BRIEFING Confederation of Industry CZ 28 MAY Redacted.pdf.pdf

Ref. Ares(2022)350926 - 17/01/2022

The Confederation calls on the Commission to maintain the direction of open
strategic autonomy. Europe should cooperate with reliable partners who share the
same democratic values, so that consumers can choose the best supplier, product or
service, regardless of where it comes from. Diversification of resources will ensure
immunity to economic pressure from third countries and the right of choice for both
consumers and businesses. Therefore not self-sufficiency and restraint, but, on the
contrary, openness and cooperation towards autonomy.
Equal pay and transparency of remuneration
The Confederation generally supports the objectives of the directive, but considers it
necessary to monitor the choice of instruments and implementation at the national
level to prevent gold-plating. The Confederation is concerned about broadening the
scope of the directive and overly complicated measures at national level. Employers
are involved in this process and will continue to actively participate in all phases of
the negotiations.
The Confederation is aware that the Czech Republic is one of the worst in the gender
pay gap in the EU and that this leads to poverty of elderly women, among others.
The Confederation cooperates with the Government Office and will strive to reduce
the administrative burden for companies, in line with the principle of better
regulation. It fully supports the principle of equal pay and is fundamentally against
any discrimination, whether on the basis of gender or any other principle.
Due diligence
The Confederation participated in the entry of BusinessEurope into the public
consultation of the Commission regarding CG and DD (February 2021). Its main
points were:
x  Corporate governance and Due diligence need to be distinguished and the
proposals separated.
x  The EU corporate governance framework has demonstrated that it is still
balanced, functional and adaptable. It is complemented by national systems, due
diligence, reporting, and employee information and consultation
x  Businesses share the goals of sustainability, but are concerned whether such a
revolutionary approach based on negative "short-termism" (Ernst & Young) will
lead to the goal.
x  Businesses take into account long-term and different interests of stakeholders
alongside shareholders' financial interests, but need flexibility to determine which
stakeholders are relevant to their business, how to communicate with them, and
whether those interests are conflicting.
x  The need for a legislative intervention is not justified. Such an intervention would
be disproportionate and would have a negative impact on a number of basic
principles of the market economy system.
x  The principle of due diligence is becoming the norm in corporate sustainability
strategies. A legally binding due diligence initiative will have a critical impact on
businesses, their operations and relationships within subcontracting chains.

Key messages
Transatlantic relations
x We are ready to deepen our engagement with the new
US leadership.
x We want to move forward on a positive bilateral trade
agenda, strengthen EU and US technological
leadership, including through setting up an EU-US
Trade and Technology Council, join forces on
multilateral issues such as WTO reform, and manage
some of the bilateral trade irritants through negotiated
solutions.
x However, we need to remain realistic.
x President Biden’s focus is on domestic challenges, and
his foreign policy is “for the American middle class”.
US trade policy will remain focused on US jobs.
x Importantly, many US positions and trans-Atlantic
tensions are deeply entrenched and/or of a bi-partisan
nature.

x Our Joint Communication and Council Conclusions of
December 2020 outlined several trade policy topics
with opportunities for renewed transatlantic
engagement:
  the possibility to form a transatlantic green tech
alliance;
  a transatlantic dialogue on the responsibility of
online platforms and Big Tech;
  work towards a common transatlantic approach to
protecting critical technologies in light of global
economic and security concerns;
  work on an Artificial Intelligence Agreement;
  intensified cooperation to facilitate free data flow
with trust.
x In this context, I would like to know you views on
these areas and your priorities for engagement with the
US.

Technological sovereignty and secure data transfer
x The COVID-19 crisis underlined that we need to
accelerate the digital transformation. Digital
technologies are the key differentiating factor in a
successful transition to a sustainable, post-pandemic
economy and society.
x At the same time, the crisis has also exposed Europe’s
vulnerabilities and strategic dependencies on non-EU
actors for critical technologies.
x We aim to ensure that the digital transformation is
coherent with our values and our economic interests,
addressing the risks and strategic dependencies for
critical technologies and inputs.
x This is the rationale behind the concept of digital
sovereignty. Becoming the digital leaders of the future
means that we need to be digitally autonomous.
x I am very well aware ofconcerns regarding the risk of
protectionism. Let me reassure you that the European
idea of digital sovereignty is not a protectionist move,
it is about putting forward our values and European
rules.

x Digital sovereignty is a positive agenda. It means that
we will focus on enhancing our capacities in key
technological areas, notably connectivity, data, cloud
and microelectronics, and addressing our weaknesses.
This is essential in order to emerge stronger from this
crisis.
x Europe is committed to free and fair trade with well-
functioning and sustainable global value chains.

