The Act on responsible and sustainable international business: an introduction
On 11 March 2021, a legislative proposal for an Act on responsible and sustainable international business been submitted to the Dutch Parliament Wetsvoorstel verantwoord en duurzaam internationaal ondernemen) (the “Bill”). The Bill introduces a duty of care for companies and sets rules for specific businesses to ensure they exercise due care in their supply chains. This should prevent violations of human rights, labor rights, and negative environmental impact in international business. Whether the Bill will actually lead to new legislation is uncertain, given the political situation and the public opinion. Nevertheless, we expect that elements of the Bill will be implemented on a national, European, or international level, this considering a certain overlap with other (inter)national legislative initiatives.
The Bill’s definition of 'due care' is based on the guidelines of the Organization for Economic Cooperation and Development (“OECD”) published in 2011. These guidelines contain recommendations for International Corporate Social Responsibility. The proposed legislation sets a minimum, requiring companies to adhere to international standards in the areas of human rights, labor rights, and the environment. This should prevent, address and combat the negative consequences that can occur as a result of international dissimilarities in supply chain standards.
The scope of application
For every Dutch company as defined in the Trade Register Act 2007 (Handelsregisterwet 2007), including a subsidiary, that knows or can reasonably suspect that its activities may have negative consequences for human rights, labor rights, or the environment in a country other than the Netherlands (the "Acquired Knowledge"), a general legal duty of care applies. According to the explanatory memorandum to the Bill, this applies to all companies established in the Netherlands, regardless of size, including state-owned enterprises, procurement services, shell companies, and companies commercially active on the Dutch market. The proposed legislation also applies to companies established on Bonaire, Sint Eustatius and Saba (the Caribbean Netherlands) and to large foreign companies that sell products on the Dutch market or carry out activities in the Netherlands.
The Bill does make a distinction between large[1] companies and smaller companies regarding the proposed administrative measures. Large companies are mandated to oblige to the specific steps required by the due diligence process. Smaller companies oftentimes do not have the financial resources to comply with the administrative burdens of the Bill. Therefore, the legislator has chosen not to burden companies in the smaller to mid-sized category with the administrative obligations associated with the due diligence requirements. Small to midsize companies are free to create their own compliance procedures.
The general duty of care
The general duty of care for companies of all sizes commences as soon as a company possess of Acquired Knowledge of negative consequences on human rights, labor rights, or the environment. This may be the case, for example, if there is restriction of freedom of association and collective bargaining, discrimination, forced labor, child labor, unsafe working conditions, slavery, exploitation, or environmental damage in the supply chain. The legislation does not set specific definitions for these concepts.
Companies with Acquired Knowledge are required to take reasonably feasible measures to prevent, limit, undo or restore these negative consequences.
The company with Acquired Knowledge of negative consequences on any of the aforementioned factors must:
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undertake all actions that can reasonably be expected of the company to prevent the negative consequences;
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if the consequences cannot be prevented, they should be limited as much as possible, undone and, if necessary, restored; and
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if the consequences cannot be sufficiently limited, the activity that causes the consequences should be discontinued if such discontinuation can reasonably be expected of the company.
Due Diligence for large companies
The duty of care for large companies to apply due diligence in their production chains is based on six steps from the OECD due diligence guidelines the (“Guidelines”). The Guidelines consider a due diligence, or the exercise of proper care, as the core principle for corporate policies. This refers to the procedure by which companies identify, prevent, and mitigate the potential and actual negative impacts of their actions, and are held accountable for their management of identified risks. The Guidelines provides practical tools for companies to adhere to proper care practices.
The consideration the potential negative consequences of a companies’ business relationships, should be interpreted broadly, encompassing not only business partners but also any group companies. In essence, the requirement to conduct a due diligence has a broad scope and far-reaching implications.
The following steps must be taken by large companies in compliance with the practical tools provided by the Guidelines:
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integrating Corporate Social Responsibility (“CSR”) into the company's policy, management systems, and business processes;
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identifying actual or potential negative impacts on CSR themes;
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mitigating, preventing, or reducing negative impacts;
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monitoring the practical implementation and outcomes;
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disseminating information regarding the measures taken to address the impacts; and
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enable or assist with restoration where applicable.
Supervision and enforcement
Violating the general duty of care according to the Bill is not administratively enforceable. Enforcement can only occur in cases of a rigorous violation of the duty of care but, it is difficult to formulate a clear standard.
The other obligations imposed by the Bill, including the obligation to exercise due diligence, are enforced both administratively and criminally. Administrative enforcement is achieved through supervision by the Authority for Consumers and Markets (Autoriteit Consument & Markt, the ACM). The ACM can provide information and/or issue binding instructions, as well as impose a coercive fine (dwangsom) or administrative fine (administratieve boete). Furthermore, the supervisor can decide to make these measures public.
Personal liability directors
The obligation to adhere to the reporting standards can be criminally enforced if a coercive fine or administrative fine has been imposed at least twice within a period of five years due to a violation of these provisions. The enforcement can also be invoked, both by individual victims and by civil-society organizations, based on tort (onrechtmatige daad) in accordance with article 6:162 of the Dutch Civil Code (Burgerlijk Wetboek) if such a party incurs detrimental effects form any wrongdoing.
If companies refuse to report, report incompletely or provide sufficient solutions (in accordance with art. 2.4 and article 2.8 paragraph 4 of the Bill), directors may have to appear before the criminal court if sufficiently serious personal blame can be proven. Such a step will only be undertaken after several warnings by the ACM.
Entry into force
The intended implementation date for the legislation was 1 January 2023, except for a transition period with regard to the provisions on administrative supervision and enforcement (proposed effective date 1 July 2023) and criminal enforcement (proposed effective date 1 January 2024). The implementation has been delayed because of the ongoing public debate between the business community and civil-society organizations. Directors of Dutch companies are unhappy with the broadening of personal liability and chance of imprisonment, whilst the civil-society organizations see a worthwhile attempt by the Dutch government to pursue a new strategy to mitigate climate change and social inequalities.
Please contact one of the specialists of Meijburg Legal in case you would like to receive additional information on the Bill and the obligations imposed thereby.
[1] In terms of the Initiative Bill, large companies are those that exceed at least two of the following three criteria on the balance sheet date: total assets: €20 million, net sales: €40 million, and average number of employees during the fiscal year: 250 employees.
