,  as  well  as  the 
obligation to compensate the company for any damage or loss caused. In addition, 
when  consideration  of  the  separate  insolvency  classification  issue  is  initiated,  the 
judge  may  order  the  de  facto  or  de  jure  directors  to  pay  any  of  the  company's 
debts that could not be satisfied from the company's available assets 

Law  26/2007  of  23  October  on  environmental  responsibility  sets  out  the  vicarious 
liability of directors for their company's non-compliance with environmental duties, 
particularly  any  possible  monetary  obligations  the  company  may  have.  The 
directors of companies that have ceased to carry out business can also be liable for 
outstanding environmental duties and obligations. 

Directors' liability for conduct contrary to competition legislation is regulated in Law 
15/2007,  of  3  July,  on  the  Defence  of  Competition.  According  to  the  Competition 
Act, the actions  or omissions  of a company that are  classified as infringements by 
the  Competition  Law  can  also  be  attributed  to  the  persons  who  control  the 
company.1070 

Under Article 43 of Law 58/2003, of 17 December, on General Taxation, the de jure 
or the de facto directors will be vicariously liable for:1071 

  Tax infringements (including penalties). 

  Outstanding tax debts (excluding penalties). 

1065 Uria Mendez (2015). op. cit., p. 18. 
1066 See, Article 104 of the Ley 10/2014, de 26 de junio, de ordenación, supervisión y solvencia de entidades de crédito, 
available at: https://www.boe.es/buscar/pdf/2014/BOE-A-2014-6726-consolidado.pdf.  
1067 See, Real Decreto Legislativo 4/2015, de 23 de octubre, por el que se aprueba el texto refundido de la Ley del 
Mercado de Valores, https://www.boe.es/buscar/doc.php?id=BOE-A-2015-11435. 
1068 See, Ley 20/2015, de 14 de julio, de ordenación, supervisión y solvencia de las entidades aseguradoras y 
reaseguradoras, available at: https://www.boe.es/buscar/act.php?id=BOE-A-2015-7897. 
1069 See, Ley 22/2003, de 9 de julio, Concursal, available at: https://www.boe.es/buscar/act.php?id=BOE-A-2003-
13813. 
1070 See, Article 61 of the Ley Ley 15/2007, de 3 de julio, de Defensa de la Competencia, available at: 
https://www.boe.es/buscar/doc.php?id=BOE-A-2007-12946. 
1071 See, Ley 58/2003, de 17 de diciembre, General Tributaria, available at: 
https://www.boe.es/buscar/act.php?id=BOE-A-2003-23186 

276 

 
 
                                                        
  Tax debts derived from taxes that must be levied on, or amounts that must be 
withheld  from,  employees,  professionals  or  other  businessmen  in  certain 
circumstances. 

Social security laws do not expressly set out directors' liabilities for infringements of 
these laws, but liability could be inferred from Article 18.3 of Royal Decree 8/2015 
of 30 October approving the recast text of the Social Security Act, under which the 
liability  for  the  payment  of  social  security  contributions  can  be  extended  to  those 
persons  who  may  be  jointly,  severally  liable  or  vicariously  liable  with  the 
Company.1072 

Law  10/2010,  of  28  April,  on  the  Prevention  of  Money  laundering  and  Terrorist 
Financing sets out that, in case a company commits an infringement, in addition to 
the  company's  liability,  the  directors  may  also  be  liable  if  the  infringements  were 
due to their wilful or negligent conduct (Article 54). 

J.  Corporate Veil Piercing 
Under  Spanish  law,  there  are  no  specific  legal provisions  regarding  “corporate  veil 
piercing”.  However,  there  is  case  law  based  on  “judicial  creation”  by  the  Spanish 
courts influenced by judgments issued by foreign courts basically in the US and UK. 
Case law sets  out that  a corporation cannot be treated as a  separate legal person 
from  its  shareholders  when  said  “separation  of  legal  entity”  is  a  mere  fiction  used 
for  fraudulent  or  illegal  purposes.  This  principle  may  be  used  in  cases  of  fraud: 
when the incorporation of a company is simulated in order to avoid the fulfilment of 
a  contract;  when  the  company  is  used  to  conceal  an  immoral  objective;  or  as  an 
instrument of deviation or distortion in the application of legal rules. There are four 
scenarios in which the doctrine can be applied: 

 

Identity of subjects or confusion of assets: this is the case when it is impossible 
for third parties to distinguish between the legal personality of a company and 
the personality of the shareholders; or between the assets of the company and 
the  assets  of  the  shareholders.  For  example,  when  two  or  more  companies 
share the same shareholders and/or directors; or when the company has a sole 
shareholder  (or  even  a  main  shareholder  and  one  or  several  minor 
shareholders acting as figureheads for the main shareholder). 

  When the shareholders provide the company with insufficient funds to carry out 
the corporate business: there are very few judgments on this circumstance and 
such cases usually turn on additional grounds further to provision of insufficient 
funds. 

  Group companies: this is the case when a company effectively controls another 
related company, without the latter having its own will, separated from the will 
of  the  dominant  company.  This  is  applicable  in  labour  disputes;  for  example, 
where an employee works for a subsidiary which only provides services for the 
parent company. 

  Contravention  of  law  or  fraud:  this  is  the  case  when  a  corporation  is  wilfully 
used  to  elude  the  fulfilment  of  legal,  contractual  or  even  non-contractual 
liabilities, thus obtaining a result contrary to the law, which is unfair or harmful 
to third parties. 

The corporate veil in Spanish company law is pierced very rarely. However, Spanish 
courts  have  lifted  the  corporate  veil  in  some  cases  to  curb  and  stop  the  use  of 
companies for illicit purposes and the abusive use of corporate structures. 

1072 See, Real Decreto Legislativo 8/2015, de 30 de octubre, por el que se aprueba el texto refundido de la Ley General 
de la Seguridad Social, avaialble at: https://www.boe.es/buscar/act.php?id=BOE-A-2015-11724. 

277 

 
 
                                                        
For  example,  Uto  Ibérica,  S.A.,  filed  a  claim  for  damages  to  a  number  of 
apartments due to water damage after a water main burst in Palma de Mallorca in 
June  1977.  The  city  had  hired  a  company,  Empresa  Municipal  de  Aguas  y 
Alcantarillado, S.A., to  provide the  city’s public water  service. At first, Uto  Ibérica, 
S.A.,  claimed  compensation  from  the  city  of  Palma  de  Mallorca.  The  city  alleged 
that it had no standing to be sued and the claim should have been lodged directly 
against  the  company.  Although  in  this  case  the  city’s  allegation  was  quite  proper, 
the  Supreme  Court  established  for  the  first  time  the  requirements  for  piercing  the 
corporate  veil  in  Spain:  -  a  conflict  between  legal  certainty  and  justice,  -  fairness 
and  adherence  to  the  rule  of  bona  fides  and  -  evasion  of  the  law.  Based  on  these 
requirements,  Spanish  case  law  has  defined  a  few  circumstances  under  which  the 
corporate veil can be pierced1073: 
  abuse of legal forms or use to evade the law, 
 

identity  of  persons  or  spheres  of  action,  or  confusion  of  assets  (Identity,  or 
identicalness,  is  evidenced  by  a  joint  or  shared  scheme  of  management, 
interests and profits), 

  effective external control or management, 
  undercapitalisation  or  decapitalisation  and  -  any  other  circumstance  showing 
that the company’s creation was plotted to evade the law or abuse a right. 

III. COMPARATIVE ANALYSIS 

Under  the  Spanish  regulatory  framework  there  is  an  increasingly  expectation  that 
businesses respect human rights and protect the environment in all their operations 
and supply chains. Spain has adopted legislative initiatives that have human rights 
and environmental requirements for businesses by imposing on them certain legally 
binding  due  diligence  and  transparency  obligations.  Therefore,  among  the  Spanish 
legislations  and  regulations,  it  is  possible  to  distinguish  between  those  laws  that 
focus  on  disclosure  of  non-financial  information  and  those  that  include  some  due 
diligence requirements. 

The first laws, such as the Law 2/2011 on Sustainable Economy or the Law 11/2018 
that  implements  the  EU  Directive  on  Non-financial  and  Diversity  Information,  are 
aimed at improving transparency and corporate governance of some business that 
meet  specific  features.  These  laws  create  a  reporting  requirement  for  public 
business  policies  and  actions  to  prevent  adverse  human  rights  and  environmental 
impacts.  Under  the  Spanish  regulatory  framework,  businesses  should  disclose 
information  at least  on  the  following  topics:  human  rights,  corruption and  bribery, 
improvement  of  labour  relations,  diversity  and  equality  policies,  environmental 
issues.  If businesses do not disclose this information in the corresponding reports, 
they should offer a clear explanation in this regard. The rationale behind these laws 
seems to be that transparency will incentivize businesses to address  human rights 
and  environmental  risks.  Compliance  depends  largely  on  the  pressure  exerted  by 
external  parties  since  the  Spanish  regulatory  framework  do  not  specify  sanctions 
for  non-compliance  with  these  requirements.  Undoubtedly,  this  may  affect  the 
effectiveness of these types of laws. 

On  the  other  hand,  although  not  all  legislation  and  regulations  use  the  term  due 
diligence  in  line  with  the  UN  Guiding  Principles  on  Business  and  Human  Rights  or 
the  OCDE  Guidelines  for  Multinational  Enterprises,  they  require  businesses  to 
develop  a  coherent  prevention  policy.  Moreover,  businesses  should  identify  and 
assess adverse human rights and environmental impacts, such as the Law 31/1995 
on  Prevention  of  Occupational  Risks  or  the  Law  21/2013  on  Environmental 
Assessment.  In  some  cases,  these  impact  assessments  are  a  prerequisite  for 
obtaining  an  authorization  of  programs  and  projects.  Additionally,  according  to 

1073 See, Spanish Supreme Court, judgment of 28 May 1984, Civil Division (RJ 1984/2800). 

278 

 
 
 
                                                        
these  laws,  businesses  should  integrate  the  findings  from  the  impact  assessments 
for  relevant  internal  functions  within  their  activities  and  take  appropriate 
preventative  and  mitigating  actions.  Businesses  should  also  carry  out  consultation 
with  all  stakeholders  regarding  the  findings  from  the  impact  assessments.  These 
obligations only apply to certain types of activities and businesses. In case of non-
compliance, these laws include a sanctioning framework. 

The  only legal instrument that uses the term due diligence is the Law  10/2010 on 
the  Prevention  of  Money  Laundering  and  Terrorist  Financing.  However,  it  does  not 
make any reference to the UN Guiding Principles on Business and Human Rights or 
the OCDE Guidelines. The due diligence contemplated in this legislation is closer to 
the  traditional  corporate  due  diligence  that  focuses  on  the  risks  to  the  company. 
However,  the  obliged  entities  must  also  adopt  in  writing  and  implement  adequate 
policies  and  procedures  of  customer  due  diligence,  information,  record  keeping, 
internal control, risk assessment and management, compliance ensuring, reporting 
and  customer  acceptance  in  order  to  prevent  and  forestall  transactions  related  to 
money  laundering  or  terrorist  financing.  These  policies  and  procedures  will  be 
applicable to the branches and subsidiaries of the group located in third countries, 
without  prejudice  to  the  necessary  adaptations  for  compliance  with  the  specific 
rules of the host country. 

What  is  less  clear  is  whether  such  transparency  and  due  diligence  requirements 
under  the  Spanish  regulatory  framework  are  capable  of  effectively  influencing 
Spanish  corporate  behaviour.  That  is  why  civil  society  organizations  propose  (see 
below)  a  comprehensive  due  diligence  legislation  that  obligates  businesses  to 
ensure  that  internationally  recognised  human  rights  are  respected  in  their  own 
activities and in the supply chain. 

IV. REGULATORY FRAMEWORK 

In Spain there are no regulations which require companies, in a binding manner, to 
adopt  and  conduct  human  rights  due  diligence  measures  in  relation  to  their  own 
activities  and  its  business  relationship,  such  as  the  adoption  of  a  human  rights 
policy  in  accordance  with  international  standards;  the  establishment  of  a  human 
rights due diligence framework; and an impact assessment analysis from a human 
rights perspective and the adoption of an action plan on how the risks identified will 
be addressed and managed and human rights harm will be prevented and repaired. 
There is no imposition of any sanctions in the absence of these actions. 

There is a need to reform the Spanish regulatory and political framework to address 
the adverse human rights and environmental impacts caused by business activities 
within  the  Spanish  territory  and  abroad.  In  this  regard,  Spain  must  take  into 
account the regulatory proposal and legal developments adopted in other European 
countries,  such  as  in  France,  the  United  Kingdom  or  the  Netherlands,  which 
establish an obligation on companies, in a way that is proportional to their size and 
according  to  the  nature  of  their  activities,  to  activate  procedures  of  human  rights 
due diligence in accordance with the UN Guiding Principles on Business and Human 
Rights.  In  order  to  fill  this  gap,  Spanish  NGOs  have  proposed  a  national  binding 
legislation aligned with the national developments in other countries. In this regard, 
they  propose  an  ordinary  administrative  law  that  imposes  human  rights  due 
diligence obligations on Spanish parent companies. Under this law, Spanish parent 
companies  should  adopt  appropriate  prevention  and  remedial  measures  to  protect 
people against human rights violations caused by their own activities o throughout 
their business relationships. The type of companies covered by this law has not yet 
been defined. The main aspects of the Spanish due diligence law proposed by NGOs 
are: 

279 

 
 
 
 

 

 

It  establishes  an  obligation  to  conduct  due  diligence  in  order  to  avoid  human 
rights violations. 
It creates a link between the parent company and the supply chain through the 
human rights due diligence obligations. 
It  includes  a  catalogue  of  infractions  and  sanctions  for  the  case  of  non-
compliance  with  the  human  rights  due  diligence  obligations,  without  the  need 
for damage to occur. 

The  proposed  law  would  include  a  system  of  sanctions  in  case  of  non-compliance 
with  the  human  rights  due  diligence  obligations.  In  cases  of  damages,  the  law 
contemplates a new idea of extra-contractual civil liability for "culpa in vigilando" or 
indirect responsibility of the parent company for damages caused by entities of the 
corporate group or its supply chain. This would imply reforms within the civil code. 

The  law  would  apply  in  extraterritorial  cases  when  the  obligated  companies  are 
based  in  Spain.  Thus,  Spanish  courts  have  jurisdiction  when  damages  occurred 
abroad resulted from the non-compliance of human rights due diligence obligations. 

Other issues that should be covered by the law are: 

Prescription:  The  law  would  modify  the  general  limitation  period  of  one  year  and 
establish an exception for business and human rights cases. 

Applicable  law:  To  ensure  application  of  the  law,  it  is  expected  that  the  law 
formulates  the  due  diligence  obligations  as  a  so-called  overriding  mandatory  rule. 
Overriding mandatory rules are provisions of law applying in the jurisdiction of the 
competent  court  that  govern  the  facts  of  a  case  regardless  of  the  law  otherwise 
applicable to non-contractual obligations. 

Legal  standing  of  victim  associations:  In  this  way  it  would  be  easier  for 
organizations based in Spain to act in civil proceedings on behalf of the victims. 

Access  to  free  legal  assistance:  The  law  should  provide  for  the  possibility  that,  in 
judicial  proceedings  related  to  human  rights  violations  caused  by  companies, 
victims have the right to access free justice. 

Collective actions: The law would include the possibility of accumulating the actions 
of several injured parties in the same process with the aim of ensuring procedural 
economy and avoiding contradictory judgments. 

In  cases  of  damages  occurred  in  a  country  outside  the  EU,  Spanish  courts  have 
jurisdiction to hear the case. 

Beyond the due diligence legislation, Spain should also adopt measures to eliminate 
the barriers that prevent victims to access remedy by means of a reform of the Civil 
Code, the Criminal Code and the Organic Law of the Judiciary. With regard to civil 
liability,  Spain  should  guarantee  the  jurisdiction  of  the  Spanish  courts  over  inter-
connected claims where one of various defendants is domiciled in Spain and give as 
wide  an  acceptance  as  is  possible  to  forum  necessitates.  With  regard  to  criminal 
liability, it should set up a special prosecutor's office dealing with corporate crimes 
against  human  rights  and  the  environment  overseas,  reassess  the  reform  of  the 
criminal  liability  of  legal  persons,  reverse  the  reform  of  universal  jurisdiction  to 
prioritise  the  prosecution  of  more  serious  international  crimes  and  include  more 
serious  environmental  offences  and  articulate  free  legal  aid  for  alleged  victims  in 
third countries.1074 

1074 Pigrau Solé, A. (2018). op. cit., p. 5. 

280 

 
 
 
                                                        
SWEDEN COUNTRY REPORT 

Lia Heasman1075 

I.  OVERVIEW 

Swedish  regulation  does  not  include  human  rights  due  diligence  requirements.  Due 
diligence  related  to  other  matters  does  exist  as  a  concept  in  various  laws  and  a 
mandatory  requirement  for  companies.  Sustainability  related  efforts  focus  mainly  on 
reporting  and  state-owned  entities.  The  aim  of  the  Annual  Account  Act  is  to  facilitate 
better, for example, the EU Directive on Non-Financial Information. The government has 
been  particularly  active  in  enforcing  human  rights  and  environmental  topics  on  state-
owned  companies.  Unlike  many  other  countries,  Sweden  specifically  mentions  some 
international  standards,  such  as  the  UN  Guiding  Principles  on  Business  and  Human 
Rights. Even more importantly, sustainability reporting is required not only in the scope 
of non-financial information, but referenced to GRI or another international standard. 

Sweden does not currently have any proposals or publicly advocated campaigns related 
to  mandatory  human  rights  due  diligence.  However,  the  current  movement  related  to 
human rights due diligence in Denmark and Finland can affect Swedish stakeholders. 

II.  GENERAL  REGULATORY  FRAMEWORK  IN  REGARD  TO  HUMAN  RIGHTS  DUE 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

1.  Area of Regulatory Framework 

A.  Corporations law 
-  Annual Account Act Chapter 6 Section 6 
Corporate Governance Report 

The management report for a limited liability company whose transferable securities are 
admitted to trading on a regulated market shall contain a corporate governance report, 
unless  the  company  has  chosen  to  draw  up  a  corporate  governance  report  that  is 
separate from the annual report on the basis of section 8. 

The corporate governance report shall contain information about 

1.  what  corporate  governance  principles  apply,  in  addition  to  the  principles  of  law  or 
regulation, and where such information is available; 

2.  the  most  important  elements  in  the  company's  systems  for  internal  control  and  risk 
management in connection with the financial reporting, 

3. direct or indirect shareholdings in the company representing at least one tenth of the 
number of votes for all shares in the company, 

4. limitations on how many votes each shareholder can cast at a general meeting, 

5.  provisions  in  the  Articles  of  Association  on  the  appointment  and  dismissal  of  Board 
members and on amendments to the Articles of Association, 

6.  the  General  Meeting's  authorizations  to  the  Board  of  Directors  to  decide  that  the 
company shall issue new shares or acquire own shares, 

7.  how  the  general  meeting  works,  the  general  meeting's  decision-making  power,  the 
rights  of  the  shareholders  and  how  these  rights  are  exercised,  to  the  extent  that  these 
circumstances are not stated in law or other statutes, 

1075 Lia Heasman LLD. 

281 

 
 
 
 
 
 
 
                                                        
8. how the board and, where applicable, committees established within the company are 
composed  and  how  they  function,  to  the  extent  that  these  conditions  are  not  stated  in 
law or other statutes, and 

9. the diversity policy that, unless the company meets more than one of the conditions 
of section 10, first paragraph, paragraph 1, applies to the board and the purpose of the 
policy, how the policy has been applied during the financial year and the result thereof. 

If  the  company  does  not  apply  a  code  for  corporate  governance,  the  reasons  for  this 
must be stated. If the company applies a code for corporate governance, it shall, where 
applicable, state which parts of the code the company deviates from and the reasons for 
this.  If  a  company  referred  to  in  the  second  paragraph  9  does  not  apply  any  diversity 
policy, the reasons for this must be stated. Team (2016: 947). 

- Annual Account Act Section 7 

A  limited  liability  company  that  has  only  other  transferable  securities  than  shares 
admitted to trading on a regulated market need not provide the information specified in 
section  6,  second  paragraphs  1  and  7-9,  and  in  the  third  paragraph  of  the  same 
paragraph  in  the  corporate  governance  report.  However,  this  does  not  apply  if  the 
company's shares are traded on an MTF platform in accordance with Chapter 1. § 4 b of 
the Securities Market Act (2007: 528). 

- Annual Account Act Section 8 

Instead of preparing the corporate governance report as part of the administrative report 
pursuant  to  section  6,  the  company  may  choose  to  prepare  the  report  as  a  separate 
document from the annual report. The report shall also in such a case have the content 
stated  in  sections  6  and  7.  It  must  be  submitted  to  the  company's  auditor  within  the 
same time as the annual report. 

If  the  company  has  chosen  to  prepare  the  corporate  governance  report  as  a  document 
separate from the annual report and such information as referred to in section 6, second 
paragraph  3-6,  is  included  in  the  administration  report,  these  information  need  not  be 
provided  in  the  report.  If  the  information  is  not  included  in  the  corporate  governance 
report,  it  shall  instead  contain  an  indication  of  the  place  in  the  administration  report 
where the information is provided. 

If the company has chosen to draw up a corporate governance report  according to this 
section, this shall be stated in the administration report. 

- Annual Account Act Section 9 

If  the  administration  report  contains  such  a  task  as  referred  to  in  section  8,  third 
paragraph,  the  company's  auditor  shall,  in  a  written,  signed  opinion,  state  whether  or 
not such a report refers to it. In the case of information referred to in section 6, second 
paragraph 2-6, the opinion shall also contain a statement on whether the information is 
consistent with the annual report and in accordance with this law. Has it been included in 
the  report  with  such  information  as  referred  to  in  Chapter  7  Section  31,  second 
paragraph,  the  opinion  shall  also  contain  a  statement  as  to  whether  these  information 
are consistent with the consolidated accounts and in accordance with this Act. 

If  the  information  contains  material  errors,  the  auditor  must  state  this  and  point  out 
what kind of errors it is. 

The auditor's opinion shall be  submitted to the company's Board of Directors within the 
same  time  as  the  auditor's  report  and  then  be  appended  to  the  corporate  governance 
report. 

-  Annual Account Act Section 10 
The  administration  report  for  a  company  shall  contain  a  sustainability  report  if  the 
company meets more than one of the following conditions: 

282 

 
 
1.  The  average  number  of  employees  in  the  company  during  each  of  the  last  two 
financial years has been more than 250, 

2. The company's reported total assets for each of the last two financial years amounted 
to more than SEK 175 million, 

3.  The  company's  reported  net  sales  for  each  of  the  last  two  financial  years  have 
amounted to more than SEK 350 million. 