European values, such as privacy, rule of law and
trust, will be our compass.
x For cross-border data transfers, the EU follows an
open but assertive approach, based on European values
and interests, as announced in the February 2020
European Data Strategy.
x In practice, this means that we work to ensure that,
when data is transferred abroad, the protection travels
with the data.

x In addition, the Commission is actively promoting
international cooperation to foster a global culture of
respect for privacy and enhancing the ongoing
international convergence amongst domestic privacy
regimes for the benefit of citizens and businesses.
x We also work in international fora such as the G7,
G20 of OECD, towards ensuring the free flow of data
with trust.
Equal pay and transparency of remuneration
x The gender pay gap (EU average cca. 14%) is a
fundamental problem for women’s economic
empowerment.
x Pay transparency is the first step to uncover gender
bias and discrimination in pay structures and to enable
victims of discrimination to seek redress.
x The success of this proposal relies on a strong buy-in
from employers.
x It is an opportunity to reflect on gender equality at
employer level.

x One of the findings of the preparatory work for the
directive is that employers are often surprised to find
gender bias in the salaries they are paying.
x The proposal does not prevent employers from paying
differently workers doing the same work or work of
equal value.
x But if they do, such differences must be based on
objective, gender-neutral and bias-free criteria, such as
performance and competence.
x Moreover, what will be made public are averages or
gaps, not actual salaries, and the proposal contains
appropriate safeguards to this effect.
x As for the costs, according to our estimates the annual
costs of pay reporting for employers with 250+
employees are between 400 and 900 EUR. After all,
the measures are based on information that is readily
available in any organisation.
x Finally, as for concerns of possible conflicts among
workers arising from the initiative, I strongly believe
that the result will be the opposite.

x The application of the equal pay right will foster trust
and respect and can only help to attract and retain the
best talent.
x Tomorrow’s workforce is expecting more from
employers in terms of inclusion and fairness – and
women are half of that workforce.
Sustainable corporate governance
x Momentum is building up for EU-level horizontal
rules in sustainable corporate governance.
x We are looking for effective, efficient, proportionate
and feasible solutions and hope that the Confederation
of Industry of the Czech Republic will be able to
support this initiative.
x Our aim is to foster sustainability and resilience in
corporate decision-making and in particular to help
companies become environmentally and socially
sustainable.
x Embedding sustainability into corporate governance
would also be an important catalyst for a sustainable
recovery after the COVID crisis.

x Commission staff is working on an Impact Assessment
which will inform our decision on the proposal which
we plan to submit later this year.
x The impact assessment is looking into three main
elements:
  possible EU-wide rules on corporate due diligence,
to mitigate or prevent  adverse impacts in the
company’s own operations and its value chains.
  How to clarify that directors have a duty to pursue
long-term value creation and a sustainable strategy
for their company and manage sustainability risks.
  reflections on aligning directors’ remuneration
schemes to ensure that incentives support long term
sustainability .
x We are exploring how civil liability can play a role
and whether obligations would apply beyond direct
suppliers, as important risks to the environment as
well as regards human rights (e.g. forced labour) tend
to materialise in supply chains beyond tier one
suppliers.

x We are also looking into the potential role of public
authorities and whether due diligence rules would
cover third-country companies to level the playing
field.
x In this analysis, we are paying particular attention that
obligations would be proportionate, both to the size of
the company and to the risk of adverse impacts in the
various economic sectors.
x We also pay particular attention to mitigating the
burden on SMEs and to the need to provide them with
additional support so that they can also reap the
benefits.
x Finally, this initiative does not stand on its own. We
also aim at ensuring consistency, in particular with the
recently proposed new Corporate Sustainability
Reporting Directive, which already imposes quite a
number of substantial obligations in this field
Czech recovery and resilience plan
x The Commission has a constructive dialogue with the
Czech Republic aimed at presenting a high quality
final plan.

x The Commission is not yet at the stage of undertaking
formal assessments of the final version of the plan.
x Once we receive the final plan, we will start its in-
depth assessment.
x The Regulation envisages two months for the
assessment and for the translation of its contents into
legally binding acts.
x Our assessment will be published as a proposal for a
council implementing decision, accompanied by a
staff working document explaining the Commission
views on the plan.

