EU Justice Commissioner Didier Reynders outlined future Commission initiatives on corporate governance on Wednesday 2 September in the European Parliament’s Committee on Legal Affairs (JURI).
Following the publication of a first study confirming the need for legislation at EU level in February (see EUROPE 12432/9), the Commission committed to presenting a legislative proposal in 2021 on mandatory human rights and environmental due diligence obligations for EU companies (see EUROPE 12477/24).
Mr Reynders spoke to MEPs primarily about the results of a second Commission study on sustainable corporate governance, published at the end of July. This study revealed a tendency for listed companies in the EU to focus on short-term profits to reward shareholders, to the detriment of the long-term interests of the company (see EUROPE 12540/2).
“It is too early to draw conclusions on the details of these initiatives, but the two studies provide a good basis for our impact assessment”, he said.
One thing is certain: the Commission wants to put in place a “clear and coherent framework”, clarifying that company directors must take into account the interests of all company stakeholders as well as the long-term interest of the company itself in their due diligence, he said.
On this topic, he added that it will be essential to ensure that the interests of all stakeholders are identified and that sustainability is integrated directly into the company’s strategy. Sustainability targets, aligned with EU objectives, should also be set to reduce the negative impact of companies on stakeholders, he said.
With regard to the scope, the Commission still needs to reflect further, Mr Reynders said, but pointed out that broad coverage - i.e. of all limited liability companies - generally leads to “better results”.
In terms of accountability, the Commission is exploring ways to lead stakeholders to request updates from the Directors. It also envisages the enforcement of mandatory due diligence by supervisory authorities, which still need to be defined, as well as by private bodies, on the basis of civil liability.
“A Historic Moment” for Members of Parliament
MEPs, many of whom consider the prospect of European legislation to be a “historic moment”, do not want to miss the boat and are already preparing two own-initiative reports to set out their expectations.
“We are in a world where the entrepreneurial vision that was at the origin of the creation of European companies has disappeared in favour of a purely short-term financial logic”, lamented Pascal Durand (Renew Europe, France), author of an own-initiative report for the JURI committee on sustainable corporate governance.
For her part, Lara Wolters (S&D, Netherlands), whose draft own-initiative report on corporate responsibility and accountability will be ready in ten days’ time, believes it is crucial that companies can be held accountable and that victims have access to justice. She also supports a system of sanctions for non-compliance, including the possibility of criminal prosecution for serious offences.
While the scope should be as broad as possible, the extent of the obligation should nevertheless be allowed to vary according to the nature of the business and the risks of the company, she said.
Key fact: on the same day, 26 companies and business associations, including Adidas, Unilever and Mars, themselves called on the EU to present a cross-sectoral and binding legislative proposal for European due diligence. (Original version in French by Marion Fontana)