The  first  paragraph  does  not  apply  to  a  company  that  is  a  subsidiary  if  it  and  all  its 
subsidiaries are covered by a sustainability report for the Group. 

Anyone  who,  according  to  the  second  paragraph,  does  not  draw  up  a  sustainability 
report  shall  disclose  this  in  a  note  to  the  annual  report  and  provide  information  on  the 
name,  organizational  or  personal  number  and  the  registered  office  of  the  parent 
company that prepares the sustainability report for the group. Team (2016: 947). 

- Annual Account Act Section 11 

Instead  of  establishing  the  sustainability  report  as  part  of  the  administrative  report 
pursuant to section 10, the company may choose to draw up the report as a document 
that is separate from the annual report. It must be submitted to the company's auditor 
within the same time as the annual report 

If  the  company  has  chosen  to  draw  up  a  sustainability  report  in  accordance  with  this 
section, this shall be stated in the administration report. 

- Annual Account Act Section 12 

The  sustainability  report  shall  contain  the  sustainability  information  needed  for 
understanding  the  company's  development,  position  and  results  and  the  consequences 
of  the  business,  including  information  on  issues  relating  to  the  environment,  social 
conditions, personnel, respect for human rights and counteracting corruption. The report 
should state 

1. the company's business model, 

2. the policy that the company applies to the issues, including the audit procedures that 
have been carried out; 

3. the result of the policy, 

4.  the  material  risks  related  to  the  issues  and  are  related  to  the  company's  business 
including,  where  relevant,  the  company's  business  relationships,  products  or  services 
that are likely to have adverse consequences; 

5. how the company manages the risks, and 

6. key performance indicators that are relevant to the business. 

The report shall also, where appropriate, contain references to and further explanations 
of  the  amounts  that  are  included  in  the  annual  report.  If  specific  guidelines  have  been 
applied in the preparation of the report, it must state which these guidelines are. 

If  the  company  does  not  apply  any  policy  in  one  or  more  of  the  questions  in  the  first 
paragraph, the reasons for this must be clearly stated. 

- Annual Account Act Section 13 

Information on impending development or on issues that are under negotiation need not 
be  included  in  the  sustainability  report  if  it  is  judged  that  disclosure  would  seriously 
damage the company's market position and the omission does not impede understanding 
of the company's development, position or results or the consequences of the business. 

-  Annual Account Act Section 14 

283 

 
 
If  the  administration  report  contains  such  a  task  as  referred  to  in  section  11,  second 
paragraph,  the  company's  auditor  shall,  in  a  written,  signed  opinion,  state  whether  or 
not such a report refers to it. 

The auditor's opinion shall be submitted to the company's management within the same 
time as the auditor's report and then be appended to the sustainability report 

-  Annual Account Act Chapter 7 Section 31 
31 a If the parent company of a group is a company referred to in Chapter 6 Section 10, 
the management report for the Group shall contain a sustainability report for the Group. 
The same applies if the parent company is a company whose transferable securities are 
admitted  to  trading  on  a  regulated  market  or  a  similar  market  outside  the  European 
Economic Area and the group meets more than one of the following conditions: 

1. The average number of employees in the Group has been more than 250 during each 
of the last two financial years, 

2.  The  consolidated  companies'  reported  total  assets  for  each  of  the  last  two  financial 
years amounted to more than SEK 175 million, 

3. The consolidated companies' reported net sales for each of the last two financial years 
amounted to more than SEK 350 million. 

The first paragraph does not apply to a parent company that is a subsidiary if it and all 
its  subsidiaries  are  covered  by  a  sustainability  report  for  the  Group  that  has  been 
prepared by a parent company. 

Anyone  who,  according  to  the  second  paragraph,  does  not  draw  up  a  sustainability 
report  shall  disclose  this  in  a  note  to  the  annual  report  and  provide  information  on  the 
name,  organizational  or  personal  number  and  the  registered  office  of  the  parent  that 
establishes the sustainability report for the group. 

§  31  b  Instead  of  establishing  the  sustainability  report  as  part  of  the  administration 
report according to § 31 a, the parent company may choose to prepare the report as a 
document separate from the consolidated accounts. In such case, Chapter 6 applies. 

§  31  c  The  Sustainability  Report  shall  be  prepared  with  the  application  of  Chapter  6. 
Sections  12  and  13.  If  the  administration  report  for  the  Group  contains  such  a  task  as 
referred to in Chapter 6, Section 11, second paragraph, also applies Chapter 6. § 14. 

What  is  said  in  chapter  6,  §§  11-14  about  the  annual  report  shall  instead  relate  to  the 
consolidated  accounts  and  what  is  said  about  the  company  should  instead  refer  to  the 
group. 

- Companies Act Chapter 9 Section 31 (annex) 

- The Swedish Corporate Governance Code Section 5 and 10 (annex) 

-  The  State’s  Ownership  Policy  and  Guidelines  for  State-Owned  Enterprises 
2017 Section 3.4 and 4.2 (annex) 

- Code on Gifts, Rewards and Other Benefits in Business Section 10 (annex) 

- The Money Laundering and Terrorist Financing (Prevention) Act Section 10 

When simplified measures for customer due diligence according to Chapter 3, section 15 
of  the  Act  on  Measures  against  Money  Laundering  and  Terrorist  Financing  (2017:630) 
are applied to a legal person, the undertaking must 

1. identify and verify the identity of the legal person’s representative by 

a) obtaining information regarding the representative’s name, address, personal identity 
number or equivalent, and 

b) confirming the representative’s authority and the conditions on which this authority is 
based,  by  checking  the  information  in  point  a)  against  the  legal  person’s  certificate  of 

284 

 
 
registration,  external  register  or  equivalent  or  an 
representative according to section 2, and 

identity  document 

for  the 

2. to a limited extent, take other steps as described in Chapter 3, sections 8 and 10- 13 
of the Act on Measures against Money Laundering and Terrorist Financing. 

B.  Health, safety and regulatory law 

-  Discriminaton Act Section 3 

If  an  employer  becomes  aware  that  an  employee  considers  that  he  or  she  has  been 
subjected  in  connection  with  work  to  harassment  or  sexual  harassment  by  someone 
performing  work  or  carrying  out  a  traineeship  at  the  employer’s  establishment,  the 
employer is obliged to investigate the circumstances surrounding the alleged harassment 
and where appropriate take the measures that can reasonably be demanded to prevent 
harassment in the future. 
- Criminal Code Chapter 36 Section 7 (annex) 

-Criminal Code Chapter 36 Section 9 (annex) 

-Criminal Code Chapter 10 Section 5 (annex) 

2.  Scope 
a. 

Rationale given by the State for the regulation (or lack of regulation) 

According  to  the  Platform  for  Swedish  Action  on  Corporate  Social  Responsibility,  the 
Swedish  government  has  adopted  the  term  ‘sustainable  business’  in  preference  to 
corporate social responsibility1076. Enterprises operating in or from Sweden are expected 
to act in accordance with the principles set out in the OECD Guidelines for Multinational 
Enterprises,  the  UN  Global  Compact  and  the  UN  Guiding  Principles  on  Business  and 
Human Rights and the work of developing sustainable business should be undertaken by 
the  enterprises  themselves  according  to  the  Platform. 1077  However,  the  Swedish 
government wishes to have a proactive and supportive role in this. 

Swedish  regulation  does  not  include  human  rights  due  diligence  requirements.  Due 
diligence  related  to  other  matters  does  exist  as  a  concept  in  various  laws  and  a 
mandatory  requirement  for  companies.  Sustainability  related  efforts  focus  mainly  on 
reporting  and  state-owned  entities.  The  aim  of  the  Annual  Account  Act  is  to  better 
facilitate for example the directive on non-financial information. 
b. 
Size and type of business covered, including level of turnover, particular 
industry  sectors  and  type  of  supply  chain,  and  whether  public  procurement  is 
included 

Sustainability reporting requirements apply to companies  that meet one  or more of the 
criteria:  average  number  of  employees  in  the  company  during  each  of  the  last  two 
financial years has been more than 250; the company's reported total assets for each of 
the  last  two  financial  years  amounted  to  more  than  SEK  175  million; or  the  company's 
reported net sales for each of the last two financial years have amounted to more than 
SEK 350 million.1078 

1076 Regeringskansliet, Platform for Swedish Action on Corporate Social Responsibility (2013) 6 at 
https://www.government.se/49b750/contentassets/539615aa3b334f3cbedb80a2b56a22cb/sustainable-business---a-platform-
for-swedish-action. 
1077 Ibid.  
1078 Annual Account Act (1995:1554) Chapter 6 Section 10-14 

285 

 
 
 
 
 
 
 
                                                        
State-owned  enterprises  are  subject  by  their  owner  to  special  requirements  and 
expectations  with  respect  to  sustainable  business,  as  stipulated  in  the  Government’s 
corporate governance policy for companies under state ownership.1079 

The  Swedish  Code  on  Corporate  Governance  applies  to  all  Swedish  companies  officially 
listed on the OMX Nordic Exchange Stockholm and other Swedish listed companies with 
a market capitalisation exceeding SEK3 billion. 

Extent  of  human  rights,  environmental,  climate  change,  sustainability 
c. 
and  governance  matters  covered,  and  whether  the  regulation  uses  the 
terminology of human rights 

Human  rights,  environmental  and  sustainability  terminology  is  used  in  the  Annual 
Account Act.1080 

The state’s ownership policy and guidelines for state-owned enterprises specifically uses 
terminology,  such  as  climate  and  environmental  impact,  human  rights  and  gender 
equality.1081 
d. 
Jurisdictional  extent  of  business  covered,  including  whether  it  includes 
activity by subsidiaries or business relations of corporate nationals located in a 
different State and operating outside the State of the regulation 

Subsidiaries  of  a  particular  Group  in  which  that  company  and  all  the  subsidiaries  are 
subject to a sustainability report for the Group are not in the scope of the sustainability 
reporting requirements.1082 

3. 

Content of Regulation 

Overview and description of the required measures for business (such as  

a. 
requirement to adopt human rights due diligence or a vigilance plan) 

Swedish  regulation  does  not  include  human  rights  due  diligence  requirements.  Due 
diligence  related  to  other  matters  does  exist  as  a  concept  in  various  laws  and  a 
mandatory  requirement  for  companies.  Sustainability  related  efforts  focus  mainly  on 
reporting. 
b. 

Key legal elements of the obligation 

Producers  have  a  responsibility  to  ensure  that  their  products  meet  certain  safety 
requirements  in  accordance  with  the  Product  Liability  Act. 1083  Companies  must 
continuously  act  with  duty  of  care  to  ensure  that  consumer  products  meet  the  legal 
requirements set for them. 

The  Money  Laundering  and  Terrorist  Financing  (Prevention)  Act  requires  companies  to 
conduct  due  diligence. 1084  The  Money  Laundering  Act  requires  that  financial  actors 
covered  by  the  legislation  hold  a  risk-based  approach  towards  money  laundering. 
Financial  operators  must  analyze  the  risk  related  to  customers  using  them  for  money 
laundering  or  terrorist  financing  and  continuously  review  transactions  through  a  risk-
based  approach,  which  based  on  gathered  customer  information. 1085  The  companies 
must  have  procedures  in  place  to  identify  these  risks.  Suspicious  transactions  are 
reported to the National Police Board. 

1079 Government offices of Sweden, The state’s ownership policy and guidelines for state-owned enterprises 2017 (2017) 
1080 Annual Account Act (1995:1554) Chapter 6 Section 12. 
1081 Government offices of Sweden, The state’s ownership policy and guidelines for state-owned enterprises 2017 (2017) at 
https://www.government.se/reports/2017/06/the-states-ownership-policy-and-guidelines-for-state-owned-enterprises-2017/ 
1082 Annual Account Act (1995:1554) 10.  
1083 Product Liability Act (SFS 1992:18) Section 3.  
1084 The Money Laundering and Terrorist Financing (Prevention) Act (2009:62) 
1085 ibid Chapter 2 and Chapter 5. 

286 

 
 
 
 
 
 
 
 
                                                        
Swedish  Criminal  Code  requires  that  companies  undertake  sufficient  due  diligence 
reviews of people and companies that will represent the company. The Swedish Criminal 
Code  notes  that  must  act  with  caution  when  providing  cash  or  other  assets  to  its 
representatives,  agents,  cooperation  partners  and  other  representatives  to  ensure  that 
the  funds  are  not  used  as  bribes.1086 The  Code  on  Gifts,  Rewards  and  other  Benefits  in 
Business,  which  is  not  legally  binding,  acts  as  a  supplement  to  relevant  legislation  and 
the  code  complements  and  clarifies  relevant  criminal  provisions 1087.  The  Code  on  the 
other hand notes that companies shall have knowledge of, and when needed, perform a 
due  diligence  review  and  verify  the  integrity  of  agents  and  other  cooperation  partners 
before agreements are executed or other forms of cooperation commenced.1088 Criminal 
liability  can  arise  if  the  reviews  are  not  sufficiently  thorough  considering  the  situation’s 
circumstances.  According  to  the  Code,  a  risk  assessment  indicates  the  thoroughness  of 
the  review  and  in  the  risk  assessment  factors  such  as  the  nature  and  size  of  the 
transaction,  the  level  of  corruption  in  the  relevant  sector  and  geographical  area,  the 
partner’s 
interactions  with  public  entities  and  publicly  owned  companies,  are 
considered.1089 
The  state’s  ownership  policy  and  guidelines  for  state-owned  enterprises  requires  state-
owned  companies’  boards  of  directors  to  define  and  adopt  sustainability  targets  and 
integrate  sustainable  business  into  their  business  strategies.1090 Targets  should  also  be 
long term, challenging and trackable, distinct and easy to communicate.  Specifically the 
policy  notes  reducing  climate  and  environmental  impact,  respecting  human  rights  and 
promoting  gender  equality. 1091  Fully  owned  state  enterprise  are  required  under  the 
corporate ownership policy to observe the OECD Guidelines for Multinational Enterprises, 
the UN Global Compact and the UN Guiding Principles on Business and Human Rights.1092  
State-owned  enterprises  are  required  to  identify  and  manage  risks  and  business 
opportunities  in  the  area  of  sustainability.  State-owned  companies  must  submit 
sustainability reports in accordance with the international reporting standard the  Global 
Reporting Initiative (GRI) or another international framework for sustainability reporting, 
and  publish  them  on  the  company’s  website  in  conjunction  with  the  of  the  company’s 
annual  report.1093 The  sustainability  report  may  be  a  separate  report  or  an  integrated 
part of the annual report. State-owned company boards and senior management should 
serve as models for promoting gender equality. The sustainability report must be quality 
assured  through  independent  review  and  assurance  by  the  auditor  appointed  by  the 
general meeting as part of the company’s statutory auditor.1094 A business analysis tool 
that  sheds  light  on  relevant  areas  of  CSR,  including  human  rights,  has  been  developed 
for  state-owned  companies  by  the  Government  Offices  corporate  management 
organisation. 

Companies  are  required  to  take  active  measures  to  combat  discrimination  in  all  official 
and  work  systematically  to  combat  all  these  forms  of  discrimination and  document  this 
work on an annual basis.1095 

c. 

Risk assessment requirements and risk mitigation measures 

No risks assessments are enforced relating to human rights. 

The  Money  Laundering  and  Terrorist  Financing  (Prevention)  Act  requires  companies  to 
conduct  due  diligence  and  have  a  risk-based  approach  towards  money  laundering.1096 

1086 Swedish Criminal Code (1962:700) Chapter 10 Sections 5e 
1087 The Swedish Anti-Corruption Institute, Code on Gifts, Rewards and other Benefits in Business (2014) at 
www.institutetmotmutor.se/wp-content/uploads/2015/11/141120-IMM_Code_of_Business_Conduct_.pdf 
1088 Swedish Criminal Code (1962:700) Chapter 10 Sections 5a – 5e 
1089 The Swedish Anti-Corruption Institute, Code on Gifts, Rewards and other Benefits in Business (2014) 14. 
1090 Government offices of Sweden, The state’s ownership policy and guidelines for state-owned enterprises 2017 (2017) 5.  
1091 Ibid 4. 
1092 Ibid. 
1093 Ibid 9.  
1094 Ibid.  
1095 Discrimination Act (2008:567) Chapter 3 Section 1-3. 
1096 The Money Laundering and Terrorist Financing (Prevention) Act (SFS 2016:1029) Chapter 5.  

287 

 
 
                                                        
The  Act  requires  that  companies  must  have  procedures  in  place  to  identify  these 
risks.1097 There is no specification to what exactly this entails. 

d. 
Obligations  in  relation  to  subsidiaries  and  business  relationships  in  the 
supply chain,  including the  legal test  and its factors used to  ascribe  liability to 
parent companies for the impacts of subsidiaries and suppliers (if any) 

Swedish law does not indicate such requirements related to human rights. 
e. 
Requirements  for  an  external  control  or  evaluation  of  the  human  rights 
or environmental due diligence exercise, including key elements of  a grievance 
mechanism or whistle blower mechanism 

Swedish law does not indicate such requirements. 
f. 

Transparency and disclosure requirements 

The  requirements  to  publish  a  sustainability  report  and  to  produce  a  corporate 
governance  report  is  in  the  Annual  Accounts  Act.    A  limited  liability  company  or 
partnership must provide a sustainability report if it meets at least two of the following 
criteria:  the  average  number  of  employees  is  more  than  250,  the  balance  sheet  total 
exceeds  SEK  175  million  or  net  sales  exceed  SEK  350  million.1098 The  criteria  must  be 
met  during  each  of  the  last  two  financial  years,  which  are  based  on  the  company’s 
annual report. The sustainability report is part of the annual audit in this case and under 
the auditor’s responsibility. 

The corporate governance report in accordance with the Annual Accounts Act is required 
of  companies  whose  transferable  securities  are  admitted  to  trading  on  a  regulated 
market.1099 This  includes  reporting  on  the  company’s  the  diversity  policy  and  how  that 
policy has been applied in the last fiscal year. An auditor review is required if the report 
is  included  in  the  director’s  report  or  of  the  information  that  is  otherwise  found  in  the 
company  or  group’s  director’s  report. 1100  The  Swedish  Corporate  Governance  Code 
details further requirements for companies in its scope .1101 
g. 
level grievance mechanisms 

Implementation of internal processes by business, including operational-

Swedish law does not indicate such requirements related to human rights. 

4. 

a. 

Monitoring, sanction and enforcement 

Monitoring body 

Swedish  law  does  not  indicate  a  monitoring  body  related  to  human  rights  or 
sustainability. Swedish courts handle violations of Swedish legislation, which includes the 
Annual Accounts Act. 

Form  of  sanction(s),  if  any  (In  particular,  whether  monetary  or  other 

b. 
sanctions) 

Legal  persons  cannot  perpetrate  a  crime  under  Swedish  criminal  law  and  legal  persons 
cannot be held liable for damages. However, a company may be liable to pay damages 
for property damage, personal injury, and in economic loss in accordance with the Tort 
Liability  Act. 1102  Natural  persons  can  commit  a  crime  within  the  framework  of  the 
activities  of  a  company.  Any  criminal  act,  which  is  the  Swedish  Criminal  Code  and 
committed during a company’s business activities may lead to a liability to pay corporate 

1097 ibid Chapter 5 Section 1.  
1098 Annual Account Act (1995) Chapter 6 Section 10. 
1099 Annual Account Act (1995:1554) Chapter 6 Section 6.  
1100 Ibid Chapter 6 Section 9.  
1101 The Swedish Corporate Governance Code (2016) at 
http://www.corporategovernanceboard.se/UserFiles/Archive/496/The_Swedish_Corporate_Governance_Code_1_December_20
16.pdf 
1102 Tort Liability Act (1972:207) Chapter 3 Section 1 

288 

 
 
 
 
                                                        
fine.1103 Negligence  in  stopping  or  preventing  a  crime  from  occurring  when  reasonably 
and  during  the  company’s  business  activities.1104 There  are  no  explicit  legal  provisions 
allocating criminal liability among the representatives of a corporation. According to the 
Companies Act founders, board members and  managing directors  can be held liable for 
damages  in  relation  to  the  performance  of  his  or  her  duties,  which  was  caused 
intentionally or negligently.1105 

Natural people or employers are liable for compensation in relation to the discrimination 
act  if  they  violate  the  prohibitions  of  discrimination  or  reprisals  and  fail  to  fulfil  their 
obligations  to  investigate  and  take  measures  against  harassment  or  sexual  harassment 
under. 1106 There  exists  liability  in  accordance  with  the  Working  Environment  Act  and 
criminal liability in accordance with the Criminal Code related to work environment when 
someone has died, been injured or ill or has been  subjected to serious danger because 
the employer has not followed the regulations of the working environment.1107 

If  companies  do  not  comply  with  consumer  regulation,  criminal  and  civil  liability  exists 
for affected parties. There exists liability in the Product Liability Act for producers related 
to  product  safety,  which  do  not  follow  the  general  principles  of  the  compensation 
laws1108. 

Incentives  or  implications,  such  as  link  to  procurement,  licensing  or 

c. 
export credit 

The  Public  Procurement  Act  regulates  public  procurement.  The  actors  covered  by  the 
legislation  are  contracting  authorities  and  publicly  controlled  bodies 
in  public 
procurement  the  contracting  authority  has  the  possibility  consider  social  and 
environmental  matters.  Public  Procurement  Act  is  a  procurement  law,  which  does  not 
enforce  which  factors  decide  the  procurement.  Contracting  authorities  should  consider 
environmental  considerations  and  social  considerations  in  public  procurement  if  the 
nature  of  the  procurement  justifies  it. 1109  Human  rights  or  environmental  matters 
therefore do not have to be a deciding factor in public procurement. 

The Swedish Export Credits Guarantee Board (EKN) and Business Sweden (formerly the 
Swedish  Trade  Council  and  Invest  Sweden  respectively)  provide  information  on 
sustainable business. The SEK has signed onto the UN Global Compact. EKN follows the 
OECD  Recommendations  on  Common  Approaches  on  Official  Export  Credits  and  the 
Environment, Human Rights, Due Diligence, and the OECD’s rules on anti-corruption.1110 
The Swedish Export Credit Corporation (SEK) observes the common Approaches and the 
OECD‘s  anti-corruption  rules.  SEK  has  taken  steps  when  granting  credit  towards 
increasing consideration in relation to human rights with certain audits conducted with a 
focus  on  business  and  assessment  on  compliance  with  the  UN  Guiding  Principles  on 
Business  and  Human  Rights. 1111  Ownership  instructions  issued  to  SEK  by  the 
Government  in  April  2012  included  the  requirement  to  take  account  in  their  credit 
assessments  of  factors  such  as  the  environment,  corruption,  human  rights,  work 
requirements and other relevant considerations.1112 

1103 Swedish Criminal Code (1962:700) Chapter 36 Section 7 
1104 Ibid.  
1105 Companies Act (2005:551) Chapter 29 Section 1. 
1106 Discrimination Act (2008:567) Chapter 5 Section 1 
1107 Work Environment Act (1977:1160) Chapter 8; Criminal Code (1962:700) Chapter 20 Section 3 
1108 Product Liability Act (1992:18) Section 6-8.  
1109 The Public Procurement Act (2016:1145) Chapter 4 Section 3 
1110 Government Offices Sweden, National Action Plan (2015) at 24 
https://www.government.se/contentassets/822dc47952124734b60daf1865e39343/action-plan-for-business-and-human-
rights.pdf 
1111 Swedish Export Credit Corporation, Policy on Sustainable Financing (2014) at https://www.sek.se/en/wp-
content/uploads/sites/2/2014/01/sustainable_financing_policy.pdf 
1112 Regeringskansliet, Platform for Swedish Action on Corporate Social Responsibility (2013) 16 at 
https://www.government.se/49b750/contentassets/539615aa3b334f3cbedb80a2b56a22cb/sustainable-business---a-platform-
for-swedish-action 

289 

 
 
 
 
 
 
                                                        
d. 

