EU’s taxonomy advisers make recommendations on minimum social safeguards

Platform outlines its thinking on how investors should assess human rights, bribery, corruption, taxation and fair competition under taxonomy rules.

Companies that don’t undertake credible human rights due diligence should not be considered investable under the EU’s green taxonomy, according to the bloc’s sustainability advisers.

The EU Platform on Sustainable Finance made the comments as part of draft recommendations published today on how ‘minimum safeguards’ could be developed and embedded into the taxonomy rules.

The safeguards were initially agreed in 2020 as part of the taxonomy regulation, in a bid to ensure that green investments don’t undermine the EU’s broader sustainability objectives, as laid out in the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

In today’s report, the Platform identifies human and labour rights, bribery, corruption, taxation and fair competition as key issues to be addressed by the minimum safeguards. The group suggests two criteria that would render companies non-compliant with the rules: the absence of adequate due diligence processes on human rights and the lack of the implementation of such processes.

“Data on breaches should be generated from sources with a high level of independence and impartiality,” the report added.

Non-compliant companies should be required to prove they have improved before being reconsidered for eligibility under the taxonomy. This could be done through a rigorous process such as an external audit, the report states.

Firms without adequate human rights due diligence systems, those facing advanced legal challenges on relevant issues, and those that don’t engage properly with the OECD’s grievance process or the Business & Human Rights Resource Centre, “would not be considered compliant with minimum safeguards,” it added.

The platform acknowledged that the rules could prove complex, especially when it comes to geographical coverage.

“For example, human rights violations take place in countries where human rights violations are not prosecuted or where workers are exposed to state violence,” the report notes. “In these countries, it is very difficult, impossible, or even dangerous to address human rights violations and to bring them before court.”

The draft report acknowledges the EU’s current efforts to develop a more substantial set of rules through a Corporate Sustainability Due Diligence Directive, which would tighten up scrutiny on companies’ human rights and environmental performance – especially within supply chains.

The platform notes that if that directive becomes law it could “serve as a proxy” for fulfilling the minimum safeguards requirements on human and workers’ rights.

The draft report is open for consultation until 22 August.