TRANSATLANTIC RELATIONS
Due to the importance of US exports and investments in the economy of the Czech
Republic, representatives of the Confederation of Industries might be interested to
discuss recent developments in the EU-US relationship with a particular focus on
trade. They might also want to enquire about the EU vision for cooperation with the
US on post-pandemic recovery and the green agenda.
The US is one of Czechia’s top non-EU trading partners, ranking 11th in 2020 in
exports (USD 4.4 billion, 2.3% of total exports). The US and Czechia have a bilateral
investment treaty, signed in 1991. Leading sectors for US exports and investments
include automotive parts and equipment, education, energy, franchising, information
technology, medical equipment, scientific equipment, and agriculture.
In the EU, Czechia is an US ally on cybersecurity (2019 Prague 5G Security
Conference and 2020 US-Czech Joint Declaration on 5G) and energy security,
including in the Three Seas Initiative. Energy security is a major bilateral topic, with
US lobbying for Prague to diversify away from oil and gas dependence on Russia.
US investment in the Czech nuclear power sector is a long-standing ask.
On 2 May 2021, US Secretary of State Antony Blinken expressed support for
Czechia’s “strong and courageous response” in its diplomatic conflict with Russia
after Prime Minister Babiš identified Russian secret service involvement in an
explosion in a CZ ammunition depot in Vrbětice in 2014. Russia subsequently
announced its decision to designate the US and Czechia as "unfriendly states."

x
Defensives
TECHNOLOGICAL SOVEREIGNTY AND SECURE
DATA TRANSFER
The Confederation of Industry of the Czech Republic has emphasised that digital
sovereignty should focus primarily on strengthening competitiveness; supporting
innovation and ensuring the secure and free flow of data at European and
international level. They strongly caution against the risk of protectionism, which
could restrict the EU's internal market and international trade and prevent European
companies and consumers from gaining access to markets outside the EU.
International cooperation is a crucial element for Europe’s recovery and this should
be taken into consideration in the context of the debate regarding the creation of EU
digital champions. The Confederation of Industry expresses the view that the term
‘technological autonomy’ could replace the term ‘technological sovereignty’ in the
European debate, denoting, in a more clear manner, the effort to ensure immunity to
economic pressure from third countries, and to safeguard the right of choice for
consumers and companies.
Furthermore, the Prime Minister of the Czech Republic, along with the leaders of
Belgium, Ireland, Latvia, Lithuania, Luxembourg, Poland and Sweden sent a letter to

President Ursula von der Leyen on 8 March 2021 on the topic of digital sovereignty,
urging her to keep the European economy open as it seeks to reduce dependence on
foreign technologies. The letter also calls for a Digital Single Market for innovation,
elimination of barriers to cross-border online services, and ensuring free data flows.
On the international front, the EU should continue to seek cooperation with the like-
minded countries and where needed develop new partnerships. The leaders stress that
EU should become a leader in responsible digital transformation based on trust and
innovation.
The Confederation of Industry of the Czech Republic is a member of
BusinessEurope, which has a strong interest in data flows to third countries,
including to the US. In December 2020, BusinessEurope published a position paper
on “Safeguarding data flows”, in which it highlighted the importance of data flows
for European consumers and businesses.
Defensives
Isn’t technological sovereignty protectionism by
another name?
x Digital sovereignty means that Europe needs to define
its own rules and make autonomous technological
choices, without turning into a digital fortress. Europe
cannot rely exclusively on non-European sources for
critical technologies.
x The first step is to identify these critical technologies
and strategic dependencies.
x The next step is to enable Europe to develop
competitive European solutions, to enrich the
technological alternatives available worldwide and to
diversify sources of supply.

x It is also important that Europe develop technologies
that are in line with its principles, values and socio-
economic model.
x To achieve this, Europe needs to invest in a number of
key projects (data & cloud, microelectronics,
connectivity, batteries, clean hydrogen) to develop
digital and industrial capacities and infrastructures that
will reduce the risks of dependency on third countries
(e.g. disruptions in the supply chain, entrance of
compromised equipment, concentration of European
data in non-European hands).
x Europe must also be able to assert itself in defending
its economic interests vis-à-vis partners who do not
hesitate to favour their national businesses.
x This means that we must protect ourselves from unfair
and abusive trading practices, tackle the distortive
effects of foreign subsidies in our single market and
modernise the European competition framework to
address the challenges of the dual digital and green
transition.