Enforcement methods 

Swedish  law  does  not  indicate  an  enforcement  body  related  to  human  rights  or 
sustainability. 

e. 

Examples of enforcement and how the requirement is applied in practice 

A  case  against  a  Swedish  company  for  damage  that  had  arisen  abroad  was  recently  in 
the court system.  The lawsuit was against Swedish company Boliden Mineral AB, which 
in the years 1984-85 sent 20,000 tonnes of mining waste to the Chilean city of Arica for 
the treatment of the Chilean company Promel. The claimants, who were citizens from the 
city  of  Arica,  illustrated  serious  health  injuries  claimed  to  be  related  to  Boliden  acting 
negligently,  because  the  mining  waste  contained  high  levels  of  heavy  metals,  such  as 
arsenic  and  lead.  Claimants  claimed  that  Boliden  would  have  known  of  the  significant 
health impacts. The lawsuit filed clearly shows the difficulties with a  claim for damages 
of  this  kind.  Boliden  filed  its  defence  on  20  January  2014  and  denied  the  claim  in  its 
entirety. On 8 March 2018, the Court ruled in favour of Boliden, dismissing the plaintiffs' 
compensation claim and action being dismissed without approval. 1113 One of the reasons 
was  that  the  court  noted  that  Boliden  had  complied  with  the  provisions  that  applied  in 
the mid-1980s and there was not seen any correlation between the wetworks sludge and 
alleged damages. 

5. 

Procedural Framework 

a. Competent Court or other body 

Swedish national courts are competent bodies in relation to Swedish law. 
b. Jurisdictional restrictions (including forum non conveniens, place of business 
incorporation) 

The  general  prerequisite  for  claims  with  extraterritorial  effect  is  that  there  must  be  a 
connection or connection to Sweden.1114 
c.  Main  procedural  rules  and  challenges  (formalities,  deadlines,  expediency,  in 
court settlement options, evidence/discovery rules, multi-stage process, etc.) 

Legal persons cannot perpetrate a crime under Swedish criminal law. 

6. 

a. 

Available Remedies 

Civil, criminal and administrative remedies 

Swedish law stipulates that legal persons cannot be punished for crimes, but companies 
can be imposed with a company fine according to the Criminal Code.1115 business activity 
and the company has not done what could reasonably be required to prevent crime. 
b. 
as workers or consumers 

Remedies that are only available to certain categories of claimants, such 

Sweden  offers  ombudsman  related  to  certain  topics.  For  example,  the  Office  of  the 
Equality  Ombudsman  is  a  government  agency  responsible  for  monitoring  compliance 
with the Discrimination Act.1116 The Ombudsman for Children in Sweden is a government 
agency  whose  main  task  is  to  represent  the  rights  and  interests  of  children  and  young 
people.1117 

1113 Skellefteå Tingsrätt, T 1012-12 (March 3, 2018) at https://www.aktuellhallbarhet.se/wp-
content/uploads/2018/03/20180308domt1012-132c-kl-11.00.pdf 
1114 Criminal Code (1962:700) Chapter 2 Section 2 
1115 Criminal Code (1962:700) Chapter 36 Section 7 
1116 the Office of the Equality Ombudsman official website (visited on April 29, 2019) at 
https://www.government.se/government-agencies/equality-ombudsman-do/ 
1117 Ombudsman for Children official website (visited on April 29, 2019) at https://www.barnombudsmannen.se/om-
webbplatsen/english/ 

290 

 
 
 
 
 
 
                                                        
The  Parliamentary  Ombudsmen  supervise  the  application  of  laws  and  other  statutes  in 
public  activities. 1118  The  ombudsmen  mandate  includes  other  individuals  whose 
employment  or  assignment  involves  the  exercise  of  public  authority,  insofar  as  this 
aspect  of  their  activities  is  concerned,  and  officials  and  those  employed  by  public 
enterprises,  while  carrying  out,  on  behalf  of  such  an  enterprise,  activities  in  which 
through the agency of the enterprise the Government exercises decisive influence. 
c. 

Existence and use of judicial and non-judicial grievance mechanisms 

Sweden  has  an  OECD  National  Contact  Point,  which  works  with  tripartite  collaboration 
between the State, the business sector and trade unions. The Confederation of Swedish 
Enterprise  and  the  Swedish  Trade  Federation  represent  the  business  sector  with  the 
Swedish  Trade  Union  Confederation,  the  Swedish  Confederation  of  Professional 
Associations,  the  Confederation  of  Professional  Employees,  Unionen  and  IF  Metall 
represent the trade unions.1119 The Ministry for Foreign Affairs acts as the NCP Chair. The 
amount  of  cases  reviewed  by  the  NCP  has  been  very  limited  with  the  latest  case  from 
2015.    Lumière  Synergie  pour  le  Développement  and  Takkom  Jerry  Polyvalence 
filed  a  complaint  against  Nykomb  Synergetics 
Culturelle  et  Environnementale 
Development AB in 2015 in relation to construction of a coal power plant in Senegal and 
that the project will have adverse social and environmental impacts,  and the NCP gave 
an 
further 
consideration.1120 

initial  statement  concluding  the  case  would  be  recommended 

for 

7. 
Costs  of  enforcement  of  regulation  of  standards  per  annum  (a)  to  State 
and  b)  to  companies,  either  individually  or  collectively)  (public  information, 
estimated opinion) 

The  cost  of  mandatory  sustainability  reporting  may  be  higher  in  Sweden  than  other 
countries  as  sustainability  reporting  is  considered  part  of  an  audit  for  companies  under 
the  scope  of  law.  The  Swedish  sustainability  reporting  requirements  apply  to  around 
2,000 companies in Sweden. 

8. 

Impact of the Regulation 

Impact  of  the  national  regulation  on  behaviour/  policy  of  businesses 

a. 
(both direct and indirect) 

Sustainability  reporting  requirements  apply  to  roughly  2,000  companies  in  Sweden. 
Companies  must  actively  formulate,  report  and  publish  sustainability  reports  in 
accordance  with  the  Annual  Accounting  Act  whilst  state-owned  companies  report  in 
accordance with the  state’s ownership policy and guidelines for state-owned enterprises. 

Money laundering requirements require companies to develop risk-based approaches for 
unveiling money laundering and gather client information adequately to be able to make 
such  judgments.  Bribery  related  requirements  require  act  with  caution  in  relation  to 
providing  cash  or  other  assets  to  its  representatives,  agents,  cooperation  partners  and 
other  representatives.  This  includes  companies  to  conduct  thorough  review  and  risk-
assessments on the matter. 
b. 

Public responses of stakeholders to regulation 

The  Swedish  stakeholder  response  has  not  focused  on  developing  mandatory  due 
diligence requirements. 

1118 Parliamentary Ombudsmen official website (visited on April 29, 2019) at https://www.jo.se/en/ 
1119 Government Offices Sweden official website, National Contact Points (visited on April 29, 2019) at 
https://www.government.se/government-policy/enterprise-and-industry/national-contact-points/ 
1120 Swedish National Contact Point, Swedish National Contact Point initial statement – Takkom Jerry and Lumiere Synergie 
Developpement’s complaint against Nykomb Synergetics Development AB (December 3, 2015) 
https://www.regeringen.se/491b35/contentassets/24305bc0b5634340a4eb5234063be05a/utlatande-sveriges-nationella-
kontaktpunkt-nkp 

291 

 
 
 
 
 
 
                                                        
Degree of overcoming of obstacles for victims to bring claims in Member 

c. 
State 

Swedish courts can handle all cases related to violations of national laws, which include 
human rights stands implemented to national regulation. Sweden offers remedies in the 
forms  of  courts.  However,  this  may  not  be  sufficient  for  victims,  because  many  abuses 
occur  abroad  and  national  law  does  not  articulate  human  rights  obligations  for 
companies.  Obstacles  related  to  remedies  are  related  to  extraterritorial  application 
requirements  and  the  lack  of  judicial  organs  related  to  human  rights  matters.  In 
Sweden, corporate actors cannot be held criminally liable. 

III. COMPARATIVE ANALYSIS 

9. 

Comparisons between different regulations within the Member State 

a. 
The  extent  to  which  the  legal  regime  translates  a  corporate  duty  to 
respect  human  rights  and  abstain  from  other  abuse(s)  and  from  causing 
damage  into  a  civil  law  obligation  by  requiring  a  standard  of  reasonable  care 
from the directors; 

The current duty of care obligations do not entail respect for human rights.1121 

b. 
The level of “duty of care”/”due diligence” required of the business or its 
administrative organs, in order to fulfil their obligations, and the key elements 
of this legal “duty of care” 

The  company's  management  have  a  duty  of  care,  which  means  that  they  must  act  for 
the  company's  best  interests.1122   Corruption  crimes  have  a  basis  for  damages  against 
company management in a limited liability company related taking and giving bribe and 
careless financing of bribery. 

c. 

How directors’ responsibility can be engaged 

A  natural  person  who  has  a  leading  position  or  is  otherwise  responsible  for  the 
company's operations can be sentenced for an offence committed within the framework 
of  the  company's  activities  when  it  is  otherwise  against  the  Criminal  Code.  A  founder, 
board  member  or  managing  director  who  when  fulfilling  his  or  her  assignment, 
deliberately  or  through  negligence  damages  the  company  shall  compensate  the 
damage.1123 

d. 
Whether the  concept of  due  diligence  is  used  in the domestic  regulation 
of other  areas of corporate governance,  and if so,  what the legal  elements  are 
to establish a duty and/or liability (including, if any, for subsidiaries and in the 
supply chain). 

i. 

Anti-corruption and bribery 

Swedish  Criminal  Code  requires  that  companies  undertake  sufficient  due  diligence 
reviews of people and companies that will represent the company. The Swedish Criminal 
Code  notes  that  must  act  with  caution  when  providing  cash  or  other  assets  to  its 
representatives,  agents,  cooperation  partners  and  other  representatives  to  ensure  that 
the  funds  are  not  used  as  bribes.1124 The  Code  on  Gifts,  Rewards  and  other  Benefits  in 
Business  acts  as  a  supplement  to  relevant  legislation  and  the  code  complements  and 

1121 Companies Act (2005:551) Chapter 29 Section 1 
1122 The Companies Act (2005:551) Chapter 8 Section 4 
1123 Companies Act (2005:551) Chapter 29 Section 1 
1124 Swedish Criminal Code (1962:700) Chapter 10 Sections 5e 

292 

 
 
 
 
 
 
 
 
                                                        
clarifies relevant criminal provisions.  The Code on the other hand notes that companies 
shall  have  knowledge  of,  and  when  needed,  perform  a  due  diligence  review  and  verify 
the  integrity  of  agents  and  other  cooperation  partners  before  agreements  are  executed 
or other forms of cooperation commenced.1125 

Criminal  liability  can  arise  if  the  reviews  are  not  sufficiently  thorough  considering  the 
situation’s  circumstances.  According  to  the  Code,  a  risk  assessment  indicates  the 
thoroughness  of  the  review  and  in  the  risk  assessment  factors  such  as  the  nature  and 
size  of  the  transaction,  the  level  of  corruption  in  the  relevant  sector  and  geographical 
area,  the  partner’s  interactions  with  public  entities  and  publicly  owned  companies,  are 
considered.1126 

ii. 

Anti-money laundering 

The  Money  Laundering  and  Terrorist  Financing  (Prevention)  Act  requires  companies  to 
conduct  due  diligence. 1127  The  Money  Laundering  Act  requires  that  financial  actors 
covered  by  the  legislation  hold  a  risk-based  approach  towards  money  laundering. 
Financial  operators  must  analyze  the  risk  related  to  customers  using  them  for  money 
laundering  or  terrorist  financing  and  continuously  review  transactions  through  a  risk-
based  approach,  which  based  on  gathered  customer  information. 1128  The  companies 
must  have  procedures  in  place  to  identify  these  risks.  Suspicious  transactions  are 
reported to the National Police Board 

How  companies  in  Member  State  can  be  held  liable  for  the  impacts  of 
e. 
their  supply  chain,  including  non-EU  based  suppliers,  and  including  suppliers 
beyond the first tier of the supply chain1129 

Liability exists in a contractual relationship. 
IV. REGULATORY FRAMEWORK 

10.  Overall Review of Regulatory Framework 

a. 
To  what  extent  the  regulations  are  effective  in  terms  of  a)  providing 
individuals  whose  rights  are  affected  access  remedy  and  b)  adherence  by 
Member States to their fundamental human rights obligations 

The  possibility  to  hold  companies  accountable  for  violations  in  the  supply-chain  are 
extremely  restricted.  The  only  possibility  for  judicial  remedies  is  in  the  court  system, 
which does not extend extraterritorial reach for most Swedish national laws. No law is in 
force that requires companies to conduct due diligence, assess their impacts or risks or 
be  held  liable  for  violations  in  the  company’s  supply-chain.  As  noted  in  the  Boliden 
Mineral  AB  case  however  international  victims  can  bring  forth  claims  against  Swedish 
companies if the company itself has possibly violated national laws related to behaviour 
abroad. 

Victims can contact the NCP in Sweden, but this does not serve as a judicial remedy for 
victims. 
Under  which  conditions  and  how  victims  can  hold  the  Member  State 
b. 
parent companies or their subsidiaries liable in case of human rights violations 
or other relevant damage caused within the supply chains 

The  possibility  to  hold  companies  accountable  for  violations  in  the  supply-chain  are 
extremely  restricted.  The  only  possibility  for  judicial  remedies  is  in  the  court  system, 

1125 The Swedish Anti-Corruption Institute, Code on Gifts, Rewards and other Benefits in Business (2014) at 
www.institutetmotmutor.se/wp-content/uploads/2015/11/141120-IMM_Code_of_Business_Conduct_.pdf 
1126 The Swedish Anti-Corruption Institute, Code on Gifts, Rewards and other Benefits in Business (2014) 14. 
1127 The Money Laundering and Terrorist Financing (Prevention) Act (2016:1029)  
1128 ibid Chapter 2 and Chapter 5. 
1129 First tier suppliers are understood as those suppliers with which the company does not have a direct contractual 
relationship. 

293 

 
 
 
 
                                                        
which does not extend extraterritorial reach for most Swedish national laws. No law is in 
force that requires companies to conduct due diligence, assess their impacts or risks or 
be  held  liable  for  violations  in  the  company’s  supply-chain.  As  noted  in  the  Boliden 
Mineral  AB  case  however  international  victims  can  bring  forth  claims  against  Swedish 
companies if the company itself has possibly violated national laws related to behaviour 
abroad. 

c. 

What are the main obstacles and difficulties 

The main obstacle is the lack of human rights due diligence requirements. Even though 
Swedish  law  does  recognize  due  diligence  requirements,  none  of  them  can  be  widely 
extended  to  human  rights  due  diligence.  Sweden  has  been  very  slow  to  include  human 
rights due diligence in any legal measures or to offer clear guidance on the issue. 

Swedish measures focus on reporting on various aspects of ethical behaviour. This is the 
case  related  to  human  rights,  governance  and  other  topics.  State-owned  companies 
have been given reporting requirements related to human rights. Obviously, companies 
face reputational and brand risk in terms of reporting, but it does not support the current 
concept of human rights due diligence. 

Which  regulatory  model 

d. 
implementation of adequate due diligence 

is  most  effective 

in  achieving  corporate 

The main obstacle is the lack of human rights due diligence requirements. Even though 
Swedish  law  does  recognize  due  diligence  requirements,  none  of  them  can  be  widely 
extended to human rights due diligence. 

It  is  apparent  that  even  the  existing  due  diligence  requirements  can  be  difficult  to 
translate  into  practical  steps  and  measures  required.  Therefore,  for  example,  the 
Swedish  government  has  released  practical  codes  to  explain  further  requirements  of 
specific due diligence requirements. 

Which regulatory model is most effective in providing victims with access 

e. 
to remedy 

Sweden  chose  to  include  more  companies  in  the  scope  of  mandatory  sustainability 
reporting  than  required.  This  has  meant  that  the  amount  of  companies  obligated  to 
report  on  non-financial  information  is  much  higher  than  in  some  other  countries. 
Importantly the inclusion of sustainability reporting in auditing does give the statements 
credibility as they are part of the audit and auditor’s responsibility. 

The  government  has  been  particularly  active 
in  enforcing  human  rights  and 
environmental  topics  on  state-owned  companies.  Unlike  many  other  countries,  Sweden 
specifically mentions some international standards, such as the UN Guiding Principles on 
Business  and  Human  Rights. 1130  Even  more  importantly,  sustainability  reporting  is 
required  not  only  in  the  scope  of  non-financial  information,  but  referenced  to  GRI  or 
another international standard.1131 State-owned companies are required to report with a 
higher  standard  in  relation  to  ethical  behaviour  than  other  companies  are,  but  this  not 
mean  that  they  have  more  strict  actual  human  rights  obligations  as  the  requirement 
focuses on reporting. 

An overall assessment of the main strengths and weaknesses (risks and 
f. 
opportunities)  of  the  examined  legislative  regimes,  providing  a  detailed 
comparative analysis, including whether they are effective to address the most 

1130 Government offices of Sweden, The state’s ownership policy and guidelines for state-owned enterprises 2017 (2017) 4 at 
https://www.government.se/reports/2017/06/the-states-ownership-policy-and-guidelines-for-state-owned-enterprises-2017/ 
1131 Ibid 9.  

294 

 
 
 
 
 
 
 
                                                        
important potential harms and negative impact of companies in their operation 
and in their supply chain 

Sweden has introduced new initiatives and rules to ensure companies' respect for human 
rights  and  the  environment.  The  government  offers  information  on  corporate  social 
responsibility.  The  government  has,  however,  not  been  effective  in  developing 
mandatory  due  diligence  requirements  and  has  largely  focused  on  further  developing 
reporting requirements. 

One  key  finding  is  that  requirements  related  to  due  diligence  are  not  foreign  in  the 
Swedish legal tradition. Therefore, companies should not have difficulty in complying its 
general  concept.  These  concepts  do  not  automatically  support  the  concept  of  human 
rights due diligence. It is also apparent that it is difficult to explain in practical, distinct 
and  clear  manner  what  due  diligence  specifically  requires.  Similarly,  various  codes 
further  clarify  money  laundering  and  bribery  regulation  to  further  explain  required 
actions. 

Swedish  companies  have  actively  adopted  the  Swedish  reporting  requirements.  The 
requirements  are  clear  for  companies  to  follow  and  a  number  of  companies  were 
publishing sustainability reports prior to the regulation. The validity of information is high 
as in Sweden the requirement is part of an audit and thus entails auditor responsibility. 
This approach has given human rights credibility as human rights information is verified 
by  an  independent  auditor.  The  reporting  requirement  could  be  extended  to  include 
requirements to describe specifically due diligence processes if used by the company (as 
in  Denmark).  This  would  allow  further  consideration  of  human  rights  in  mandatory 
reporting. 
State-owned  companies  are  regulated  separately  on  the  issue  with  a  stricter  obligation 
to  report  in  accordance  with  GRI  or  another  international  standard  This  requirement 
however  makes  it  difficult  at  the  same  time  to  include  more  companies  in  the  scope  of 
the requirement. Companies that are not state-owned or do not meet the criteria of the 
Annual Account Act are not in the scope of the requirement, which is problematic. 

Through  public  procurement,  there  are  great  opportunities  for  governmental  actors  to 
influence the ethical standards of companies. However, there are clear problems related 
to  the  voluntary  nature  of  including  environmental  and  social  considerations.  The 
rationale  given  has  been  that  a  categorical  obligation  could  lead  to  considerable 
monitoring  being  placed  also  on  procurement  with  limited  and  small  human  rights 
impacts.  It  is,  therefore,  for  each  procurer  to  decided  what  is  the  most  efficient  and 
effective manner to take into account social factors. One key issue is that it is also nearly 
impossible to blame an authority that has not made social or environmental demands in 
a contract. Contracting authorities take their own initiatives to emphasize environmental 
and social considerations in public procurement. 
It  is  apparent  that  current  Swedish  law  does  not  adequately  promote  human  rights 
protection or human rights due diligence and it does not actively offer effective remedies 
to  victims.  Specifically  victims  who  may  have  suffered  violations  of  their  rights  in  the 
supply-chain are not able to seek remedies. 

11.  Review of Proposals for Regulation 

Sweden does not currently have any proposals or publicly advocated campaigns related 
to  mandatory  human  rights  due  diligence.  The  current  movement  related  to  human 
rights due diligence of Denmark and Finland can affect Swedish stakeholders. 

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UNITED KINGDOM COUNTRY REPORT 

Stuart Neely1132 

I. 

OVERVIEW 

The notion of “due diligence” features prominently in a range of English criminal and civil 
laws.1133 In some instances, statutes impose a specific obligation on relevant businesses 
to  perform  due  diligence  (or  to  otherwise  implement  risk  mitigation  measures  which 
resemble  due  diligence,  e.g.  reasonably  practicable  steps  to  avoid  a  harm  to  a 
stakeholder).  Perhaps  more  commonly,  “due  diligence”  operates  as  a  defence  to  the 
occurrence of a liability. 

Increasingly,  the  United  Kingdom  (UK)  Government  has  shown  a  willingness  to  pass 
legislation  imposing  liability  on  companies  that  cannot  demonstrate  they  implemented 
due  diligence  measures  sufficient  to  prevent  the  occurrence  of  a  particular  unwanted 
outcome. In criminal law, this avoids the need to establish that the company’s directors 
were  involved  in  the  commission  of  the  offence  (traditionally  a  particular  challenge  in 
prosecutions against larger companies). The most commonly cited example of such a law 
is  the  failure  to  prevent  bribery  offence  in  the  UK  Bribery  Act.  Where  an  unwanted 
outcome  does  arise,  the  burden  shifts  to  the  company  to  show  (on  a  balance  of 
probabilities) that, notwithstanding the occurrence of the unwanted event, it nonetheless 
operated objectively sufficient risk mitigation measures. 

