Dutch investors have expressed concerns that a domestic due diligence bill will put the country at a competitive disadvantage; a separate EU law on the topic is also under development but is less punitive.
On Tuesday, five Dutch political parties formally submitted the Bill on Responsible and Sustainable International Business Conduct to the House of Representatives.
Under the bill, companies that know or “should reasonably suspect” that their activities or their business relationships may have adverse impacts on human rights or the environment in countries outside the Netherlands will be obliged to take all reasonable prevention measures.
These include mitigation or reversing the impacts and remediation. Companies will be expected to terminate the business activity if the negative impacts cannot be sufficiently addressed.
Earlier this year, the European Commission published the long-awaited draft of its sustainable corporate due diligence directive, which would also impose mandatory human rights and environmental due diligence requirements across the market.
Reactions to the draft proposal have been mixed, many see it as being a step in the right direction despite some shortcomings. The EC has not responded to Responsible Investor‘s query on the status of the directive at the time of publication.
Among the differences between the Commission’s and the Dutch proposals are scope and the types of liability.
Rogier Snijdewind, director active ownership at PGGM, explained to RI that it is helpful to introduce legislation for creating clarity and uniformity within the Dutch corporate landscape. However, Snijdewind said it could add to regulatory complexity given the differences with the EU.
“We believe it’s important to create a level-playing field for all companies, and that it should not make a difference whether they are based in the Netherlands or elsewhere in the EU. I would argue that waiting for the EU directive, or at least mirroring what it will look like more closely, would be advisable.”
One difference is that the Dutch bill will be applied to small companies which would be exempt under the EU’s current proposal, Snijdewind said. “The Dutch threshold is therefore lower, which will mean it will be relatively more burdensome to smaller Dutch companies than to (some of) their EU peers.”
A level playing field would make it easier for investor engagement, he added. “As opposed to, for example, getting into a situation where we have to check which are the exact legal due diligence requirements for German companies versus French companies.”
The concerns were echoed by a spokesperson for APG: “Although APG is sympathetic, we prefer to try the European route first and make sure that there is a high-quality arrangement that can also be implemented well for institutional investors and that is in line with what you can realistically ask investors.”
NGOs appear more optimistic about the proposed Dutch bill.
Joseph Wilde-Ramsing, a senior researcher at the Centre for Research on Multinational Corporations (SOMO), described it as having the potential to be a game changer in the field of corporate accountability.
He suggested that the language in the bill could mean “companies may, over time, be considered to be contributing to the impact, not merely linked to it”, if they do not terminate relationships that cause negative environmental and social impacts.
The issue over the potential to contribute to human rights violations has come up before.
In 2017, the Thun Group – an informal group of major banks promoting the UN Guiding Principles on Business and Human Rights (UNGPS) – waded into controversy after appearing to suggest that banks could not be considered to be “causing or contributing” to such impacts through their financing activities under the UNGPs. It later clarified that financing “may under exceptional circumstances reach the level of contribution”.
The next step for the Dutch bill will be a round of written questions in the House of Representatives, then a plenary debate, followed by a vote.
“If the law is adopted, the first chamber (the Senate) will go through the same process. The parliament makes its own agenda, so it is difficult to predict how long this process will take. Also, the responsible minister has announced that she will publish her own proposal for Dutch due diligence legislation this fall. There are now intense conversations within the governing coalition about whether they should first let parliament decide on this law before submitting another legislative proposal on the same subject,” said Wilde-Ramsing.