x This also means that Europe must develop alliances
with countries that share its values and objectives, and
shape the system of global governance on the basis of
multilateralism.
x Our objective is to promote a human-centred digital
agenda on the global stage and to promote the
alignment of our partners or convergence with EU
standards and rules. By ensuring the security and
resilience of its digital supply chains, the EU will be
able to provide solutions to global challenges.
Should users be systematically in control of their
data and decide what to share and what to keep
private?
x Data sovereignty, promoted in Europe, is about
allowing users (individuals and companies) to be
systematically in control of their data and deciding
what to share and what to keep private. Data
sovereignty is about reinforcing the rights of the
individuals and companies to whom the data pertains
and preventing unauthorized access and misuse of data
for purposes contrary to their wishes or intentions.

How can the principle of free flow of data be
reconciled with the growing demand for data
sovereignty?
x Sovereignty in strategic areas means that the EU must
be able to define its own rules, make autonomous
technological choices, and develop and deploy
strategic digital infrastructures. However, the EU will
remain open to all businesses that comply with
European rules and standards.
x Specifically for data, the data strategy presents data
governance “in the European way”, i.e. which will
guarantee that individuals and companies keep control
over their data, thus guaranteeing an increased level of
sovereignty data in Europe.
x Thanks to the strategy, more data will be available for
the EU economy and society, while individuals and
businesses will retain full control over the data they
generate.
We are concerned about calls for data localisation.
x We have repeatedly confirmed the Commission’s
commitment to facilitate data flows.

x This is notably reflected in our approach to the digital
provision in trade negotiations, consisting in
preserving our regulatory autonomy in the area of data
protection while prohibiting data localisation
measures. In other words, not confusing data
protection with digital protectionism. This is what has
been agreed in the EU-UK Trade and Cooperation
Agreement, the first trade agreement that contains a
straightforward prohibition of data localisation
requirements, while stressing the importance of data
flows.
x That is also what we continue to pursue in our
engagement with international partners in different for
a, including the WTO e-commerce negotiations, to
promote safe and free data flows. This includes for
instance the very promising work at the OECD, which
builds on the Japanese “Data Free Flow with Trust”
initiative, or the conclusion of our adequacy talks with
South Korea.

The Commission and the US should agree on a new
framework as soon as possible, to ensure continuity
of transatlantic data transfers
x As you may have seen we have intensified our talks on
a possible successor to the Privacy Shield. Developing
a solution is certainly a priority.
x What is at stake are complex and sensitive issues, for
the US as for Europe, that relate to the delicate balance
between national security and privacy. But I believe
that, as like-minded partners, we should be able to find
appropriate solutions on principles that are cherished
on both sides of the Atlantic: access to court,
enforceable individual rights and limitations against
excessive interferences with privacy.
x What matters for us is that any possible solution is in
full compliance with the Court’s case law. This is a
question of respect for the rule of law and it is an
essential condition to create legal certainty for
companies transferring data to the US.
Background
EU-work on secure international data flows
x The EU is working together with third countries - mostly bilaterally, but also in
the context e.g. of the G7, G20, OECD, or in WTO e-commerce negotiations - to
open up data flows as much as possible.

x  This is happening through
  Adequacy decisions, only for personal data, and

  Trade negotiations, by deploying as EU position in bilateral trade negotiations
“horizontal data flows provisions” approved by the College, covering data
across all sectors of the economy. These provisions include a list of prohibited
data localisation requirements, combined with an exception allowing for the
protection of personal data. Until now, these clauses have only been agreed in
the EU-UK Trade and Cooperation Agreement (TCA). They are also proposed
by the EU in ongoing trade negotiations e.g. with Australia, New Zealand,
Indonesia and Chile.
x  The EU proposed an approach consistent with these horizontal clauses in ongoing
plurilateral negotiations with presently 86 WTO Members on establishing a
rulebook for e-Commerce / digital trade.
x  Data flows is one of the most difficult issues in this context, with China not
willing to compromise its approach of data localisation, and other WTO Member
States disagreeing with the EU’s position of a strong personal data protection
exception and a list of data localisation requirements to be prohibited (but no
outright prohibition of data localisation requirements).
x  In the context of the G7, G20 and in the OECD, the EU supports “Data Free Flow
with Trust”, the key underlying concept of the “Osaka Track”, launched by heads
of governments under Japan’s G20 leadership in 2019.
x  It maps a multi-dimensional architecture for international cooperation on data
flows between governments, as well as involving business, with recommendations
to increase levels of governance trust and build openness through trade rules and
other tools.