A similar approach is imported into laws which impose civil liabilities on businesses, e.g. 
an  employer  can  avoid  vicarious  liability  for  an  employee’s  acts  under  the  Equality  Act 
2010 if it can show that it took “all reasonable steps” to avoid the discriminatory conduct 
which  arose.  The  standard  of  ‘reasonableness’  is  also  found  in  common  law  tort 
principles: a company will only be liable in negligence if it breached a duty of care owed 
to  the  claimant(s)  by  failing  to  take  the  precautionary  steps  a  reasonable  person  would 
have taken to avoid the claimant(s) suffering harm. What amounts to ‘reasonable’ is an 
evolving concept, and the approach of the Courts to cases involving the liability of parent 
companies  where  harm  is  alleged  to  have  resulted  from  the  activities  of  subsidiaries 
suggests  companies  could  in  future  face  liability  for  harms  caused  by  suppliers.  Before 
the  determination  of  ‘reasonableness’  in  such  a  case,  however,  the  claimant(s)  would 
need  to  overcome  the  challenge  of  showing  the  company  had  through  its  conduct 
assumed certain duties pertaining to the welfare of the claimant(s).1134 

A  key  feature  of  “due  diligence”  in  all  of  these  different  contexts  is  the  element  of 
objectivity. In other words, in each case risk management steps taken by a company to 
avoid liability accruing under a law will not amount to “due” diligence unless it meets an 
objective  standard.  The  precise  characteristics  of  ‘sufficient’  due  diligence  remain 
relatively ill-defined, in part because the assessment of what is ‘adequate’ will be largely 
fact-dependent and a matter for the judge (or jury) in each case. However, case law and 
official  Government  legislative  guidance  clarifies  certain  principles  and  indicators  as 
regards  when  due  diligence  will  be  deemed  to  be  “sufficient”  to  discharge  liability.  It  is 
apparent that any due diligence carried out by a company must be proportionate to the 
risks of the unwanted event occurring, taking into account the business’ complexity, size 
and operating context.1135 

1132 Senior Associate, Business and Human Rights Group, Norton Rose Fulbright LLP, based in London. 
1133 There are different jurisdictions in the United Kingdom. This Report focusses on the largest one, being England, unless 
otherwise noted.  
1134 See Section II, sub-section (e), under the heading “Negligence at common law” 
1135 This is strongly reminiscent of the expectations of the UN Guiding Principles on Business and Human Rights as regards the 
performance of human rights due diligence by business enterprises. UN Guiding Principle 17(b) states that human rights due 
diligence will “vary in complexity with the size of the business enterprise, the risk of severe human rights impacts, and the 
nature and context of its operations”. See here: 
https://www.ohchr.org/documents/publications/GuidingprinciplesBusinesshr_eN.pdf (Accessed: 1 May 2019) 

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With  the  exception  of  certain  well-regulated  areas  of  law  such  as  data  privacy, 
discrimination  (and  employment  /  labour  rights  more  generally),  health  and  safety 
(including  corporate  manslaughter),  food  standards,  consumer  protection  and  the 
environment,1136 legislation  which  pertains  to  the  responsibility  of  businesses  to  respect 
human rights is principally confined to transparency and disclosure obligations.1137 

The  most  well-known  example  is  the  Modern  Slavery  Act  2015,  which  requires  certain 
companies to prepare a slavery and human trafficking statement. The UK Government’s 
overt  objective  in  enacting  this  law  was  incentivising  companies  to  take  steps  to 
eradicate  modern  slavery  from  their  businesses  and  supply  chains,  on  the  basis  that 
stakeholders’ investment and purchasing decisions would be affected  by the  extent of a 
company’s  modern  slavery  risk  mitigation  steps,  as  described  in  its  public  statement. 
However, as discussed further in Section IV below, the effectiveness of the law has been 
the  subject  of  criticism,  in  part  due  to  the  fact  a  high  proportion  of  companies’ 
statements are perceived by civil society as being of a low quality and lacking in detail, 
and because the consequences for non-compliance are principally reputational. 

Non-compliance  with  the  reporting  requirements  in  the  Companies  Act  2006 1138 could 
have  comparatively  greater  consequences,  for  example,  if  a  company’s  annual  strategic 
report  fails  to  describe  potential  human  rights  issues  which  may  constitute  a  “principal 
risk  or  uncertainty”  to  the  business.  This  could  in  principle  result  in  the  company’s 
directors  being  compelled  by  a  court  order  to  prepare  a  revised  report,  but  to  date 
regulator  activity  in  seeking  such  orders  has  been  minimal.1139 This  may  change  when 
the Government comes to implement the recommendations arising from the independent 
review of the Financial Reporting Council by Sir John Kingman. 

Beyond these Companies Act reporting requirements, the Financial Conduct Authority has 
the power to impose large fines on listed companies that fail to publish information likely 
to have a significant effect on the price of financial instruments (e.g. shares) on a timely 
basis.1140 Although  no  fines  levied  by  the  Financial  Conduct  Authority  to  date  concern 
non-disclosure  of  information  relating  to  a  company’s  involvement  in  human  rights 
issues,  it  follows  that  human  rights  issues  which  lead  to  losses  or  the  impairment  of 
assets  (e.g.  where  community  or  labour  protests  halt  production  or  operations)  this 
would need to be publicly disclosed. 

The  Financial  Conduct  Authority  can  also  impose  fines  on  listed  companies  which  fail  to 
comply  with  the  Disclosure  Guidance  and  Transparency  Rules  when  making  statutory 
filings;  e.g.  the  requirement  to  describe  the  company’s  “principal  risks  and 
uncertainties”,1141 which is not defined but presumed to have the same meaning as under 
the Companies Act 2006. 

Complaints  lodged  by  an  NGO  with  the  Financial  Conduct  Authority  and  the  Financial 
Reporting Council in 2018 against certain listed companies for alleged failures to set out 
and  particularise  climate  change  related  risks  in  their  statutory  filings  may  set  an 
interesting precedent for similar human rights focussed complaints. This kind of activism 
may  lead  directors  to  apply  greater  attention  to  the  identification  and  management  of 
potential  human  rights  issues  by  companies,  although  to  some  extent  this  may  depend 

1136 See Section II below for a summary of relevant laws. 
1137 Note in particular the obligation on certain businesses to prepare a slavery and human trafficking statement under section 
54 of the Modern Slavery Act 2015 (see Section II, sub-section (e)) and Companies Act 2006 reporting requirements (see 
Section II, sub-section (a)). 
1138 The Companies Act 2006 has been amended on various occasions, including to incorporate the requirements of the 
Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as 
regards disclosure of non-financial and diversity information by certain large undertakings and groups (the EU Non-Financial 
Reporting Directive) 
1139 See Section IV, under the heading “Litigation Effectiveness” 
1140 Article 17, EU Market Abuse Regulation (Regulation 596/2014) (in force from 3 July 2016); see for example the fine 
imposed by Rio Tinto Plc: the company did not carry out an impairment test and recognise an impairment loss on the value of 
mining assets in its 2012 half-year financial report. As a result, Rio Tinto’s financial reporting was inaccurate and misleading in 
breach inter alia of the Disclosure Guidance and Transparency Rules, Rule 1.3.4R (now replaced by the Market Abuse 
Regulation). Note: the fine concerned unforeseen challenges in transporting product from a mine (and did not concern human 
rights issues). 
1141 Disclosure Guidance and Transparency Rules, 4.1.8R 

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on  the  complainants  successfully  showing  that  specific  human  rights  issues  (e.g.  labour 
welfare issues in the supply chain) are a material concern for shareholders (evidenced by 
shareholder  resolutions,  for  example).  Whilst  directors  are  obliged  under  section  172  of 
the  Companies  Act  2006  to  have  regard  to  employees,  the  community  and  the 
environment  in  carrying  out  their  functions,  this  is  ultimately  within  the  context  of  a 
broader  fiduciary  duty  to  promote  the  success  of  the  company  for  the  benefit  of  the 
members as a whole. In other words, the company’s (and shareholders’) interests have 
primacy.  However,  recognising  that  the  more  severe  human  rights  issues  can  have 
“reputational, financial or legal” repercussions,1142 a failure to carry out human rights due 
diligence (which is appropriate given the business’ operating context and relevant severe 
human rights risks1143) may mean a company’s directors are poorly positioned to report 
on material risks to the company. 

GENERAL REGULATORY FRAMEWORK IN REGARD TO HUMAN RIGHTS DUE 

II. 
DILIGENCE AND ENVIRONMENTAL DUE DILIGENCE IN THE SUPPLY CHAIN 

A.  Corporate law 
Directors  of  UK-incorporated  companies  are  obliged  to  prepare  strategic  reports. 1144 
Strategic  reports  form  part  of  a  company’s  annual  filings.  The  purpose  of  the  strategic 
report  is  to  inform  and  help  members  of  the  company  assess  how  the  directors  have 
performed  their  duties  under  section  172  of  the  Companies  Act  (CA  2006)  to  promote 
the success of the company for the benefit of the company’s members as a whole, having 
regard to inter alia employees, the community and the environment.1145 

The  strategic  report  must  contain  a  fair  review 1146  of  the  company’s  business  and  a 
description  of  the  “principal  risks  and  uncertainties”  facing  the  company. 1147  Parent 
companies  must  prepare  a  consolidated  strategic  report  which  speaks  to  all  of  the 
companies in the group.1148 

According  to  guidance  published  by  the  UK  Financial  Reporting  Council  (FRC)  in  July 
20181149 (the FRC  2018  Guidance), only material information should be included in the 
strategic  report:  “immaterial  information  should  be  excluded  as  it  can  obscure  the  key 
messages”.1150 For these purposes, “materiality” is “entity specific based on the nature or 
magnitude  (or  both)  of  the  actual  or  potential  effect  of  the  matter  to  which  the 
information  relates  in  the  context  of  an  entity’s  annual  report.  It  requires  directors  to 
apply  judgment  based  on  their  assessment  of  the  relative  importance  of  the  matter  to 
the  entity’s  development,  performance,  position  or  future  prospects”. 1151 Although  the 
FRC 2018 Guidance is voluntary, it is intended to represent best practice.1152 

Corporate reporting requirements 

“Large”  UK  companies 1153 will,  for  financial  years  commencing  1  January  2019, 1154 be 
required  to  include  in  their  strategic  reports  a  “section  172  statement”  describing  how 

1142 UN Guiding Principles on Business and Human Rights, Commentary to Guiding Principle 19, page 22 
1143 Un Guiding Principles on Business and Human Rights, Guiding Principle 17(b), page 18 
1144 Section 414A(1), CA 2006; note the obligation does not apply if the company is entitled to the “small companies” 
exemption. 
1145 Section 172(1), CA 2006 
1146 There is no formal guidance on what “fair review” amounts to.  
1147 Section 414C(2), CA 2006 
1148 Section 414A(3), CA 2006 
1149 See here: https://www.frc.org.uk/getattachment/fb05dd7b-c76c-424e-9daf-4293c9fa2d6a/Guidance-on-the-Strategic-
Report-31-7-18.pdf (Accessed: 1 May 2019), page 2 
1150 FRC 2018 Guidance, page 4 
1151 FRC 2018 Guidance, clause 5.3, page 18 
1152 FRC 2018 Guidance, clause 2.1, page 7; note that where the FRC 2018 Guidance notes that a company “must” comply with 
certain obligations, it refers to existing mandatory legislative or other regulatory requirements; i.e. these are not stand-alone 
new duties (see clause 1.4, page 6). 
1153 A “large company” is one which meets two of the following three criteria: (i) a global turnover in excess of £36 million; (ii) 
a balance sheet in excess of £18 million; and (iii) more than 250 employees. Note: It is clear from November 2018 guidance 
published by the Department for Business, Energy and Industrial Strategy (BEIS) that for the purposes of assessing whether a 
parent company meets these criteria, principles of consolidation apply (so a parent employing less than 250 employees would 
meet the relevant threshold if the corporate group does employ more than 250 employees on a consolidated basis). See here: 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/755002/The_Companies__
Miscellaneous_Reporting__Regulations_2018_QA_-_Publication_Version_2__1_.pdf (Accessed: 1 May 2019) 

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the  directors  have  had  regard  to  their  duty  under  section  172  (see  above).1155 The  FRC 
2018 Guidance notes that the section 172 statement must be meaningful and informative 
for  shareholders,  recognising  that  the  long  term  success  of  a  business  is  dependent  on 
maintaining  relationships  with  stakeholders  and  considering  the  external  impact  of  the 
company’s activity.1156 

Since  2013,  “quoted”  companies1157 have  been  obliged  under  the  CA  2006  to  include  in 
their strategic reports information regarding “the main trends and factors likely to affect 
the future development, performance and position of [the] business”, including inter alia 
with  respect  to  the  environment,  employees  and  social,  community  and  human  rights 
issues.  In  addition,  such  companies  must  report  on  any  company  policies  relating  to 
these matters, and their effectiveness.1158 

Since  the  incorporation  of  the  EU  Non-Financial  Reporting  Directive 1159 into  UK  law  in 
December  2016,  “traded  companies”, 1160  banking  companies,  authorised  insurance 
companies  or  companies  carrying  on  insurance  market  activity  employing  over  500 
employees1161 need to disclose information “to the extent necessary for an understanding 
of the  company’s development, performance and position and the impact of its activity, 
relating to, as a minimum environmental matters (including the impact of the company’s 
business  on  the  environment),  the  company’s  employees,  social  matters,  respect  for 
human  rights,  and  anti-corruption  and  anti-bribery  matters”.1162 In  relation  to  each  of 
these  matters,  the  strategic  report  should  also  cover  inter  alia  a  description  of:  (i)  the 
company’s  business  model  (a  “brief”  description);  (ii)  policies  and  due  diligence 
processes; (iii) the outcomes of those policies and due diligence processes; (iv) principal 
risks  (relating  to  the  non-financial  matters);  and  (v)  key  performance  indicators. 1163 
Given the overlap with the above obligation (for quoted companies) organisations which 
are  caught  by  both  laws  tend  to  take  a  consolidated  approach  when  seeking  to  comply 
with their requirements. 

None  of  the  above  three  reporting  requirements  under  the  CA  2006  require  the 
performance of due diligence. However, depending on the circumstances a company may 
find that it is unable to report accurately on its principal non-financial risks, policies and 
policy  effectiveness  without  first  carrying  out  human  rights  focussed  due  diligence  as 
envisaged  by  the  UN  Guiding  Principles  on  Business  and  Human  Rights  (UN  Guiding 
Principles). 1164  Indeed,  the  FRC  encourages  companies  to  reference  “guidance  or  a 
voluntary framework” (and in the human rights context the UN Guiding Principles are the 
most  authoritative  such  framework). 1165  Furthermore,  depending  on  the  nature  of  a 
company’s  business  it  may  not  be  able  to  fully  comply  with  the  reporting  requirements 

1154 This obligation will only apply to financial years commencing on or after 1 January 2019, so the first section 172 statements 
will be published in early 2020. 
1155 Section 414CZA, CA 2006, inserted by the Companies (Miscellaneous Reporting) Regulations 2018; the obligation will apply 
to financial years beginning on or after 1 January 2019 
1156 FRC 2018 Guidance, clause 8.10, page 58 See here: https://www.frc.org.uk/getattachment/fb05dd7b-c76c-424e-9daf-
4293c9fa2d6a/Guidance-on-the-Strategic-Report-31-7-18.pdf 
1157 Under section 385(2), CA 2006, a “quoted company” is defined as a company with equity share capital: (i) included in the 
Official List in accordance with Part VI Financial Services and Markets Act 2000; (ii) officially listed in an European Economic 
Area (EEA) State; or (iii) admitted to dealing on either the New York Exchange or Nasdaq. 
1158 Section 414C(7) – (8), CA 2006, implemented by the Companies Act 2006 (Strategic Report and Directors’ Report) 
Regulations 2013 
1159 Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as 
regards disclosure of non-financial and diversity information by certain large undertakings and groups 
1160 Under section 474, CA 2006, a “traded company” means a “company any of whose transferable securities are admitted to 
trading on a regulated market. A “regulated market” is defined in section 1173 CA 2006, with reference to art. 4.1(4) of 
Directive 20004/39/EC, as a “multilateral system operated and/or managed by a market operator, which brings together or 
facilitates the bringing together of multiple third-party buying and selling interests in financial instruments – in the system and 
in accordance with its nondiscretionary rules – in a way that results in a contract, in respect of the financial instruments 
admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the 
provisions of Title III [of Directive 20004/39/EC]”. This includes regulated markets in the entire EEA (but not beyond). 
1161 Section 414CA(1) and (4), CA 2006 
1162 Section 414CB(1), CA 2006 
1163 Section 414CB(2), CA 2006 
1164 See here: https://www.ohchr.org/documents/publications/GuidingprinciplesBusinesshr_eN.pdf (Accessed: 1 May 2019) 
1165 FRC, Guidance on the Strategic Report (Updated, July 2018), clause 7B.58, page 50 

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without  describing  its  supply  chain,  particularly  if  the  company’s  “business  model”  is 
heavily reliant on its supply chain.1166 

The  above  CA  2006  reporting  requirements  have  been  the  subject  of  arguments  before 
the  English  courts  in  the  context  of  tort  claims  brought  against  UK  domiciled  parent 
companies. 1167  As  described  further  below,  claimants  are  using  public  disclosures  by 
companies (whether made voluntarily or pursuant to legislation such as the CA 2006) as 
evidence to support arguments that defendant parent companies assumed a duty of care 
towards  those  harmed  by  the  acts  of  subsidiaries  (when  alleging  the  parent  company’s 
negligence  at  common  law).  For  example,  in  January  2019,  a  coalition  of  NGOs 1168 
submitted in intervention in Vedanta Resources plc and another v Lungowe and others1169 
that  a  UK  parent  company  “at  least  arguably  owed  a  duty  of  care”  to  the  Zambian 
claimants inter alia because its annual strategic report (filed pursuant to section 414A of 
the  CA  2006)  made  reference  to  environmental  and  sustainability  matters,  including  in 
relation  to  the  operations  of  its  co-defendant  Zambian  subsidiary  which  the  claimants 
allege  caused  them  to  suffer  harm.  In  this  regard,  the  interveners  further  noted  that 
section  414A(3)  of  the  CA  2006  provides  that  where  a  parent  company  prepares  group 
consolidated financial accounts (as in this case), the strategic report must also relate to 
the corporate group.1170 

Beyond these Companies Act reporting requirements, the Financial Conduct Authority has 
the power to impose large fines on listed companies that fail to publish information likely 
to have a significant effect on the price of financial instruments (e.g. shares) on a timely 
basis.1171 Although  no  fines  levied  by  the  Financial  Conduct  Authority  to  date  relate  to 
non-disclosure  of  information  relating  to  a  company’s  involvement  in  human  rights 
issues,  it  follows  that  human  rights  issues  which  lead  to  losses  or  the  impairment  of 
assets  (e.g.  where  community  or  labour  protests  halt  production  or  operations)  this 
would need to be publicly disclosed. 

Directors’ duties / responsibilities 

The CA 2006 sets out seven general duties which a director  owes to a company: (i) the 
duty  to  act  within  powers;  (ii)  the  duty  to  promote  the  success  of  the  company  for  the 
benefit of the members as a whole (see the commentary above regarding section 172 of 
the CA 2006); (iii) the duty to exercise independent judgment; (iv) the duty to exercise 
reasonable care, skill and diligence;1172 (v) the duty to avoid conflicts of interest; (vi) the 
duty  not  to  accept  benefits  from  third  parties;  and  (v)  the  duty  to  declare  interest  in 
proposed transaction or arrangement.1173 

A breach of these duties by a director may give rise to a civil claim by the company (or 
more  rarely  a  shareholder  or  shareholders  where  the  company  does  not  enforce  its 
rights1174)  against  the  director  (e.g.  for  damages  or  an  account  for  any  personal  profit 
made  by  the  director). 1175 However,  note  that  unlike  the  other  duties  set  out  above, 
which are fiduciary in nature, the duty to act with reasonable care, skill and diligence 1176 

1166 This is discussed further in Section III below under the heading “Requirements to report” 
1167 This is discussed in more detail below in sub-section (e) under the heading “Negligence at common law” 
1168 The International Commission of Jurists and The Corporate Responsibility (CORE) Coalition Ltd 
1169 Vedanta Resources PLC and another v Lungowe and others, [2019] UKSC 20 
1170 See the draft statement of intervention here: https://corporate-responsibility.org/wp-content/uploads/2019/01/Statement-
in-Intervention-ICJ-CORE-.pdf 
1171 Article 17, EU Market Abuse Regulation (Regulation 596/2014) (in force from 3 July 2016); see for example the fine 
imposed on Rio Tinto Plc: the company did not carry out an impairment test and recognise an impairment loss on the value of 
mining assets in its 2012 half-year financial report. As a result, Rio Tinto’s financial reporting was inaccurate and misleading in 
breach inter alia of the Disclosure Guidance and Transparency Rules, Rule 1.3.4R (now replaced by the Market Abuse 
Regulation). Note: the fine concerned unforeseen challenges in transporting product from a mine (and did not concern human 
rights issues). 
1172 Note: This duty under section 174 of the CA 2006 contains an “objective” and “subjective” element, taking into account the 
care, skill and diligence that would be exercised by a reasonably diligent person with: (a) the general knowledge, skill and 
experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the 
company, and (b) the general knowledge, skill and experience that the director has. 
1173 Sections 170 – 181, CA 2006 
1174 E.g. under Section 260 to 264, CA 2006 
1175 Section 178, CA 2006 
1176 Section 174, CA 2006 

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codified  a  common  law  duty  which  (if  breached)  would  only  give  rise  to  a  claim  in 
negligence  (for  compensatory  damages).  By  contrast,  a  breach  of  the  other  (fiduciary) 
duties  could  also  lead  to  the  relevant  director  having  to  account  for  any  profit. 
Determining  “reasonableness”  for  the  purposes  of  the  duty  to  act  with  reasonable  care, 
skill  and  diligence  will  often  involve  an  assessment  of  whether  the  relevant  director 
obtained or ought to have  obtained professional advice.1177 This is closely related to the 
concept of due diligence. 

