Human Rights and the Environment – ​​What Brazil-based Companies Need to Know about the EU Draft Corporate Sustainability Due Diligence Directive | Perspectives & Events

Introduction

On 23 February 2022, the European Commission published its much-anticipated draft corporate sustainability and due diligence directive (the Draft Directive). The Draft Directive sets out a proposed EU standard for human rights and environmental due diligence (HREDD) which, importantly, would apply to any Brazil-based company and its subsidiaries if those group companies have annual aggregate net turnover in the EU of:

  • more than EUR 150 million (Group 1); or
  • more than EUR 40 million with at least 50% of net worldwide turnover generated in a “high-risk” sector which includes textiles, clothing and footwear, agriculture, forestry, fisheries, food & extractives (Group 2).1

Notably, the HREDD applies even if the Brazil-based companies and their subsidiaries do not have a physical presence in the EU, if the above net turnover threshold is met.

The Draft Directive requires both Group 1 and Group 2 companies to take appropriate measures to identify, mitigate, actual and potentially adverse human rights and environmental impacts arising from their own operations anywhere in the world (not just in the EU) and, where related to their value chains, from their “established business relationships”.

EU Member States are required by the Draft Directive to:

  • designate a supervisory authority to supervise compliance with the due diligence and climate change-related obligations with adequate powers and resources to request information, carry out investigations, order remedial action, and impose fines;2 and
  • Ensure that individuals and entities can bring civil claims.3

The Draft Directive provides for director responsibility and accountability in relation to EU companies’ HREDD programmes.4 Group companies that meet the turnover threshold will also be required to appoint an EU-based representative to liaise with EU supervisory authorities.

While the Draft Directive remains subject to further scrutiny prospect and approval, it provides the most detailed insight yet as to the scope and form of live HREDD developing obligations, and it provides a helpful template for corporates to continue their due diligence policies and procedures designed to identify, assess and mitigate adverse human rights and environmental impacts – both in their operations and in their value chains.

Furthermore, the Draft Directive will have implications for Brazil-based banks, insurers and other financial institutions which meet the EU net turnover threshold. They will have to undertake further due diligence on clients and their subsidiaries to whom they extend loans, credit and other financial services5 in line with the Draft Directive’s requirements.

Growing HREDD Trend Globally

The overall message is clear: HREDD is already coming, and mandatory companies based in Brazil should be anticipating upcoming HREDD legal obligations and preparing for increasing stakeholder expectations in this area. HREDD laws initially focused on child labor and slavery (UK, Australia, California), the trend is for a broader and more global view of human rights and the environment. We see this with recent laws passed in the past year in Norway, Germany and the Netherlands (see our Past Blogs on national HREDD movements in Germany and the Netherlands). Japan is also expected to release human rights guidelines for businesses sometime this year. In addition, certain securities exchanges in Brazil have adopted or proposed ESG related disclosure requirements which are broad enough to cover disclosure of information relating to certain social matters, including human rights.

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