This bill (Initiatiefwet verantwoord en duurzaam internationaal ondernemen) aims to introduce a legal threshold for international corporate social responsibility for Dutch companies operating internationally. The aim is to increase compliance with the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.
The 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 that operates internationally, and for foreign companies that provide services or have products on the Dutch market. It also 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 are met:
- Balance sheet total of EUR 20 million
- Net turnover of EUR 40 million
- Average number of employees of 250
For the purposes of such due diligence, a policy must be drawn up for which the 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, its complexity due to its international nature and the sanctions regime. Following this criticism, the bill was amended at the end of 2022. Nevertheless, 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). The initiators did not want to wait for 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 - Where previously individual directors were held responsible for the introduction and implementation of a due diligence policy, this responsibility is now be imposed on the company. This 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 be covered by 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, 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 subsidiary’s liability.
Amendment to 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 within 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 as 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 government financing or subsidies and participation in trade missions.
Follow-up steps
The amended bill was sent to the Council of State for advice, which merely stated that some of the definitions need further clarification. Initially, it was wished that the Act would enter into force in phases, staring as early as 1 July 2024. No dates are now mentioned in the bill. However, it has been indicated 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 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.
What this means for you
The Dutch bill largely overlaps with the CSDDD. Regardless of the differences, companies need to prepare for the due diligence requirements as they will become applicable through either of the proposals. We would be happy to engage with you to discuss your preparations for the Dutch Bill and the CSDDD, as well as related legislation such as the CSRD. If you or members of your team would like to receive updates on ESG-related governance, disclosure and litigation developments, please sign up for our monthly ESG Matters updates.
We will update this page as soon as there are new developments.