A recent case before the English High Court, Antuzis v DJ Houghton,1178 highlights that a 
claim against a director for a breach of directors’ duties may be easier to establish where 
the  director  deliberately  caused  the  company  to  breach  obligations  owed  to  certain 
stakeholders  where  those  obligations  are  underpinned  by  statute  (e.g.  a  contractual 
obligation to pay employees the minimum wage). The Court concluded: “the fact that the 
breach of contract has such a statutory element may point to there being a failure on the 
part of the director to comply with his or her duties to the company and, by extension, to 
the director’s liability to a third party for inducing the breach of contract”.1179 

It is worth adding that, in addition to the general duties, directors are subject to a range 
of  other  statutory  duties  and  liabilities  which  could  result  in  a  director  personally  facing 
criminal  sanction  (e.g.  imprisonment  and  /  or  a  fine),1180 compensation  orders,1181 civil 
claims1182 or  disqualification1183 in  the  event  of  non-compliance.  In  some  of  these  cases 
the  director’s  liability  will  result  from  a  breach  of  his  /  her  own  direct  legal 
responsibilities, and in other circumstances it will be derivative of a company’s failure to 
comply with applicable laws and obligations. A director can also be jointly liable for torts 
committed  by  a  company  where  that  director  authorised,  directed  or  procured  those 
torts.1184 

Corporate governance 

The UK corporate governance framework  comprises the UK Corporate  Governance Code 
(CGC),1185 the  Listing  Rules  (LR),  Prospectus  Rules  (PR)  and  the  Disclosure  Guidance 
and  Transparency Rules  (DTR)  (together,  the  LPDT  Rules).  Although  compliance  with 
the  CGC  is  voluntary,  the  LPDT  Rules  are  binding  on  certain  companies  under  the 
Financial Services and Markets Act 2000 (FSMA).1186 DTR 7.2 obliges relevant companies 
to  publish  corporate  governance  statements  which  conform  to  various  requirements 
which  partly  overlap  with  the  CGC. 1187  Companies  with  a  premium  listing  are  also 

1177 In re Duomatic Ltd, [1969] 2 Ch 365; Re DKG Contractors Ltd, [1990] BCC 903 
1178 Antuzis & Others v DJ Houghton Catching Services Ltd & Others, [2019] EWHC 843 (QB) 
1179 Antuzis & Others v DJ Houghton Catching Services Ltd & Others, [2019] EWHC 843 (QB), paragraph 122 
1180 See for example section 37(1) of the UK Health and Safety at Work etc. Act 1974, which provides that where an offence is 
committed by a body corporate (e.g. if the company breaches section 2(1) by failing to ensure, as far as reasonably 
practicable, worker safety) a director will be guilty of the same offence provided it can be proved the offence was “committed 
with the consent or connivance of” the director, or was otherwise proved “to have been attributable to any neglect on the part 
of” that director. In R v Rollco Screw and Rivet Co Ltd [1999] 2 Cr App Rep (S) 436, CA, the Court of Appeal (Criminal Division) 
upheld fines against two directors (and the company) in a case which concerned asbestos contamination and consequent 
breaches of the HSWA. 
1181 See for example sections 130 - 133 Powers of Criminal Courts (Sentencing) Act 2000 (giving criminal courts the power to 
impose compensation orders for any personal injury, loss or death arising from certain offences). 
1182 For example where a company makes false or misleading statements in listing particulars or a prospectus, contrary to 
section 90(1) of the Financial Services and Markets Act 2000; regulation 6 of the Financial Services and Markets Act 2000 
(Official Listing of Securities) Regulations 2001 (2001/2956) lists directors amongst the persons responsible for such 
information. Under section 90(1)(7), a claim of this nature could only be brought by a person who acquired shares in the 
company (or an interest in the company’s shares). 
1183 See for example director disqualification proceedings which may be initiated by the UK Insolvency Service / HMRC in the 
event of non-compliance with the National Minimum Wage Act 1998: https://www.gov.uk/government/news/director-banned-
after-failing-to-pay-minimum-wage-to-farm-labourers 
1184 See Rainham Chemical Works Limited v Belvedere Fish Guano Co Limited, [1921] 2 AC 465 
1185 See here: https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-
Governance-Code-FINAL.pdf (Accessed: 1 May 2019) 
1186 Under s73A, FSMA, the FCA may impose rules on companies, as well as on their sponsors, which have an official listing or 
are applying to be listed in the UK. The application of these rules varies according to a number of factors, including but not 
limited to the type of listing, type of market, security listed or size of the company. In an event of non-compliance by a 
company with the LPDT Rules, the Financial Conduct Authority may take enforcement action, such as: censuring an issuer 
(section 89K, FSMA); suspending the issuer’s securities from trading (section 89L, FSMA);  suspending the issuer’s securities 
from listing (section 77(2), FSMA);  and  suspending or prohibiting the offer to the public of the transferable securities (section 
89K, FSMA).   
1187 DTR 7.2; see here: https://www.handbook.fca.org.uk/handbook/DTR/7/2.html (Accessed: 1 May 2019) 

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required to publish an annual statement confirming whether they have complied with the 
CGC  (see  below) 1188  and  UK-incorporated  companies  must  include  a  CGC  compliance 
statement  (or  an  explanation  of  non-compliance)  in  their  prospectuses.1189 In  addition, 
non-listed  companies  with  either:  (i)  2,000  or  more  employees;  or  (ii)  a  turnover  of  at 
least £200 million and a balance sheet of at least £2 billion, are now required to produce 
a statement on the company’s website detailing the corporate governance arrangements 
the company applies.1190 

The CGC has developed since its first iteration in 1992, and has been amended over time 
to  reflect  various  reports  commissioned  by  the  UK  Government  (beginning  with  the 
Cadbury Report in 1992). 

Amongst the most significant reports which resulted in amendments to the CGC was the 
Turnbull  Report,  first  published  in  1999  and  then  reviewed  in  2005. 1191 The  Turnbull 
Guidance  inter  alia  recommended:  (i)  that  directors,  rather  than  operational  managers, 
be  responsible  for  risk  management,  and  maintaining  and  reviewing  a  sound  system  of 
internal  controls;  (ii)  the  adoption  of  a  risk-based  approach  to  the  internal  control 
process; and (iii) the embedding of controls in company operations and the adoption of 
procedures for identifying and reporting control weaknesses to allow for remedial action. 

Reflecting  these  recommendations,  the  2018  CGC1192 sets  out  the  board’s  responsibility 
in  terms  of  corporate  governance,  including  with  respect  to  establishing  “culture”, 1193 
effective  “risk  management”  and  “effective  controls”, 1194 and  “transparent  policies  and 
procedures” which “identify” and “manage” risk.1195 Implementing the relevant provisions 
and principles of the CGC requires due diligence on the part of the directors of the board, 
and the relevant committees appointed by the board (e.g. the audit committee). 

As noted above, the annual reports of companies with a premium listing of equity shares 
in the UK must (under the LR) include: (i) a narrative statement of how the company has 
applied the main principles in the CGC (with a sufficient explanation to allow shareholders 
to evaluate how the principles have been applied); and (ii) a statement as to whether the 
company complied with the CGC’s provisions throughout the financial year (on a “comply 
or  explain”  basis).1196 Practically,  the  board  will  be  unable  to  report  that  the  CGC  has 
been  complied  with  unless  the  company  has  developed  risk-based  policies,  procedures 
and  controls  (supported  by  adequately  resourced  internal  committees,  functions  and 
employees  with  clear  responsibilities  for  implementing  and  monitoring  the  controls)  for 
which the directors will have ultimate oversight. 

B.  Health, safety and regulatory law 
Health and safety 

The Health and Safety at Work Act etc. 1974 (HSWA) is the principal UK law on health 
and  safety.  It  inter  alia  places  general  duties  on  certain  persons,  including  employers, 
e.g. to ensure as far as reasonably practical the health, safety and welfare at work of all 
employees  and  the  health  and  safety  of  all  non-employees.1197 A  failure  to  comply  with 
these duties could result in the commission of an offence (which if prosecuted may result 
in imprisonment and / or an unlimited fine)1198 subject to the defendant proving that “it 

1188 Paragraph 9.8.6R(6), LR, See here: https://www.handbook.fca.org.uk/handbook/LR/9/8.html (Accessed: 1 May 2019) 
1189 Item 16.4, App 3.1.1, Annex I, PR, See here: https://www.handbook.fca.org.uk/handbook/PR.pdf (Accessed: 1 May 2019) 
1190 See the Companies (Miscellaneous Reporting) Regulations 2018 (the 2018 Regulations), which insert Part 8 (Statement of 
Corporate Governance Arrangements) into the Large and Medium-sized Companies and Groups (Accounts and Report) 
Regulations 2008. This obligation will only apply to financial years commencing on or after 1 January 2019, so the first 
corporate governance statements will be published in early 2020. 
1191 http://frc.org.uk/Our-Work/Publications/Corporate-Governance/Turnbull-guidance-October-2005.aspx 
1192 See for example Principles B, C, E, M, N and O, and paragraph 29; https://www.frc.org.uk/getattachment/88bd8c45-50ea-
4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.PDF 
1193 Principle B and Provision 2, CGC 2018 
1194 Principles C, M, N, O and Provision 29, CGC 2018 
1195 Principles M, O and Provision 28, CGC 2018 
1196 LR 9.8.6R See here: https://www.handbook.fca.org.uk/handbook/LR/9/8.html (Accessed: 1 May 2019) 
1197 Sections 2 to 6, HSWA 
1198 Section 33(1)(a) and (3), HSWA 

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was not reasonably practicable to do more than was in fact done to satisfy” the relevant 
duty, or that there “was no better practicable means than was in fact used to satisfy” the 
duty. 1199  Although  the  HSWA  does  not  expressly  use  the  term  “due  diligence”,  the 
requirement to take practical steps to mitigate health and safety related risks (where the 
burden  of  proof  is  on  the  defendant  to  show  sufficiency)  resembles  due  diligence  as  a 
defence to offences under other statutes which expressly use the term: see for example 
the Food Safety Act 1990 and Consumer Protection Act 1987, discussed below. 

Numerous specific regulations have also been issued under the HSWA, e.g. the Control of 
Noise at Work Regulations 2005 and the Control of Vibrations at Work Regulations 2005 
require employers to minimise employees' exposure to noise and vibrations above certain 
levels.  Dangerous  Substances  (Notification  and  Marking  of  Sites)  Regulations  1990 
require notification and marking of sites containing dangerous substances in quantities of 
25  tonnes  or  more.  Other  regulations,  e.g.  the  Reporting  of  Injuries,  Diseases  and 
Dangerous Occurrences Regulations 1995 formalise the process for reporting health and 
safety incidents to the Health and Safety Executive (the principal enforcement authority 
in relation to health and safety matters). 

Other  key  regulations  made  under  the  HSWA  include  the  Provision  and  Use  of  Work 
Equipment Regulations 1998, Lifting Operations and Lifting Equipment Regulations 1998, 
Personal  Protective  Equipment  Regulations  1998,  Manual  Handling  Operations 
Regulations  1992,  Work  at  Height  Regulations  2005,  Control  of  Noise  at  Work 
Regulations  2005,  Confined  Spaces  Regulation  1997  and  the  Working  Time  Regulation 
1998. 

The Management of Health & Safety at Work Regulations 1999 (MHSWR) give effect to 
the  EU  Framework  Directive  on  health  and  safety.1200 The  MHSWR  impose  an  obligation 
on  all  employers  to  conduct  a  risk  assessment  of  all  operations  and  to  keep  such  risk 
assessments under review on a periodic basis.1201 A breach of the MHSWR could result in 
imprisonment and / or an unlimited fine.1202 

Corporate manslaughter 

The  Corporate  Manslaughter  and  Corporate  Homicide  Act  2007  (CMCHA)  abolished  the 
common  law  offence  of  involuntary  manslaughter  by  gross  negligence  for  organisations 
to  which  the  CMCHA  applies.  It  creates  a  new  statutory  offence  and  framework  for 
convicting  an  organisation  where  gross  management  failure  results  in  a  person’s  death. 
An organisation is guilty of the offence in circumstances where: 

 
 

 

the way in which its activities are managed or organised causes a person's death; 
this amounts to a gross breach of a "relevant duty of care" owed by the organisation 
to the deceased; and 
the way in which its activities are managed or organised by its “senior management” 
is a substantial element of the breach.1203 For these purposes, “senior management” 
is  defined  as  the  persons  who  play  “significant  roles”  in  the  making  of  decisions 
about how the whole or a substantial part of the company’s activities are managed or 
organised, or the actual managing or organising of those activities.1204 

"Relevant  duty  of  care"  includes  duties  owed:  to  employees  or  other  workers  (e.g.  to 
provide  a  safe  system  of  work);  as  occupier  (e.g.  to  ensure  that  buildings  are  safe);  in 
connection with supplying goods or services; in connection with commercial activities; in 
connection with construction or maintenance work; or in using plant and vehicles.1205 

1199 Section 37, HSWA 
1200 Council Directive 89/391/EEC of 12 June 1989 on the introduction of measures to encourage improvements in the safety 
and health of workers at work 
1201 Regulation 3(1), MHSWR 
1202 Sections 33(1)(c) and (3), HSWA 
1203 Sections 1(1) to (3), CMCHA 
1204 Section 1(4)(c), CMCHA 
1205 Section 2, CMCHA 

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The CMCHA did not create new duties of care; it simply lists existing duties of care (those 
listed  above)  to  be  regarded  as  “relevant”  to  the  offence.  An  organisation  convicted  of 
corporate  manslaughter  faces  an  unlimited  fine.1206 In  addition  to  fines,  the  Court  can 
impose  remedial  orders 1207  and  publicity  orders, 1208  which  have  significant  potential 
adverse reputational impact. 

Consumer protection 

The  Consumer  Protection  Act  1987  (CPA)  imposes  strict  liability  on  producers  for  harm 
caused  by  defective  products.  Any  person  injured  by  defective  products  can  sue  for 
compensation without having to prove negligence, provided that they can prove that the 
product was defective and the defect in the product  caused the injury.1209 A person can 
sue under Part 1 of the CPA for compensation for death, personal injury and damage to 
private  property.1210 Avoidance  of  such  liability  would  (by  its  nature)  require  a  business 
to put in place due diligence measures to ensure against defective product related-risk. 

Separately,  the  CPA  establishes  certain  strict  liability  offences 1211  (e.g.  supplying  or 
offering to supply goods contrary to a safety regulation prohibition1212) for which there is 
a  specific  due  diligence  defence:  “it  shall  be  a  defence  for  that  person  to  show  that  he 
took  all  reasonable  steps  and  exercised  all  due  diligence  to  avoid  committing  the 
offence”.1213 However, a person shall not be entitled to rely on the defence “by reason of 
his reliance on information supplied by another, unless he shows that it was reasonable 
in all the circumstances for him to have relied on the information”, having regard to the 
steps  taken  “for  the  purposes  of  verifying  the  information”  and  “whether  he  had  any 
reason to disbelieve the information”.1214 A breach of the CPA’s safety regulations may be 
punishable with a prison term of up to two years and / or an unlimited fine. 

The  General  Product  Safety  Regulations  2005  (GPSR), 1215  which  implements  the  EU 
Directive  on  General  Product  Safety,1216 places  responsibility  for  product  safety  with  the 
product  supplier  (whether  producer  or  distributor).  Under  regulation  5(1),  “no  producer 
shall [supply or] place a [consumer] product on the market unless the product is a safe 
product”.  Producers  are  also  obliged  under  regulation  7(1)  to  “provide  consumers  with 
relevant information” to enable them to “assess the risks inherent in a product… and take 
precautions  against  those  risks”.  Further,  under  regulation  8(1),  “a  distributor  shall  act 
with  due  care  in  order  to  help  ensure  compliance  with  the  applicable  safety 
requirements”.1217 Any  person  that  breaches  these  provisions  shall  commit  and  offence, 
and shall be liable to imprisonment and / or a fine.1218 

Control of hazardous substances 

The  Control  of  Substances  Hazardous  to  Health  Regulations  2002  (CSHHR)  prohibit 
employers  from  carrying  out  work  liable  to  expose  employees  to  substances  potentially 

1206 Section 1(6), CMCHA 
1207 Section 9, CMCHA 
1208 Section 10, CMCHA 
1209 Sections 2(1), 2(2) and 2(3), CPA 
1210 Section 5(1), CPA 
1211 Note: the offence of supplying or offering to supply any consumer goods which fail to comply with the general safety 
requirement  under section 10 of the CPA was omitted and replaced by the General Product Safety Regulations 2005 (S.I. 
2005/1803, reg. 46(2)) 
1212 Section 12(1), CPA 
1213 Section 39(1), CPA 
1214 Section 39(4), CPA 
1215 S.I. 2005/1803 
1216 Directive 2001/95/EC of the European Parliament and of the Council of 3 December 2001 on general product safety 
1217 In particular, under regulation 8(1) the distributor “(a) shall not expose or possess for supply or offer or agree to supply, or 
supply, a product to any person which he knows or should have presumed, on the basis of the information in his possession and 
as a professional, is a dangerous product; and (b) shall, within the limits of his activities, participate in monitoring the safety of 
a product placed on the market, in particular by— (i) passing on information on the risks posed by the product, (ii) keeping the 
documentation necessary for tracing the origin of the product, (iii) producing the documentation necessary for tracing the origin 
of the product, and cooperating in action taken by a producer or an enforcement authority to avoid the risks.” 
1218 Section 20(1) and (2), GPSR. In the case of a breach of regulations 5(1) or 8(1), imprisonment cannot exceed twelve 
months, and for a breach of regulation 7(1), imprisonment cannot exceed three months.  

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hazardous  to  health  unless  they  have  first  adequately  assessed  the  risks  posed  to 
employees in line with the criteria set out in the CSHHR.1219 

This  assessment  must  be  updated  as  and  when  appropriate,  and  must  record  the  steps 
taken  to  prevent  or  control  exposure  (e.g.  through  protecting  equipment,  ventilation 
equipment,  appropriate  systems,  limiting  duration  of  exposure).1220 Control  systems  put 
in  place  must  be  regularly  tested,  and  exposure  or  employee  health  adequately 
monitored  where  necessary. 1221  Where  possible,  hazardous  substances  should  be 
substituted, 1222 and  staff  must  receive  sufficient  instruction  and  training  on  risks  and 
precautions.1223 

Breach  of  the  CSHHR  by  an  employer  constitutes  an  offence  publishable  on  summary 
conviction or on indictment by an unlimited fine.1224 

Food standards 

The  Food  Safety  Act  1990  (FSA)  creates  various  offences,  including  the  sale  of  food 
which does not comply with food safety requirements.1225 A person guilty of this offence 
shall  be  liable  on  summary  conviction  or  on  indictment  to  an  unlimited  fine  and  /  or 
imprisonment  of  up  two  years. 1226 Akin  to  the  CPA  offences  described  above,  and  the 
corporate offence in the UK Bribery Act (see below) the offence is strictly liability. 

However,  it  is  a  “defence  for  the  person  charged  to  prove  that  he  took  all  reasonable 
precautions  and  exercised  all  due  diligence  to  avoid  the  commission  of  the  offence.”1227 
The  defence  will  apply  if  the  relevant  person  proves:  (i)  the  commission  of  the  offence 
was  due  to  an  act  or  default  of  another  person  who  was  not  under  his  control,  or  to 
reliance on information supplied by such a person; (ii) he carried out  all such checks  of 
the food in question as was reasonable in all the circumstances, or that it was reasonable 
in all the circumstances for him to rely on checks carried out by the person who supplied 
the  food  to  him;  and (iii) he  did  not  know  and  had  no  reason  to  suspect  at  the  time  of 
the  commission  of  the  alleged  offence  that  his  act  or  omission  would  amount  to  an 
offence under the relevant provision.1228 

C.  Employment law 

Equality 

The  Equality  Act  2010  (EA  2010)  brought  together  and  re-stated  the  previous 
discrimination legislation in the UK. The EA 2010 prohibits discrimination and harassment 
in  respect  of  the 
following  “protected  characteristics”:  age,  disability,  gender 
reassignment,  marriage  and  civil  partnership,  pregnancy  and  maternity,  race  (including 
colour,  nationality  and  ethnic  or  national  origin),  religion  or  belief,  sex  and  sexual 
orientation.1229 There are  various types of discrimination and other unlawful conduct set 
out in the EA 2010 that apply to most protected characteristics: (i) direct discrimination: 
when  a  person  is  treated  less  favourably  than  another  person  because  of  a  protected 
characteristic;1230 (ii) indirect discrimination: when an unjustifiable provision, criterion or 
practice is imposed which, although imposed equally on everyone, may adversely affect a 

1219 Regulation 6(1), CSHHR 
1220 Regulations 6(2) and (3), CSHHR 
1221 Regulations 8 to 10, CSHHR 
1222 Regulation 7, CSHHR 
1223 Regulation 12, CSHHR 
1224 Sections 33(1)(c) and (3), HSWA 
1225 Section 8, FSA (as amended by Regulation 10(b), General Food Regulations 2004, and Article 14(1), EU Regulation 
178/2002 of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food 
Safety Authority and laying down procedures in matters of food safety: “Food shall not be placed on the market if it is unsafe”. 
Regulation 4 of the General Food Regulations 2004 provides that a failure to comply with  Article 14(1) of Regulation 178/2002 
is an offence. 
1226 Section 35(2), FSA 
1227 Section 21(1), FSA 
1228 Section 21(3), FSA 
1229 Section 4, EA 2010 
1230 Section 13, EA 2010 

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protected group more than everyone else;1231 (iii) harassment: unwanted conduct related 
to a protected characteristic with the purpose or effect of violating a person's dignity or 
creating  an  intimidating,  hostile,  degrading,  humiliating  or  offensive  environment. 
Harassment  also  includes  treating  a  person  less  favourably  because  they  have  rejected 
unwanted conduct of a sexual nature or that is related to gender reassignment or sex; 1232 
and (iv) victimisation: when a person is subject to detriment because that person has, or 
is  believed  to  have,  made  a  complaint  or  allegation  of  unlawful  discrimination  or  is 
assisting  in  any  complaint  or  proceedings  connected  with  a  complaint  for  unlawful 
discrimination.1233 
Significantly, an employer (as principal) is liable for the acts of an employee unless the 
employer can show they took “all reasonable steps” to prevent the employee from doing 
“that thing” or “anything of that description”.1234 In the event of a breach of the EA 2010, 
compensation is made up of financial loss (based on the tortious measure of damage 1235) 
and  non-financial  loss  (e.g.  injury  to  feelings). 1236  There  is  no  upper  limit  on  the 
compensation for unlawful discrimination, harassment or victimisation. 

