In March 2021, members of the Dutch House of Representatives submitted an initiative bill to introduce a legal threshold for international corporate social responsibility for Dutch companies that operate internationally. The aim is to increase compliance by companies with the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.
Content of initial legislative proposal
The initial proposal included a general duty of care with regard to adverse effects on human rights or the environment for every Dutch company active internationally, as well as for foreign companies that provide services or have products in the Dutch market. In addition, it prescribed a due diligence process in the value chain of large enterprises, in accordance with the principles and standards of the OECD Guidelines for Multinational Enterprises. In this context, large means that at least two of the following three requirements have been met: balance sheet total of EUR 20 million, net turnover of EUR 40 million, average number of employees of 250. For purposes of such due diligence, a policy must be drawn up in respect of which directors are responsible. The mandatory drafting of a separate climate plan was also proposed.
Criticism and amendments to the legislative proposal
In 2022, the Council of State issued an opinion criticising, in particular, the complexity due to its international nature and the sanctions regime. Following that criticism, the bill was amended at the end of 2022. Still, various parties believe that it is better to wait for future international and European legislation in this area, such as the proposed Corporate Sustainability Due Diligence Directive (CSDDD).
However, the initiators did not want to await such legislation and, after sustained criticism from both ministers and companies, amended and clarified the bill again on 15 September 2023. These are the key changes:
- Transfer of responsibility to the company: Whereas previously directors would be made individually responsible for the introduction and implementation of a due diligence policy was placed on, such responsibility would now be imposed on the company instead. This also triggers a change to the reporting obligations, with individual directors no longer being obliged to report to the board of directors. Only the company's failure to report will be punishable, as an economic offense.
- Elimination of separate climate plan
Instead of a separate climate plan, companies must include sustainability targets in their general action plan. The 55% percentage no longer applies to the greenhouse gas emission reduction target. Companies must include targets in the action plan that match the identified risks. This is more in line with the proposal for the CSDDD.
- Reduction of reporting obligations
Companies do not have to report twice if they also fall under the obligations of the Accounting Directive. Such companies will not need to comply with the reporting obligation under this Act.
- Inclusion of employees of subsidiaries
It has been clarified that employees of subsidiaries are counted as employees of the parent company. This means that parent companies are more likely to fall under the value chain due diligence obligation.
- Clarity on application to both subsidiaries and parent company
If both a subsidiary and a parent company fall under the value chain due diligence obligation, there could be uncertainty as to which company must comply with the obligation. It is proposed that the parent company may decide to comply alone with the value chain due diligence obligation, in which case it will also do so for the subsidiary, or to support the subsidiary in complying with the due diligence obligation, without detracting from the liability of the subsidiary.
- Amendment of the definition of foreign company
The description of a foreign company is amended so that it only covers companies with a material link with the Netherlands, as evidenced by a large number of customers or activities in the Netherlands in proportion to the total population. As a result, foreign companies will be less likely to fall under the scope of the new Act.
- Deferred operation for risk analysis
When a company draws up a due diligence policy for the first time, it does not yet need to have carried out a risk analysis.
- Elimination of administrative order
The power to impose an administrative order is removed because effectuation abroad can be problematic for the regulator.
- Possibility of financing and participation in trade missions
Only companies that have not been subject to any administrative sanction and that have not been irrevocably convicted under the Economic Offences Act for violation of the due diligence obligation will be eligible for financing or subsidies from the government and participation in trade missions.
Initially, the wish was to have the Act enter into force in phases from as early as 1 July 2024. Meanwhile, no dates are mentioned in the bill anymore. It has been indicated, however, that companies will have to gradually comply with the obligation to perform due diligence in the value chain within one year from the effective date of the Act. The initiators also still indicate their unwillingness to await European legislation. The question, however, is whether it is possible to act sooner than the completion of the CSDDD proposal, with a caretaker government. The bill has not been declared controversial, so its processing continues, but negotiations on the final European proposal are also expected to commence shortly. We will update this blog as soon as there are new developments.