Pay and working conditions 

The  National Minimum Wage Act 1998 (NMWA) provides the current national minimum 
wage  rates  for  workers.  The  minimum  hourly  rate  depends  on  the  employee's  age  and 
status  (e.g.  whether  he  is  an  apprentice).  An  employer  is  required  to  keep  records  for 
workers who qualify for national minimum wage and these records must be sufficient to 
establish  that  workers  are  receiving  the  national  minimum  wage.1237 If  a  worker  is  paid 
less  than  the  national  minimum  wage  for  a  certain  period,  he  is  entitled  to  be  paid  the 
difference in arrears at  the rate  of the national minimum wage in force  on the date the 
arrears  are  calculated. 1238  The  current  maximum  fine  for  a  breach  of  the  NMWA  is 
£20,000, per worker.1239 

Under the Working Time Regulations 1998 (WTR),1240 employers are required to take all 
reasonable steps to ensure that workers do not work more than an average of 48 hours a 
week over a 17-week period.1241 Employers who fail to comply with certain requirements 
in  the  Regulations  may  be  guilty  of  a  criminal  offence  and  potentially  liable  to  pay  an 
unlimited fine (where the conviction is on indictment).1242 

The Public Interest Disclosure Act 1998 (PIDA), which amended the Employment Rights 
Act  1996  (ERA  1996),  provides  protection  for  workers  who  blow  the  whistle  on 
wrongdoing  by  their  employers. 1243 Workers  cannot  be  subjected  to  any  detriment  or 
dismissed  as  a  result  of  having  made  a  protected  disclosure.  The  level  of  compensation 
awarded  to  a  dismissed  employee  who  has  suffered  detriment  as  a  result  of  whistle 
blowing is uncapped.1244 Whilst the PIDA does not require due diligence per se, a failure 
by  a  company  to  carry  out  due  diligence  (e.g.  formulating  a  non-retaliation  policy, 
embedding  a  strong  culture,  training  employees  etc.)  increases  the  risk  of  non-
compliance  with  the  PIDA  /  ERA  1996.  By  contrast,  regulated  firms 1245 are  obliged  to 

1231 Section 19, EA 2010 
1232 Section 26, EA 2010 
1233 Section 27, EA 2010 
1234 Section 109(4), EA 2010 
1235 Sections 119(2), and 124(6), EA 2010 
1236 Section 119(4), EA 2010 
1237 Section 9, NMWA 
1238 Section 17, NMWA 
1239 Section 19A(5) of the NMWA (amended by section 152, Small Business, Enterprise and Employment Act 2015) 
1240 Working Time Regulations 1998 (SI 1998/1833) is the UK statutory instrument which implements the EU Working Time 
Directive 93/104/EC 
1241 Section 4(1) and 4(2), WTR 
1242 Section 29(3), WTR 
1243 See section 1, PIDA, and sections 43A and 43B, ERA 1996. The protection extends to "qualifying disclosures", which is a 
disclosure that, in the reasonable belief of the worker, shows one of the following: (a)  the commission or likely commission  of 
a criminal offence; (b)  a failure or likely failure to comply with a legal obligation; (c)  the occurrence or likely occurrence of a 
miscarriage of justice; (d)  health and safety of any individual has been, is being or is likely to be endangered; (e)  the 
environment has been, is being or is likely to be damaged; or (f)  the information being disclosed has been or is likely to be 
deliberately concealed. 
1244 Section 4 of PIDA, and section 49 of the ERA 1996  
1245 Article 4(1), EU Markets in Financial Instruments Directive, 2004/39/EC 

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implement  appropriate  procedures  for  their  employees  to  report  a  potential  or  actual 
breach of the EU Markets in Financial Instruments Directive (MiFID), the EU Markets in 
Financial  Instruments  Regulation  (MiFIR) 1246  or  any  EU  regulation  under  MiFIR  or 
MiFID.1247 

The  Gangmasters  (Licensing)  Act  2004  (GLA)  relates  to  workers  who  are  engaged  in 
agriculture,  horticulture,  shellfish  gathering  and  any  associated  processing  and 
packaging.1248 For  the  purposes  of  the  GLA,  a  “gangmaster”  is  someone  who  supplies  a 
worker  to  do  work  for  another  person. 1249  A  gangmaster  must  be  licensed  by  the 
Gangmasters  and  Labour  Abuse  Authority  (GLAA). 1250  The Gangmaster  (Licensing 
Conditions) Rules 2009 (GLA Rules)1251 require licence holders to act “in a fit and proper 
manner” at all times.1252 For corporate licence holders, that obligation extends to “every 
director,  manager,  secretary  or  other  similar  officer”.1253 It  is  an  offence  for  any  person 
to  enter  into  an  arrangement  with  an  unlicensed  gangmaster  (where  that  gangmaster 
provides  the  person  with  “workers  or  services”1254).  A  defence  is  available  where  the 
person can show “he took all reasonable steps to satisfy himself that the gangmaster was 
acting  under  the  authority  of  a  valid  licence,  and  did  not  know,  and  had  no  reasonable 
grounds  for  suspecting  that  the  gangmaster  was  not  the  holder  of  a  valid  licence”.1255 
The penalty for committing the offence is a fine and/or imprisonment following summary 
conviction.1256 

D.  Environmental law 
The UK has extensive environmental legislation, which is principally derived from EU law. 
Examples of relevant laws with due diligence requirements are set out below. 

Environmental damage prevention 

The  Environmental  Damage  (Prevention  and  Remediation)  (England)  Regulations  2015 
(EDPR)  apply  to  “environmental  damage”,  defined  as  damage  to:  (i)  species  and 
habitats  (covered  by  the  Habitats  Directive  (92/43/EEC)  and  Council  Directive 
2009/147/EC)  and  the  Birds  Directive  (92/43/EEC))  and  sites  designated  as  sites  of 
special scientific interest; (ii) surface or ground water (covered by the Water Framework 
Directive  (2000/60/EC))  or  Groundwater  Directive  (2006/118/EC);  (iii)  marine  waters, 
where  there  is  a  significant  adverse  effect  to  their  environmental  status;  or  (iv)  land, 
where there is a significant risk of adverse effects on human health.1257 

In  addition  to  requiring  remediation  plans  where  damage  occurs,  the  EDPR  apply  to 
imminent  risk  of  damage,  and  places  operators  /  organisations  about  to  cause  damage 
under an obligation to take “all practicable steps” to prevent the damage and report the 
threat  to  the  “enforcing  authorities”.1258 The  enforcing  authority  may  serve  a  notice  on 
the  operator  specifying  measures  to  prevent  the  damage  and  requiring  those  measures 
to be taken within a certain period.1259 

Failure  to  take  the  necessary  preventative  steps  (including  following  a  notice)  is  an 
offence,1260 and  may  carry  an  unlimited  fine  and  a  prison  term  of  up  to  two  years. 1261 
Where a body corporate commits an offence under the EDPR, and that offence is proved 

1246 EU Markets in Financial Instruments Regulation; (EU) No 600/2014 
1247 Financial Conduct Authority Handbook, SYSC 18.6; see here https://www.handbook.fca.org.uk/handbook/SYSC/18/6.html 
1248 Section 3, GLA 
1249 Section 4, GLA 
1250 Section 6, GLA 
1251 https://login.westlaw.co.uk/maf/wluk/app/document?src=doc&linktype=ref&context=61&crumb-
action=replace&docguid=I6E839FD0031511DE8AECFE770DB0916C (Accessed: 1 May 2019) 
1252 Paragraph 4, Schedule 1, GLA Rules 
1253 Antuzis & Others v DJ Houghton Catching Services Ltd & Others [2019] EWHC 843 (QB) 
1254 Section 13(1), GLA 
1255 Section 13(2), GLA 
1256 Section 13(4), GLA 
1257 Section 4, EDPR 
1258 Section 13(1), EDPR 
1259 Section 13(2), EDPR 
1260 Section 13(3), EDPR 
1261 Section 34(1), EDPR 

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to have been committed with the consent or connivance of, or to have been attributable 
to any neglect on the part of, a “director, manager…or other similar person”, that person 
shall also be guilty of the offence.1262 

Waste management and collection 

The Environmental Protection Act 1990 (EPA) makes it an offence to: 

  deposit,  knowingly  cause  or  knowingly  permit  the  disposal  of  controlled  waste  on 

land without an environmental permit; 

  deposit,  knowingly  cause  or  knowingly  permit  controlled  waste  to  be  subject  to  a 
listed  operation  (under  the  EPA)  or  mobile  plant  not  in  accordance  with  an 
environmental permit; 
treat, keep or dispose of controlled waste in a manner likely to cause pollution of the 
environment or harm to human health.1263 

 

A  person/legal  entity  found  guilty  of  the  offence  is  liable  (for  more  serious  breaches 
where there is a conviction on indictment) by imprisonment up to five years and / or an 
unlimited fine.1264 

The EPA also imposes a duty of care on any person who imports, produces, keeps, treats 
or disposes of controlled waste (which includes industrial and commercial waste).1265 The 
duty requires such persons: 

 

 

to  ensure  there  is  no  unauthorised  or  harmful deposit,  treatment  or  disposal  of  the 
waste; 
to  prevent  the  escape  of  the  waste  from  their  control  or  that  of  any  other  person; 
and 

  on  the  transfer  of  the  waste  to  ensure  that  the  transfer  is  only  to  an  authorised 
person  or  for  authorised  transport  purposes  and  that  a  written  description  of  the 
waste is also transferred. 

Failure to comply is an offence, punishable (for more serious breaches where there is a 
conviction on indictment) by an unlimited fine.1266 

E.  Miscellaneous 
Data privacy 

The EU General Data Protection Regulation (GDPR)1267 and UK Data Protection Act 2018 
(DPA),  implementing  the  GDPR,  became  law  in  May  2018.  They  govern  the  use  of 
“personal  data”1268 (belonging  to  “data  subjects”1269)  by  data  “controllers”1270 and  data 
“processors”.1271 

Controllers must implement appropriate technical and organisational measures (reviewed 
and updated as necessary) to ensure, and to enable the data controller to demonstrate, 
that  the  processing  of  personal  data  complies  with  the  GDPR.1272 Where  proportionate, 
this  may  include  appropriate  data  retention  policies. 1273  “Technical  and  organisational 

1262 Section 34(2), EDPR; note the similar provisions in section 14, UK Bribery Act (see sub-section (e) below) and  
1263 Section 33(1), EPA 
1264 Section 33(8), EPA 
1265 Section 34(1), EPA 
1266 Section 34(6), EPA 
1267 EU Regulation 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free 
movement of such data, and repealing Directive 95/46/EC 
1268 Defined in article 4(1), GDPR as any information relating to an identified or identifiable living individual. 
1269 Defined in article 4(1), GDPR as the identified or identifiable living individual to whom personal data relates. 
1270 Defined in article 4(7), GDPR as a natural or legal person, public authority, agency or other body which, alone or jointly 
with others, determines the purposes and means of the processing of personal data. 
1271 Defined in article 4(9), GDPR as a natural or legal person, public authority, agency or other body which processes personal 
data on behalf of the controller. 
1272 Article 24(1), GDPR 
1273 Article 24(2), GDPR 

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measures” should be designed to implement the “data protection principles”.1274 

When  processing  data,  controllers  and  processors  are  further  obliged  to  “implement 
appropriate  technical  and  organisational  measures  to  ensure  a  level  of  security 
appropriate to the risk” taking into account inter alia the severity of potential impacts on 
“the  rights  and  freedoms  of  natural  persons”. 1275  Where  a  particular  type  of  data 
processing “is likely to result in a high risk to the rights and freedoms of natural persons” 
the  controller  must  (prior  to  the  processing)  perform  a  data  protection  impact 
assessment  (i.e.  an  assessment  of  the  processing  activity  on  the  protection  of  the 
personal data).1276 

A  controller  must  notify  the  Information  Commissioner  “without  undue  delay”  where  it 
“becomes aware” of a personal data breach.1277 In terms of penalties, depending on the 
relevant  provision  breached,  an  infringement  of  GDPR  can  attract  significant  fines  of  up 
to  4%  of  the  organisation’s  turnover  in  the  previous  financial  year,  or  20  million  Euros, 
whichever is higher.1278 There is also an express provision which allows a person to seek 
compensation  from  a  data  controller  or  processor  where  their  GDPR  rights  are 
infringed.1279 

Proceeds of crime / money-laundering 

The  Money  Laundering,  Terrorist  Financing  and  Transfer  of  Funds  (Information  on  the 
Payer)  Regulations  2017  (MLR  2017)1280 provide  the  basis  for  anti-money  laundering 
compliance  programmes  that  businesses  in  the  regulated  sector1281 must  establish  and 
maintain,  to  protect  themselves  from  being  used  for  financial  crime.  MLR  2017 
emphasises a risk based approach. Key requirements of MLR 2017 include the following: 

 

 

the  performance  of  a  written  risk  assessment  to  identify  and  assess  the  risk  of 
money  laundering  and  terrorist  financing  that  a  firm  faces, 1282 taking  into  account 
risk  factors  including  factors  relating  to:  (i)  its  customers;  (ii)  the  countries  or 
geographic  areas  in  which  it  operates;  (iii)  its  products  or  services;  (iv)  its 
transactions; and (v) its delivery channels;1283 and 
the  establishment  and  maintenance  of  policies,  controls  and  procedures  to  mitigate 
and  manage  effectively  the  risks  of  money  laundering  and  terrorist  financing 
identified  in  any  risk  assessment,1284 which  inter  alia  include:  (i)  risk  management 
practices;  (ii)  internal  controls  (including  training); 1285 (iii)  customer  due  diligence 
(including enhanced due diligence in higher risk scenarios such as when dealing with 
“politically  exposed  persons”); 1286 (iv)  reliance  and  record  keeping;1287 and  (v)  the 
monitoring and management of compliance with, and the internal communication of, 
such policies, controls and procedures.1288 Where appropriate, a relevant person (i.e. 

1274 The “data protection principles” are set out in Article 5(1) of the GDPR: (i) requirement that processing be lawful and fair; 
(ii) requirement that purposes of processing be specified, explicit and legitimate; (iii) requirement that personal data be 
adequate, relevant and not excessive; (iv)  requirement that personal data be accurate and kept up to date; (v) requirement 
that personal data be kept for no longer than is necessary and (vi) requirement that personal data be processed in a secure 
manner. 
1275 Article 32(1), GDPR 
1276 Article 35(1), GDPR 
1277 Article 33(1), GDPR 
1278 See articles 83(4) and (5), GDPR: for other infringements the penalty is set at a lower level: up to 2% of the organisation’s 
turnover in the previous financial year, or 10 million Euros, whichever is higher. 
1279 Article 82(1), GDPR 
1280 Implementing the EU’s 4th Directive (2015/849) on Money Laundering and replacing the Money Laundering Regulations 
2007 and the Transfer of Funds (Information on the Payer) Regulations 2007 
1281 Regulation 8, MLR 2017: the “regulated sector” for these purposes constitutes relevant persons, defined to include inter alia 
credit institutions, financial institutions, auditors, insolvency practitioners, independent legal professionals, corporate service 
providers and estate agents (in each case acting in the course of a business carried on by them in the UK) 
1282 Regulation 18(1), MLR 2017 
1283 Regulation 18(2), MLR 2017 
1284 Regulation 19(1), MLR 2017 
1285 Regulations 21 to 24, MLR 2017 
1286 Regulations 27 to 38, MLR 2017 
1287 Regulations 39 to 40, MLR 2017 
1288 Regulation 19(3), MLR 2017 

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a  regulation  company,  firm  or  institution)  must  appoint  a  member  of  its  senior 
management as its officer responsible for ensuring compliance with MLR 2017.1289 
Such  policies,  controls  and  procedures  need  to  be  proportionate  with regard  to  the  size 
and  nature  of  the  relevant  person’s  business,  and  must  be  approved  by  its  senior 
management.1290 In assessing proportionality, regard must be had to guidance issued by 
the Financial Conduct Authority (FCA) and the risk assessment.1291 The FCA maintains a 
set  of  rules  for  financial  institutions  which  inter  alia  reflects  the  requirements  of  MLR 
2017 – see the “systems and controls” rules in the FCA Handbook: SYSC 3 (Systems and 
Controls) and SYSC 6 (Compliance, Internal Audit and Financial Crime).1292 

A  person  who  contravenes  the  above  “relevant  requirements”  commits  a  criminal 
offence,1293 and shall be liable to imprisonment for a term not exceeding two years, to a 
fine, or to both.1294 Interestingly, in deciding whether an offence has been committed the 
Court must have regard to guidelines issued by the European Supervisory Authorities1295 
and  the  FCA,  as  well  as  supervisory  authorities 1296  (e.g.  Law  Society;  Institute  of 
Chartered Accountants) or appropriate body approved by the UK Treasury (e.g. the Joint 
Money Laundering Steering Group (JMLSG)).1297 

MLR  2017  gives  “supervisory  authorities”  (e.g.  the  Law  Society)  certain  powers  to 
enforce  the  Regulations:  (i)  the  power  to  require  information  from,  and  attendance  of, 
relevant and connected persons without a warrant;1298 (ii) the power to enter and inspect 
without a warrant;1299 (iii) the power to enter premises under a warrant;1300 and (iv) the 
power to retain documents.1301 Supervisory authorities also inter alia have the power  to 
impose a financial penalty on, or to publicly censure, a person, for a  contravention of  a 
relevant requirement applicable to them.1302 

Facilitation of tax evasion 

The Criminal Finances Act 2017 (CFA) introduced two new corporate criminal offences of 
failing  to  prevent  the  facilitation  of  UK  tax  evasion1303 and  failing  to  prevent  foreign  tax 
evasion1304 by  an  associated  person1305 (i.e.  a  person  who  performs  services  for  or  on 
behalf  of  the  relevant  body;  e.g.  agents,  sub-contractors  and  employees).  Failure  to 
prevent  UK  tax  evasion  can  apply  to  any  corporate,  whereas  the  failure  to  prevent 
foreign  tax  evasion  offence  applies  to  UK  corporates  or  those  carrying  on  business,  or 
part  of  a  business,  in  the  UK.  The  foreign  tax  evasion  facilitation  offence  requires  “dual 
criminality”, meaning the actions of both the taxpayer (evading tax) and the associated 
person  (the  facilitator)  must  be  an  offence  under  both  UK  law  and  the  overseas 
jurisdiction. The offences are both strict liability. There is a defence where at the time of 
the offence the relevant body had “reasonable” prevention procedures in place to prevent 
it  is  unreasonable  to  expect  such 
tax  evasion 
procedures.1306 Potential  fines  for  an  offence  of  failing  to  prevent  the  facilitation  of  tax 
evasion are unlimited. 

facilitation  offences  or  where 

1289 Regulation 21(a), MLR 2017 
1290 Regulation 19(2), MLR 2017 
1291 Regulation 19(5) and 21(10), MLR 2017 
1292 See here: https://www.handbook.fca.org.uk/handbook/SYSC/6/ 
1293 Under section 402 of the Financial Services and Markets Act 2000, the FCA is a prosecuting authority under MLR 2017; the 
Crown Prosecution Service is also a prosecuting authority 
1294 Regulation 18(1), MLR 2017; see the definition of “relevant requirements” in Regulation 75 and Schedule 6 
1295 European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions 
Authority 
1296 Schedule 1, MLR 2017 
1297 Regulation 86(2), MLR 2017 
1298 Regulation 66, MLR 2017 
1299 Regulation 69, MLR 2017 
1300 Regulation 70, MLR 2017 
1301 Regulation 71, MLR 2017 
1302 Regulation 76(2), MLR 2017. Note that the Sanctions and Anti-Money Laundering Act lists ‘gross human rights abuses’ as a 
reason for sanctions being imposed on a person. Whenever sanctions are imposed, financial institutions (in particular, but also 
other companies) need to put in place procedures to ensure compliance. 
1303 Section 45, CFA 
1304 Section 46, CFA 
1305 Section 44, CFA 
1306 Section 45(2) and 46(3), CFA 

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Bribery and corruption 

There are several bribery offences that can be committed under the UK Bribery Act 2010 
(UKBA):  the  general  offences  of  bribing  and  being  bribed; 1307 bribing  a  foreign  public 
official  (together  “the  principal  offences”);  and  a  corporate  offence  of  failing  to  prevent 
bribery by persons associated with relevant commercial organisations1308 (subject to the 
defence of having adequate procedures in place).1309 

Whereas  a  corporate  can  only  commit  one  of  the  above  principal  offences  where  some 
part of the offence involved acts or omissions by sufficiently senior officers or employees 
constituting  ‘the  directing  mind  and  will’  of  the  organisation, 1310 the  specific  corporate 
offence is strict liability: a bribe paid anywhere in the world by an associated person with 
the  intention  of  benefiting  the  corporate  (even  without  the  corporate’s  knowledge)  will 
cause the corporate to commit an offence, unless it has adequate procedures in place to 
prevent bribery. “Associated person” is a widely defined term:  any person who performs 
services for or on behalf of the organisation (and may include e.g. an employee, agent or 
subsidiary).1311 

The 2011 UKBA Guidance (the UKBA  Guidance)1312 published by the Ministry of Justice 
lists six key principles which underpin an effective anti-bribery programme amounting to 
“adequate procedures”: (i) proportionate procedures; (ii) top-level commitment; (iii) risk 
assessment;  (iv)  due  diligence;  (v)  communication  (including  training);  and  (vi) 
monitoring and review.1313 

If the general offences or the offence of bribing a foreign public official are committed by 
a company, any senior officer is guilty of the same offence if he consents to or connives 
in the commission of the offence, provided  that, if the offence is committed outside the 
UK, he has a close connection to the UK.1314 

Modern slavery 

The  Modern  Slavery  Act  2015  (MSA)  consolidates  and  clarifies  the  existing  offences  of 
slavery, servitude and forced or compulsory labour, and human trafficking (the principal 
offences). 1315  A  conviction  for  a  principal  offence  can  carry  a  penalty  of  up  to  life 
imprisonment and a fine.1316 

The  MSA  also  requires  certain  businesses  to  publish  slavery  and  human  trafficking 
statements on a prominent place on their websites describing the steps they have taken 
to prevent slavery and human trafficking in their businesses and supply chains during the 
relevant financial year.1317 A company which carries on a business, or part of a business, 
in the UK, supplies goods or services and has an annual turnover of £36 million or more 
(globally)  is  obliged  to  prepare  a  slavery  and  human  trafficking  statement, 1318  which 
must  be  approved  by  the  board  and  signed  by  a  director. 1319 The  statement  must  be 
published as soon as possible after the  financial year  end,1320 and the UK Government’s 
official  guidance  to  the  MSA,  Transparency  in  Supply  Chains  etc.  A  practical  guide  (the 

1307 Sections 1 and 2, UKBA 
1308 Section 7(1), UKBA 
1309 Section 7(2), UKBA 
1310 Consistent with general principles of English criminal law 
1311 Section 8, UKBA 
1312 https://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf, Page 15 
1313 Pages 20 to 31, UKBA Guidance 
1314 Section 14, UKBA 
1315 NB: These offences do not purport to have extra-territorial application, save to the extent that the offence of human 
trafficking (section 2) extends to the conduct of UK nationals anywhere, as well as the conduct of non-UK nationals where some 
part of the offence concerns the UK. Consistent with general principles of English criminal law, a corporate can only commit one 
of these offences where some part of the offence involved acts or omissions by sufficiently senior officers or employees 
constituting ‘the directing mind and will’ of the organisation. 
1316 Section 5(1), MSA 
1317 Section 54, MSA 
1318 Section 54(2), MSA 
1319 Section 54(6), MSA 
1320 Section 54(7), MSA 

311 

 
 
                                                        
MSA Guidance), indicates that this should be done within six months.1321 

The  discretionary  information  which  businesses  are  recommended  to  include  in  the 
statement  is  as  follows:  (a)  the  organisation’s  structure,  its  business  and  its  supply 
chains;  (b)  policies  in  relation  to  slavery  and  human  trafficking;  (c)  due  diligence 
processes in relation to slavery and human trafficking in its business and supply chains; 
(d)  the  parts  of  the  business  and  supply  chains  where  there  is  a  risk  of  slavery  and 
human trafficking taking place, and the steps taken to assess and manage that risk; (e) 
the  business’  effectiveness  in  ensuring  that  slavery  and  human  trafficking  is  not  taking 
place in its business or supply chains, measured against such performance indicators as 
it  considers  appropriate;  and  (f)  the  training  about  slavery  and  human  trafficking 
available to its staff.1322 

A  failure  by  a  business  to  prepare  a  slavery  and  human  trafficking  statement  after  the 
Courts  have  (on  the  application  of  the  Government)  ordered  the  publication  of  such  a 
statement,  could  lead  to  an  order  for  contempt  of  court,  punishable  by  an  unlimited 
fine.1323 Whilst  it  is  unlikely  many  businesses  would  ignore  such  an  order,  the  principal 
consequences  of  failing  to  prepare  a  statement  (or  otherwise  publishing  a  statement 
which  describes  an  anti-slavery  programme  which  is  less  robust  than  those  of  any 
competitors)  are  reputational  (and  potentially  financial)  in  nature,  given  the  increased 
scrutiny being applied to such statements by investors and NGOs. A  statement which is 
materially  inaccurate  could  lead  to  potential  civil  litigation  from  shareholders  or  other 
stakeholders,  and  potential  personal  liability  for  the  directors  for  negligence  and  /  or 
breach of duty (e.g. the duty to act with reasonable care, skill and diligence1324). 

Negligence at common law 

Under  English  tort  law,  a  company  may  be  found liable in  negligence  if it is  established 
the  company  owed  a  duty  to  the  claimant(s),1325 where  it  then  breached  that  duty,1326 
causing1327 the claimant(s) to suffer loss which is recoverable.1328 Once a duty of care has 
been established, it falls to be considered whether the relevant duty has been breached. 
This involves  an  assessment  of  whether  the  defendant’s  conduct  fell below  an  objective 
standard of care: “Negligence is the omission to do something which a reasonable man, 
guided upon those considerations which ordinarily regulate the conduct of human affairs, 
would do, or doing something which a prudent and reasonable man would not do”.1329 

A  number  of  claims  founded  in  negligence  have  been  brought  against  UK  companies  in 
the  English  courts  by  claimants  seeking  damages  for  harm  allegedly  caused  by 
subsidiaries. In 2012, the Court of Appeal in Chandler v Cape Plc,1330 found that a parent 
company had assumed a duty of care towards the employees of its subsidiary (who had 

1321 Paragraph 7.4; Transparency in Supply Chains etc. A practical guide, first published on 29 October 2015 and updated on 22 
October 2018; See here: 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/649906/Transparency_in_
Supply_Chains_A_Practical_Guide_2017.pdf 
1322 Section 54(5), MSA 
1323 Section 54(11), MSA, empowers the Secretary of State to bring civil proceedings in the High Court for an injunction for 
specific performance under section 45, Court of Session Act 1988, which states: “[t]he Court may, on application by summary 
petition …(b) order the specific performance of any statutory duty, under such conditions and penalties (including a fine and 
imprisonment, where consistent with the enactment concerned) in the event of the order not being implemented, as to the 
Court seem proper.” 
1324 Section 174, CA 2006 
1325 The English Courts have developed a number of tests which may be used to determine whether a duty of care is “owed”. 
See Caparo Industries v Dickman [1990] 1 All ER 568 (which establishes a threefold test of whether: (1) the damage which 
occurs is foreseeable; (2) there is a sufficiently proximate relationship between the parties; and (3) it is fair, just and 
reasonable in all the circumstances to impose a duty of care); Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (whether 
the defendant has assumed responsibility towards the claimant); and Murphy v Brentwood District Council [1991] UKHL 2 
(where the duty is assessed by analogy to other cases where a duty of care was established). 
1326 A person who owes a duty to take care at common law will breach that duty if they fail to exercise reasonable care. The 
standard of care is that of the hypothetical “reasonable man”; see Hall v Brooklands Auto-Racing Club [1933] 1 KB 205 
1327 “Causation” is assessed by reference to a ‘but for’ test; i.e. would the claimant’s damage have occurred but for the 
defendant’s negligence? See for example: South Australia Asset Management Corpn v York Montague Ltd and Banque Bruxelles 
Lambert SA v Eagle Star Insurance Co Ltd [1996] UKHL 10 
1328 In tortious claims, the loss must have been reasonably foreseeable to be recoverable; see: Overseas Tankship (UK) Ltd v 
Morts Dock and Engineering Co Ltd (The Wagon Mound) [1961] AC 388 
1329 Blyth v The Company of Proprietors of The Birmingham Waterworks [1856] EWHC Exch J65 
1330 Chandler v Cape Plc [2012] EWCA (Civ) 525 

312 

 
 
                                                        
been exposed to asbestos) because of the parent company’s “state of knowledge” about 
the  factory  in  which  these  employees  worked  and  “its  superior  knowledge  about  the 
nature and management of asbestos risks”1331 associated with its subsidiary’s operations. 
Subsequently,  in  Thompson  v  The  Renwick  Group  Plc,1332 the  Court  of  Appeal  found  no 
duty of care between the parent company and the employees of its subsidiary, as there 
was  no  evidence  the  parent  carried  on  any  business  apart  from  holding  shares  in  its 
subsidiaries,  and  so  it  was  not  “better  placed  because  of  its  superior  knowledge  or 
expertise, to protect the employees of subsidiary companies”.1333 

Both  cases  proceeded  on  the  basis  of  the  three  part  test  in  Caparo  Industries  v 
Dickman1334 as  a  basis  for  establishing  the  parent  company’s  duty  of  care.  However,  in 
April  2019  the  Supreme  Court  found  in  Vedanta  Resources  plc  and  another  v  Lungowe 
and  others 1335  (referenced  above)  that  the  Caparo  test  and  “its  three  ingredients  of 
foreseeability, proximity and reasonableness”1336 ought to be applied only when “dealing 
with a novel category of common law negligence liability”.1337 In the Court’s view, “there 
is  nothing  special  or  conclusive  about  the  bare  parent/subsidiary  relationship,  it  is 
apparent that the general principles which determine whether A owes a duty of care to C 
in respect of the harmful activities of B are not novel at all”.1338 

The  Supreme  Court’s  ruling  concerned  a  jurisdictional  challenge  brought  by  Vedanta 
Resources Plc and its Zambian subsidiary; it remains to be seen how the lower courts will 
interpret  the  Court’s  reasoning  in  due  course.1339 In  determining  that  there  was  a  “real 
issue to be tried” against Vedanta (an important question given that the claimants relied 
on Vedanta’s domicile in the UK as a basis for bringing the claim in England against both 
Vedanta  and  its  Zambian  subsidiary,  notwithstanding  the  strong  “connecting  factors” 
between  the  facts  of  the  dispute  and  the  jurisdiction  of  the  Zambian  courts),  the  Court 
affirmed  that  the  “the  critical  question  [was]  whether  Vedanta  sufficiently  intervened  in 
the management of the Mine owned by its subsidiary KCM to have incurred… a common 
law duty of care”.1340 In the substantive trial, this question will be one of Zambian law, as 
the law of the dispute. 

For  the  purposes  of  the  jurisdictional  challenge  and  the  “real  issue”  question,  the  Court 
was satisfied that the Court of Appeal applied the law correctly when assessing the facts 
and  so  refused  to  revisit  the  factual  findings.  However,  the  Court  did  comment  that  “if 
conducting  the  analysis  afresh”,  it  would  have  been  “persuaded”  by  “the  published 
materials  in  which  Vedanta…asserted  its  own  assumption  of  responsibility  for  the 
maintenance  of  proper  standards  of  environmental  control  over  the  activities  of  its 
subsidiaries…  [which  it]…  laid  down  but  also  implemented…by  training,  monitoring  and 
enforcement”, in concluding that a “sufficient level of intervention by Vedanta” was “well 
arguable”. 

III.  COMPARATIVE ANALYSIS 

The  legislation  referred  to  in  Section  II  above  can  broadly  be  divided  into  various 
categories. Understanding the differences between these laws and regulations can help to 
explain the legislator’s intentions in promulgating them, and facilitates an assessment of 
which  types  of  laws  requiring  due  diligence  are  generally  regarded  as  having  had  the 

1331 Chandler v Cape Plc [2012] EWCA (Civ) 525, paragraph 78 
1332 Thompson v The Renwick Group Plc [2014] EWCA Civ 635 
1333 Thompson v The Renwick Group Plc [2014] EWCA Civ 635, paragraph 37 
1334 Caparo Industries v Dickman [1990] 1 All ER 568 
1335 Vedanta Resources plc v Lungowe and Others [2019] UKSC 20; Residents of the Zambian city of Chingola brought 
proceedings in the English courts against Vedanta Resources Plc, a UK incorporated parent company, and Konkola Copper Mines 
Plc, its Zambian subsidiary, claiming that waste discharged from a Zambian copper mine (owned and operated by KCM) had 
polluted the local waterways, causing personal injury to the local residents, as well as damage to property and loss of income. 
1336 I.e. (1) the damage which occurs is foreseeable; (2) there is a sufficiently proximate relationship between the parties; and 
(3) it is fair, just and reasonable in all the circumstances to impose a duty of care 
1337 Vedanta Resources plc v Lungowe and Others [2019] UKSC 20, paragraph 56 
1338 Vedanta Resources plc v Lungowe and Others [2019] UKSC 20, paragraph 54 
1339 Although English law was applied to the jurisdictional challenge, the trial of the substantive issues will be a matter of 
Zambian law. 
1340 Vedanta Resources plc v Lungowe and Others [2019] UKSC 20, paragraph 44 

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most  impact  in  terms  of  influencing  corporate  conduct.    In  that  regard,  please  refer  to 
Section  IV  below  for  further  analysis  on  the  perceived  effectiveness  of  these  laws  and 
proposed  areas  of  reform.  In  relation  to  non-judicial  grievance  mechanisms,  the  UK’s 
OECD National Contact Point has sometimes referred to human rights due diligence being 
required by a company, though there have been no effective remedies provided directly 
to the victims.1341 

Requirement vs defence 

Due  diligence  as  a  defence:  Certain  laws  provide  for  the  possibility  of  strict  liability  for 
non-natural  persons  (e.g.  body  corporates)  for  criminal  offences.  In  each  case,  the 
intention  of  the  drafters  was  to  avoid  the  relevant  prosecuting  authorities  having  to 
surmount  a  significant  hurdle  when  prosecuting  legal  persons:  ordinarily,  under  the 
‘identification  principle’,  it  is  necessary  to  establish  that  sufficiently  senior  officers  or 
employees constituting ‘the directing mind and will’ of the organisation were involved in 
the  acts  or  omissions  which  gave  rise  to  the  offence. 1342 Strict  liability  offences  (e.g. 
those  described  in  the  UKBA  (bribery),  CFA  (tax  evasion),  FSA  (food  safety)  and  CPA 
(consumer  protection))  dispense  with  this  requirement.  It  is  evident  that  the  intention 
behind the creation of such offences is the “deterrent effect”, and the promotion of good 
business conduct.1343 

As a general rule, statutes which contain these sorts of strict liability offences contain due 
diligence style defences (e.g. “adequate procedures” in the UKBA, “reasonable prevention 
procedures” under the CFA, or the “all due diligence” defences in the FSA and CPA). This 
was  well-highlighted  by  the  Law  Commission  in  its  pre-UKBA  legislative  review, 
“Reforming Bribery”, published in 2008. In proposing the defence to the UK Bribery Bill’s 
corporate offence,1344 the Law Commission noted several other criminal offences “subject 
to a defence such as due diligence”, including section 21(1) of the FSA.1345 

These  “due  diligence”  defences  ensure  that  defendants  are  afforded  due  process  where 
they  may  otherwise  have  little  knowledge  of  the  events  which  gave  rise  to  the  offence. 
Indeed,  strict  liability  offences  without  such  defences  are  very  rare  under  English law  – 
e.g. driving without insurance.1346 It is worth noting that although the relevant statutory 
defences  in  the  UKBA  and  CFA  respectively  use  the  language  of  “adequate  procedures” 
and “reasonable prevention procedures” rather than the term “due diligence”, the official 
legislative  guidance  published  by  the  Government  pursuant  to  these  statutes  expressly 
use  the  term  “due  diligence”  in  various  contexts  (including  when  conducting  risk 
assessments  and  engaging  business  partners).  Note  for  example  the  following:  “Due 
diligence  is  firmly  established  as  an  element  of  corporate  good  governance  and  it  is 
envisaged that due diligence related to bribery prevention will often form part of a wider 
due diligence framework”.1347 

That  said,  where  (as  in  these  examples)  due  diligence  operates  as  a  statutory  defence, 
there  is  (generally)  no  requirement  on  a  company  to  carry  out  that  due  diligence. 
Theoretically if a company wanted to ‘run the gauntlet’ (for the purposes of this offence) 

1341 For a discussion of the UK’s National Contact Point, see the UK’s Parliamentary Joint Committee on Human Rights,  Human 
Rights and Business 2017: Promoting Responsibility and Ensuring Accountability, April 2017, paras 201-221, available at 
www.parliament.uk/business/committees/committees-a-z/joint-select/human-rights-committee/news-parliament-2015/human-
rights-business-report-published-16-17, and Amnesty International, Obstacle Course (2018), 
https://www.amnesty.org.uk/files/uk_ncp_complaints_handling_full_report_lores_0.pdf?eHZjEXH9mk6pJMnaNhd33kDJ1A6K6x
Mo=. 
1342 https://www.cps.gov.uk/legal-guidance/corporate-prosecutions. 
1343 https://hansard.parliament.uk/Commons/2016-11-15/debates/bab33d05-5b0a-49c2-b6e9-
1d13d6a02720/CriminalFinancesBill(FirstSitting) (Accessed: 1 May 2019) 
1344 Now enshrined in section 7(2), UKBA 
1345 Law Com No 313, Reforming Bribery,  Law Commission, 19 November 2008, page 118: 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/231183/0928.pdf 
(Accessed: 1 May 2019) 
1346 Section 143, Road Traffic Act 1988 
1347 UKBA Guidance, page 27; see also Tackling tax evasion: Government guidance for the corporate offences of 
failure to prevent the criminal facilitation of tax evasion, HM Revenue &  Customs, 1 September 2017: 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/672231/Tackling-tax-
evasion-corporate-offences.pdf (Accessed: 1 May 2019) 

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such that it performed no due diligence, it would be entitled to do so (on the basis that it 
would  have  no  defence  in  the  event  of  an  offence).  However,  depending  on  the  risks 
presented by the company’s operating context, such an approach may put the company’s 
directors  in  breach  of  their  duties  (e.g.  to  act  with  reasonable  care,  skill  and  diligence 
and to promote the success of the company).1348 

Due diligence as a requirement: Other laws (a good proportion of which are derived from 
EU law) actively require the performance of due diligence as a matter of compliance. In 
other  words,  the  failure  to  properly  carry  out  the  due  diligence  is  (itself)  the  offence  or 
basis for liability. Examples of such laws include the CSHHR (hazardous substances), the 
GDPR / DPA (data protection) and the MLR 2017 (money-laundering). 

A  particularly  interesting  aspect  to  MLR  2017  is  the  role  played  by  supervisory  bodies 
(e.g.  the  FCA)  in  defining  the  parameters  of  sufficiency  and  proportionately  in  terms  of 
money-laundering  risk  mitigation  procedures:  in  determining  whether  an  offence  has 
been committed the Court must have regard to guidelines issued by such bodies. On one 
view,  applying  such  officially  recognised  guidance  operates  as  a  ‘defence’  to  a  possible 
offence of failing carry out due diligence.1349 

Requirements to report 

Many  of  the  provisions  relevant  to  due  diligence  do  not  require  companies  to  publicly 
report on the outcomes of their due diligence processes. Rather, the emphasis is on the 
maintenance of a system of internal controls (e.g. health and safety laws, food standards 
or  consumer  protection)  which  mitigates  the  risk  of  an  adverse  outcome  on  an  ongoing 
basis.  (Certain  laws,  such  as  GDPR  (data  protection),  require  a  company  to  report  to  a 
regulator where there has been a breach.)1350 

Other  laws,  such  as  the  MSA  (modern  slavery)  are  principally  designed  to  promote 
transparency, to encourage companies to compete with each other in terms of the extent 
of  the  due  diligence  /  risk  mitigation  they  undertake,  bearing  in  mind  scrutiny  from 
investors and other stakeholders. The MSA contains only discretionary reporting criteria, 
and  a  company  would  not  strictly  be  required  to  implement  objectively  sufficient  due 
diligence  with  respect  to  modern  slavery,  or  indeed  any  due  diligence  (notwithstanding 
the  reputational  risks  of  repeatedly  reporting  meagre  modern  slavery  measures  on  an 
annual  basis).  It  is  partly  for  this  reason  that  reporting  requirements  such  as  the  MSA 
have been the subject of some criticism, discussed further below in Section IV. 

Responsibility to respect human rights 

The  majority  of  the  laws  set  out  above  require  relevant  organisations  to  assess  risks 
which pertain to specific issues which present  risks to stakeholders /  rightsholders (e.g. 
GDPR, with respect to the right to privacy) or the CMCHA (which raises issues in terms of 
the  right  to  life  in  the  corporate  manslaughter  context).  An  obvious  difference  between 
these  laws  and  the  requirements  of  the  UN  Guiding  Principles  is  that  the  obligation  / 
imperative  to  assess  and  manage  risks  under  these  laws  relates  only  to  the  matters 
falling  within  the  scope  of  each  law  (rather  than  the  full  spectrum  of  rights  covered  by 
the  UN  Guiding  Principles).  Subject  to  that  important  distinction,  laws  such  as  GDPR 
contain similar components in so far as assessed risks ought to be prioritised, managed 
and (albeit only in some cases) reported on, though principally to regulators rather than 
the broad spectrum of stakeholders. 

The  requirements in the CA 2006 are different, however, and  worthy  of particular note. 
Although  none  of  the  three  reporting  obligations  under  the  CA  2006  described  above 
require the performance of due diligence, as stated above a company may not be able  to 
report  accurately  on  its  principal  non-financial  risks,  policies  and  policy  effectiveness 
regarding  human  rights  issues  without  first  carrying  out  human  rights  focussed  due 

1348 Sections 172 and 174, CA 2006 
1349 Regulation 86(2), MLR 2017 
1350 Article 35(1), GDPR 

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diligence under the UN Guiding Principles. By way of example, in the supply chain context 
the commentary to UN Guiding Principle 19 recognises that an ongoing relationship with 
a  supplier  (where  its  activities  raise  sufficiently  severe  human  rights  issues)  could  have 
“reputational,  financial  or  legal”  repercussions. 1351  Equally,  if  the  supplier  concerned 
provides “a product or service which is essential”, terminating the relationship may raise 
particular “challenges”.1352 

Depending  on  the  circumstances,  this  sort  of  scenario  may  be  sufficiently  material  to 
warrant inclusion in a company’s strategic report, which the company would only be well-
positioned  to  report  on  having  carried  out  human  rights  due  diligence  as  envisaged  by 
Guiding  Principles  17  to  21.  In  this  regard,  it  is  worth  noting  that  the  FRC  encourages 
companies  to  reference  “guidance  or  a  voluntary  framework”  (and  in  the  human  rights 
context  the  UN  Guiding  Principles  serve  as  the  most  authoritative  such  framework). 1353 
To date there has been little enforcement action taken by the FRC against companies for 
failing  to  report  on  “non-financial”  issues.  However,  in  2018  NGO  Client  Earth  filed 
complaints with the FRC Conduct Committee and the FCA against prominent insurers and 
FTSE100  companies  (as  well  as  their  auditors)  alleging  the  companies’  strategic  reports 
included insufficient detail regarding principal risks and uncertainties to their businesses 
as  a  result  of  climate  change. 1354  Greater  enforcement  activity  may  be  reasonably 
anticipated  in  the  coming  years,  and  there  is  no  reason  in  principle  why  a  similar 
complaint could not relate to human rights issues. 

Responsibility with respect to the acts of subsidiaries and supply chain actors 

The majority of the laws described above require or expect due diligence with respect to 
a  company’s  own  activities,  rather  than  subsidiaries  or  the  supply  chain.  The  CPA  and 
FSA,  however,  incentivise  due  diligence  by  companies  over  the  operations  of  their 
subsidiaries  and  suppliers  by  extending  criminal  liability  to  entities  which  simply  sell  or 
supply  defective  or  harmful  products  (i.e.  including  where  the  offending  product  was 
developed  or  manufactured  by  another  entity) 1355  subject  to  the  due  diligence 
defences.1356 

The MSA and CA 2006 reporting / disclosure requirements also extend to the conduct of 
subsidiaries and suppliers: 

  Section 54 of the MSA expressly references modern slavery in supply chains as being 
relevant  to  a  company’s  statement  published  under  the  provision,1357 and  the  MSA 
Guidance  recognises  that  for  these  purposes  subsidiaries  can  form  part  of  a  parent 
company’s “own business or supply chain”.1358 The MSA Guidance also clarifies that a 
parent  company  may  produce  one  statement  on  behalf  of  itself  and  its  relevant 
subsidiaries caught by section 54 of the MSA.1359 

  Recital  8  to  the  EU  Non-Financial  Reporting  Directive  (transposed  into  UK  law 
through amendments to the CA 2006) notes that “risks of adverse impact may stem 
from…business  relationships,  including  [a  company’s]  supply  and  subcontracting 
chains”. 

The  nature  of  these  reporting  /  disclosure  requirements  means  they  do  not  (at  least 
directly) create liability for companies where human rights issues do occur in the supply 
chain, although as noted above failing to disclose human rights related risks could lead a 
company to breach its duties under the CA 2006. 

1351 UN Guiding Principles on Business and Human Rights, page 22 
1352 UN Guiding Principles on Business and Human Rights, page 22 
1353 FRC 2018 Guidance, clause 7B.58, page 50 
1354 See here: https://www.documents.clientearth.org/library/download-category/company-reporting/ (Accessed: 1 May 2019) 
1355 Section 12(1), CPA and section 8, FSA (as amended by Regulation 10(b), General Food Regulations 2004, and Article 14(1), 
EU Regulation 178/2002) 
1356 Section 21(1), FSA and section 39(1), CPA 
1357 Section 54(5), MSA 
1358 MSA Guidance, page 23 
1359 MSA Guidance, paragraph 3.4, page 7 

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The  position  under  the  MSA  and  CA  2006  may  be  contrasted  with  “failure  to  prevent” 
style offences under the UKBA (failure to prevent bribery1360) and CFA (failure to prevent 
the  facilitation  of  tax  evasion 1361 ).  These  offences  do  extend  a  company’s  potential 
liability to the acts of entities constituting “associated persons”, where the company fails 
to prevent relevant improper conduct by such persons. Depending on the circumstances, 
“associated persons” could include suppliers, so long as they  are providing services “for 
or on behalf of” the company.1362 In this regard, the UKBA Guidance states that “where a 
supplier  can  properly  be  said  to  be  performing  services  for  a  commercial  organisation 
rather  than  simply  acting  as  the  seller  of  goods,  it  may  also  be  an  ‘associated’ 
person”.1363 

It is worth adding that  if a company identifies (perhaps through due diligence enquiries 
carried  out  in  response  to  the  MSA’s  disclosure  requirements)  that  its  subsidiaries  or 
supply  chain  actors  are  engaging  in  relevant  criminal  conduct  for  the  purposes  of  the 
Proceeds of Crime Act 2002 (which would include slavery or human trafficking occurring 
outside the UK, on the basis that such conduct would be an offence under sections 1 to 4 
of the MSA had it occurred in the UK1364) this could trigger criminal liability issues to the 
extent the company then deals in the proceeds of such crime (i.e. produce or profits from 
modern  slavery),  and  potentially  creates  reporting  obligations  (to  the  extent  the 
company is in the regulated sector).1365 

Finally, the common law negligence cases described above1366 demonstrate how a parent 
company  may  (through  its  own  actions)  assume  a  direct  duty  of  care  to  individuals 
adversely affected by the acts of a subsidiary. Although the only successful claims to date 
have  been  brought  by  employees  of  subsidiaries,  the  Supreme  Court’s  decision  in 
Vedanta  confirms  that  a  claim  may  still  succeed  where  there  is  no  such  underlying 
employment relationship. Indeed, the Court’s conclusion that “there is nothing special or 
conclusive about the bare parent/subsidiary relationship”1367 would suggest a case could 
(at least in theory) succeed against a defendant company where the company’s supplier 
caused  harm  to  the  claimant(s),  provided  the  claimant(s)  could  establish  that  the 
company “intervened in the management of the supplier’s activities”1368 in such a way as 
to assume a duty of care to the claimant(s). 

IV. 

REGULATORY FRAMEWORK 

Meaning of due diligence 

Although  “due  diligence”  is  expressly  used  as  a  term  in  many  of  the  laws  described 
above, it has received relatively little judicial attention clarifying its meaning. This is well 
demonstrated by the court’s approach in Turtington v United Co-Operatives Limited,1369 a 
High  Court  case  regarding  the  defendant’s  liability  under  the  CPA.  With  respect  to  the 
due  diligence  defence  in  section  39(1)  of  the  CPA,  Leggatt  LJ  cited  with  approval  the 
following  analysis  proffered  by  Lord  Parker  in  Sherratt  v.  Geralds  the  American 
Jewellers, 1370 a  case  concerning  the  application  of  a  similar  defence  under  the  Trade 
Descriptions  Act  1968:  “Whatever  ‘all  due  diligence’  may  mean  there  is  clearly  an 
obligation  to  take  reasonable  precautions  if  there  are  any  precautions  which  are 
reasonable that can be taken” to avoid committing the offence being committed. 

In  Turtington,  the  defendant  had  instructed  its  employees  not  to  accept  furniture  from 
manufacturers without batch labels (there was no check on the significance of the batch 

1360 Section 7(1), UKBA 
1361 Sections 45(1) and 46(1), CFA 
1362 Section 8(1), UKBA and section 44(4), CFA 
1363 UKBA Guidance, page 16 
1364 See sections 327 to 329, Proceeds of Crime Act 2002 
1365 Section 330, Proceeds of Crime Act 2002 
1366 See Section II, sub-section (e), under the heading “Negligence at common law”  
1367 Vedanta Resources plc v Lungowe and Others [2019] UKSC 20, paragraph 54 
1368 Vedanta Resources plc v Lungowe and Others [2019] UKSC 20, paragraph 44 
1369 David Henry Turtington v United Co-Operatives Limited, 1993 WL 963894 
1370 Sherratt v. Geralds the American Jewellers (1970) LGR 256  

317 

 
 
 
 
                                                        
number  for  the  purposes  of  assessing  compliance  with  the  Furniture  and  Furnishings 
(Fire)  (Safety)  Regulations  1988).  The  Court  found  that  these  instructions  “fell  short  of 
what  was  requisite  or  “due”  [and  accordingly  the  defendant]  failed  to  make  good  the 
statutory defence”. As there was a “reasonable step that was not taken, [the defendant] 
failed  to  show  that  they  had  taken  all  reasonable  steps”.  The  emphasis  on 
‘reasonableness’ bears a similarity to the standard for ‘breach of duty’ in tort law: failing 
to  do  something  (e.g.  due  diligence  or  taking  reasonable  precautions)  which  “a 
reasonable man would do” in the circumstances.1371 

Useful precedent can also be found in employment cases interpreting equality legislation 
predating  the  EA  2010,  which  contained  a  similar  “all  reasonable  steps”  defence  to  an 
employer’s  potential  vicarious  liability. 1372  In  Croft  v  Royal  Mail  Group,  the  Court  of 
Appeal  affirmed  a  two  stage  process  when  assessing  whether  the  defence  has  been 
established. According to the Court, “the proper approach is: (1) to identify whether the 
respondent  took  any  steps  at  all  to  prevent  the  employee,  for  where  it  is  vicariously 
liable,  from  doing  the  act  or  acts  complained  of  in  the  course  of  his  employment;  (2) 
having identified what steps, if any, they took to consider whether there were any further 
acts,  that  they  could  have  taken,  which  were  reasonably  practicable”.1373 Applying  this 
approach,  the  Employment  Appeal  Tribunal  in  Caspersz  v  Ministry  of  Defence  deemed 
that the defence may be available where, for example, the employer “had a good policy, 
which was not just paid lip service to but was observed” (i.e. the mere existence of the 
policy would be insufficient).1374 

This reasoning suggests that,  where due diligence  operates as a defence to a particular 
liability (whether civil or criminal), the “due” aspect introduces an element of objectivity, 
and that for the diligence to be “due” it must meet a certain standard. This objectivity is 
reflected  in  the  UKBA  Guidance  on  the  defence  of  “adequate  procedures”  to  prevent 
bribery, and the guidance published by HMRC (HMRC  Guidance)1375 with respect to the 
defence  of  “reasonable  prevention  procedures”  to  prevent  facilitating  tax  evasion:  both 
defences emphasise “proportionality”,1376 which inherently imports an objective standard. 
Both  documents  also  note  the  “size”,  “nature”  and  “complexity”  of  a  business  will  to 
some  extent  determine  levels  of  risk  and  therefore  what  amounts  to  “proportionate” 
procedures. 1377  This  risk-based  approach  can  also  be  found  in  GDPR,  which  requires 
organisations  to  establish  data  protection  “measures  [which]  ensure  a  level  of  security 
appropriate to the risk”, taking into account the “nature, scope, context and purposes of 
[data]  processing”  and  risks  to  the  “rights  and  freedoms  of  natural  persons”. 1378 This 
language  bears  a  strong  resemblance  to  UN  Guiding  Principle  17(b),  which  states  that 
human  rights  due  diligence:  “Will  vary  in  complexity  with  the  size  of  the  business 
enterprise,  the  risk  of  severe  human  rights  impacts,  and  the  nature  and  context  of  its 
operations”. 

It  is  clear  that,  where  due  diligence  provides  a  statutory  defence  to  an  offence,  the 
relevant defendant must exercise due diligence to avoid committing  the specific offence. 
In  Balding  v  Lew-Ways  Ltd,1379 the  section  39(1)  CPA  defence  was  not  available,  as  the 
defendant had relied on British Standard BS 5665 when testing product safety, and not 
the  Toys  (Safety)  Regulations  1974.  Such  statutory  due  diligence  defences  effectively 
operate  to  disapply  the  principle  of  res  ipsa  loquitur  (i.e.  ‘the  accident  is  sufficient  to 
establish the negligence’). In Cow & Gate Nutricia Ltd v Westminster City Council,1380 for 

1371 Blyth v The Company of Proprietors of The Birmingham Waterworks, [1856] EWHC Exch J65 
1372 Section 109(4), EA 2010 
1373 Croft v Royal Mail Group, [2003] EWCA Civ 1045, paragraph 57 
1374 Caspersz v Ministry of Defence, UKEAT/0599/05 
1375 See here: 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/672231/Tackling-tax-
evasion-corporate-offences.pdf (Accessed: 1 May 2019) 
1376 UKBA Guidance, page 21 (and various); HMRC Guidance, page 21 (and various) 
1377 UKBA Guidance, page 21 (and various); HMRC Guidance, page 21 (and various) 
1378 Article 31(1), GDPR 
1379 Balding v Lew-Ways Ltd, [1995] 2 WLUK 441 
1380 Cow & Gate Nutricia Ltd v Westminster City Council, [1995] 3 WLUK 186 

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example, the High Court concluded that the magistrate had been wrong to assume that 
res  ipsa  loquitur  applied  where  bone  fragments  were  found  in  a  jar  of  baby  food:  the 
presence  of the bone fragments did not in itself mean a defence under section 21(1) of 
the FSA might be available. 

In  criminal cases, it is for the defendant to  show that the defence  is established on the 
balance of probabilities.1381 In R v Skansen Interiors Limited (the only case to date where 
there  was  a  contested  prosecution  of  a  company  under  section  7(1)  of  the  UKBA)  the 
judge  directed  the  jury  to  consider  (bribery  having  been  established 1382)  whether  the 
company  had  established  “on  a  balance  of  probabilities  –  i.e.  that  it  is  more  likely  than 
not  –  that  it  had  adequate  procedures  in  place  designed  to  prevent  persons  associated 
with  the  company  from  engaging  with  bribery”.1383 By  contrast,  in  civil  tort  cases  the 
burden  is  on  the  claimant  to  show  that  the  defendant’s  conduct  breached  the  requisite 
standard of care.1384 

Legislation effectiveness 

In  policy  terms,  certain  criminal  laws  described  above  were  enacted  to  overcome  a 
perceived major hurdle for prosecuting authorities in seeking to prove the commission of 
an offence by corporates (particularly larger ones). Absent such legislation, the principles 
established  in  the  House  of  Lords  case  of  Tesco  Supermarkets  Limited  v  Nattrass 1385 
apply.  The  case  is  long-standing  authority  that  a  company’s  criminal  liability  will  only 
attach to the acts of those who are sufficiently senior to constitute its “directing mind and 
will”.    According  to  Lord  Reid  in  Tesco,  the  relevant  individual  must  be:  “acting  as  the 
company…  his  mind  which  directs  his  acts  is  the  mind  of  the  company.  If  it  is  a  guilty 
mind  then  that  guilt  is  the  guilt  of  the  company.” 1386 The  effect  of  this  ‘identification 
principle’  is  that  “it  is  far  easier  to  fix  small,  owner-managed  companies  with  the 
requisite knowledge and intent than large, multi-national corporations”.1387 

Much  of  the  key  criminal  legislation  dispensing  with  the  need  to  establish  the 
identification principle only became law in the last ten to fifteen years, but these laws are 
generally regarded as effective. Following an extensive consultation process, a House of 
Lords  Select  Committee  recently  concluded  in  a  March  2019  report,  The  Bribery  Act 
2010:  post-legislative  scrutiny  (2019  UKBA  Report),  that:  “the  new  offence  of 
corporate failure to prevent bribery is regarded as particularly effective, enabling those in 
a  position  to  influence  a  company’s  manner  of  conducting  business  to  ensure  that  it  is 
ethical, and to take steps to remedy matters where it is not”.1388 The CMCHA (corporate 
manslaughter),  by  contrast,  has  been  the  subject  of  some  criticism  as  it  has  been 
suggested the “linkage  of ‘senior  management’ to persons who play a significant role in 
the  formulation  and/or  implementation  of  organisation  policy  appears…  to  continue  the 
identification  doctrine's  preoccupation  with  individual  rather  than  systemic  fault”. 1389 
Some commentators have deemed this partly a reason why only twelve convictions were 
secured under the CMCHA between 2008 and 2015.1390 

1381 Coventry CC v Ackerman Group Plc, [1994] 7 WLUK 138 
1382 For the purposes of section 7(1), UKBA 
1383 The case is unreported but discussed in detail in the report published by the House of Lords Select Committee on the 
Bribery Act 2010, published on 14 March 2019, available here: 
https://publications.parliament.uk/pa/ld201719/ldselect/ldbribact/303/303.pdf, paragraph 203 (Accessed: 1 May 2019) 
1384 Blyth v The Company of Proprietors of The Birmingham Waterworks, [1856] EWHC Exch J65 
1385 Tesco Supermarkets Limited v Nattrass, [1971] UKHL 1 
1386 Tesco Supermarkets Limited v Nattrass, [1971] UKHL 1, page 3 
1387 Commentary provided by the Serious Fraud Office to the House of Lords Select Committee on the Bribery Act 2010, 
detailed in the Committee’s report: The Bribery Act 2010: post-legislative scrutiny (2019 UKBA Report), published on 14 
March 2019, available here: https://publications.parliament.uk/pa/ld201719/ldselect/ldbribact/303/303.pdf, paragraph 105 
(Accessed: 1 May 2019) 
1388 2019 UKBA Report, page 3 
1389 Gobert, James, The Corporate Manslaughter and Corporate Homicide Act 2007 – Thirteen years in the making but was it 
worth the wait?”, Modern Law Review, 2008, Volume 71, Issue 3, page 413 – 433; see here: 
https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-2230.2008.00699.x#fn7 (Accessed: 1 May 2019) 
1390 Lim, Etsuko, Piercing the Corporate Veil: Assessing the Effectiveness of the Corporate Manslaughter and Corporate 
Homicide Act 2007 Ten Years On; see here: https://culs.org.uk/per-incuriam/legal-updates/piercing-corporate-veil-assessing-
effectiveness-corporate-manslaughter-corporate-homicide-act-2007-ten-years/ (Accessed: 1 May 2019) 

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To date there have been relatively few corporate prosecutions under the UKBA (although 
it is worth bearing in mind that enforcement activity by the US Department of Justice and 
Securities  and  Exchange  Commission  under  the  US  Foreign  Corrupt  Practices  Act  1977 
really  only  began  in  earnest  around  the  year  2000.1391)  Moreover,  it  is  widely  accepted 
that the new UKBA corporate offence has had a significant “deterrent effect”.1392 This will 
at  least  in  part  be  attributable  to  the  potential  for  significant  penalties  under  the 
UKBA. 1393 Equally,  the  extent  to  which  legislation  serves  as  an  ongoing  deterrent  will 
depend to some degree on whether it is proactively enforced, which will be contingent in 
part on, for example, the budget of the enforcing authority.1394 

Enforcement, and relatedly the resourcing of enforcing authorities, is equally germane to 
the effectiveness of reporting requirements. Particular criticism has been reserved for the 
FRC: the FRC Conduct Committee is principally responsible for enforcing compliance with 
the  CA  2006  reporting  requirements.1395 Following  an  independent  review  completed  in 
December 2018 (the Kingman  Review), Sir John Kingman concluded that: “The FRC is 
still  partly  funded  through  a  voluntary  levy  [which]  is  seriously  inappropriate”. 1396 He 
recommended  the  replacement  of  the  FRC  with  a  body  which  inter  alia  “Has  the  right 
powers  and  resources  it  needs  to  do  its  job”.1397 (With  respect  to  powers,  the  FRC  only 
has the power, for example, to take regulatory action against individual directors who are 
also accounting professionals.1398) 

Kingman further noted  that: “The FRC has enforcement powers to  support its corporate 
reporting function. Its  ultimate power is to go to court for a declaration that the annual 
accounts, or the strategic or directors’ report of a company do not comply with the legal 
requirements,  and  to  obtain  a  court  order  requiring  the  directors  to  prepare  revised 
accounts  or  a  revised  report.  This  power  has  never  been  used,  although  the  FRC  has 
begun  legal  proceedings  on  several  occasions  and  settled  before  the  case  reached 
trial.1399 In other words, the FRC has not taken formal legal steps to enforce the reporting 
requirements  in  the  CA  2006  which  pertain  to  human  rights  and  other  non-financial 
issues. 

In  contrast  to  the  FRC,  the  FCA  does  actively  enforce  compliance  by  listed  companies 
with applicable market disclosure requirements (e.g. those imposed by the Market Abuse 
Regulation),  as  noted  above  in  the  Overview  section.  However  to  date  the  FCA  has  not 
imposed any fines on companies or directors for the non-disclosure (or late disclosure) of 
information  which  relates  to  human  rights  issues.1400 A  more  proactive  approach  by  the 
FCA  on  such  issues  going  forward  will  likely  depend  on  the  degree  to  which  the  FCA 
recognises  a  growing  consensus  that  an  association  with  human  rights  issues  can 
constitute  a  principal  risk  or  uncertainty  for  a  business, 1401 or  may  otherwise  have  a 
material impact on the price of financial instruments.1402 

1391 http://fcpa.stanford.edu/statistics-analytics.html (Accessed: 1 May 2019) 
1392 2019 UKBA Report, page 14, paragraph 36 
1393 See for example the £497.25 million Deferred Prosecution Agreement agreed between the Serious Fraud Office and Rolls-
Royce plc in January 2017: https://www.sfo.gov.uk/2017/01/17/sfo-completes-497-25m-deferred-prosecution-agreement-
rolls-royce-plc/ (Accessed: 1 May 2019) 
1394 2019 UKBA Report, page 25, paragraph 79 
1395 Sections 456, UK Companies Act, and the Supervision of Accounts and Reports (Prescribed Body) and Companies (Defective 
Accounts and Directors’ Reports) (Authorised Person) Order 2012/1439. Note that following the Kingman Review the FRC will 
be replaced by the Audit, Reporting and Governance Authority; see here: https://www.ft.com/content/d6580162-4416-11e9-
b168-96a37d002cd3).  
1396 Independent Review of the Financial Reporting Council (the Kingman Review), page 7; see here: 
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/767387/frc-independent-
review-final-report.pdf (Accessed: 1 May 2019) 
1397 Kingman Review, page 5; note that following the Kingman Review the FRC will be replaced by the Audit, Reporting and 
Governance Authority: https://www.ft.com/content/d6580162-4416-11e9-b168-96a37d002cd3 (Accessed: 1 May 2019) 
1398 The Audit, Reporting and Governance Authority will have powers to enforce against all directors; see here: 
https://www.gov.uk/government/news/audit-regime-in-the-uk-to-be-transformed-with-new-regulator 
1399 King Review, page 34, paragraph 2.31 
1400 See Footnote 9 above 
1401 See Disclosure Guidance and Transparency Rules, 4.1.8R 
1402 See Article 17, EU Market Abuse Regulation 

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Criticism has also been directed at the MSA, and the quality of the statements published 
by  companies  under  section  54.  Various  studies  commissioned  by  civil  society 
organisations  noted  high  levels  of  non-compliance  by  businesses  with  the  requirements 
of  the  MSA,  as  well  as  issues  in  terms  of  statement  content  (e.g.  a  high  proportion  of 
companies  describing  their  slavery  and  human  trafficking  due  diligence  and  risk 
assessment processes in only minimal detail).1403 Recognising that the MSA only became 
law  in  October  2015,  and  that  the  sophistication  of  businesses’  slavery  and  human 
trafficking statements may develop over time, annual studies suggest that the ‘quality’ of 
statements  is  not  necessarily  improving.  For  example,  a  report  published  by  Ergon 
Associates  in  October  2018  concluded  that,  with  the  exception  of  some  leading 
companies, “detailed information on risk assessment processes continues to be rare”.1404 

In  July  2018,  the  Home  Office  commissioned  an  independent  review  of  the  MSA, 1405 
which  was  scheduled  to  report  on  its  findings  by  March  2019.  A  second  interim  report 
published  as  part  of  the  independent  review  in  February  2019  recommended  inter  alia 
that  the  (currently  discretionary)  reporting  criteria  in  section  54(5)  be  made 
mandatory1406 (so  that  businesses  would  be  required  to  report  on  matters  such  as  their 
due diligence) and that the statutory guidance be developed to include a template of the 
information businesses would be expected to provide in their statements.1407 

If the Government adopts these recommendations, it may well prompt more businesses 
to  perform  modern  slavery  due  diligence  of  a  kind  currently  only  practised  by  the 
“leading” companies (in line with the Government’s aim of “encouraging businesses to be 
transparent  in  what  they  are  doing…  increasing  competition  to  drive  up  standards”1408). 
However, even if such changes to the MSA were to be implemented, this would unlikely 
lead  to  a  seismic  shift  in  terms  of,  for  example,  businesses  allocating  resources  to 
modern  slavery  programmes  equivalent  to  that  apportioned  to  the  mitigation  of  bribery 
risk.  That  would  require  a  shift  in  Government  policy:  “failure  to  prevent”  style  laws 
which  impose  heavy  penalties  for  non-compliance  are  expressly  intended  to  act  as  a 
“deterrent”;1409 reporting  requirements  such  as  the  MSA  principally  rely  on  businesses 
recognising  a  commercial  advantage  in  proactively  developing  more  advanced  modern 
slavery risk mitigation measures than their competitors. The overall effectiveness of such 
laws  is  naturally  inhibited  if,  for  example,  there  is  little  evidence  that  –  in  a  particular 
sector – investors or customer are influenced by the ‘quality’ of a company’s slavery and 
human trafficking statement. 

1403 E.g. a report published by Ergon Associates in April 2017, Modern slavery statements: One year on: 
https://ergonassociates.net/wp-content/uploads/2016/03/MSA_One_year_on_April_2017.pdf?x74739 (Accessed: 1 May 2019) 
1404 Modern slavery reporting: Is there evidence of progress?, October 2018: https://ergonassociates.net/wp-
content/uploads/2018/10/Ergon_Modern_Slavery_Progress_2018_resource.pdf?x74739  
(Accessed: 1 May 2019) 
1405 Led by Frank Field MP, Maria Miller MP and Baroness Butler-Sloss. 
1406 This follows the approach adopted in the Australian Modern Slavery Act 2018, see here: 
https://www.legislation.gov.au/Details/C2018A00153 (Accessed: 1 May 2019) 
1407 Independent Review of the Modern Slavery Act, Second Interim Report: Transparency in supply chains, 22 January 2019; 
see here: https://www.gov.uk/government/publications/modern-slavery-act-2015-review-second-interim-report, paragraphs 
2.2.3 and 2.2.4(Accessed: 1 May 2019) 
1408 MSA Guidance, paragraph 2.5, page 6 
1409 2019 UKBA Report, page 14, paragraph 36 

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