EQUAL PAY AND PAY TRANSPARENCY
The Commission adopted on 4 March 2021 its proposal for a “Directive to strengthen
the application of the principle of equal pay for equal work or work of equal value
between men and women through pay transparency and enforcement mechanisms”.
The proposal was discussed at the Working Party on Social Questions on 22 March,
13 and 20 April, and 17 May (First reading of first two chapters). The Portuguese
presidency might organise one additional meeting. The Slovenian presidency is also
favourable on the file.
Employers associations are very much against the proposal. BusinessEurope, of
which the Confederation of Industry of the Czech Republic is a member, recently
released a critical position paper reiterating that the directive introduces “heavy and
disproportionate obligations for companies”, which will “create huge administrative
burdens and costs for employers, possibly with little effect”. Moreover, “it does not
leave adequate possibilities for member states to tailor implementation to their
national context, including existing wage systems and the different size of
enterprises. Finally, “the proposed directive promotes litigation and is likely to
increase court cases, regardless of whether or not discrimination exists in that case.
This could potentially create an adversary culture at workplaces”.
They are likely to ask the “EU institutions to amend the proposal to ensure that it is
proportionate and reasonable”.
Defensives
Why do you want to impose burdensome
requirement in this area for which you do not even
have strong evidence?
x Pay transparency alone cannot close the gender pay
gap and broader policy actions are needed, namely to
tackle horizontal and vertical segregation and work
life balance to name a few. We consider the respect of
the equal pay principle a basic pre-requisite for gender
equality on the labour market.

x Member States vary in the relevance of the so-called
adjusted gender pay gap (i.e. the taking into account
objective factors such as age, occupation, education,
etc.) In the EU, around 2/3 of the pay gap is
“unexplained” by those factors. Gender pay
discrimination is among the factors influencing this
unexplained part.
x By its very nature, discrimination is almost impossible
to measure, but we have sufficient indications to
believe that the issue exists and it is not negligible.
Your proposal replaces social partners’ autonomy on
pay setting with court decisions.
x The proposal fully respects social partners’ autonomy
and national models.
x The proposal does not affect pay setting as such (i.e. it
is different e.g. from the minimum wage proposal), it
merely requires that pay setting be gender-neutral.
This requirement comes from the law and social
partners are in any case constraint by the respect of the
law.

x A court decision will only be necessary when a
possible difference in pay for same work or work of
equal value is discriminatory (i.e. based on gender
instead of on objective and justified criteria).
x Courts will then not set the pay as such but ensure that
differences are gender neutral and respect the equal
pay principle. Employers’ discretion in rewarding
merit or a specific position based on explicit gender-
neutral criteria is and will be allowed. If companies
respect the equal pay principle there will not be more
court cases.
The proposal does not allow taking into account
individual performance. What will happen to
workers’ motivation?
x Differences in pay are allowed if they are objectively
justified and not gender biased. In particular, if part of
the salary is linked to merit/performance, it is perfectly
legitimate to award it based on gender-neutral criteria.
If this was not the case, it is possible that corrections
to the pay structure will have to be applied.

Why do you want to impose mandatory gender-
neutral job evaluation systems? How will a company
be able to maintain flexibility?
x The evaluation of work of equal value must be carried
out at company level. Updating a job description (in a
gender neutral way) is something that would in any
case be done when a new position (i.e. a new set of
tasks/requiring different skills) is needed or its content
changes. Companies routinely do this as basis for pay
setting.
x Member States will introduce system for the neutral
job classification.
x
How can you measure “work of equal value”?
x This concept has been introduced in the Treaty over 60
years ago. The objective criteria to define what is work
of equal value since developed by the ECJ are simply
recalled in the Directive. These are educational,
professional and training requirements, skills, effort
and responsibility, work undertaken and the nature of
the tasks involved.

Member States will set the criteria for the neutral job
classification. Is the concept of “work of equal
value” to be applied across sectors?
x Following the Court definition of the criteria to assess
work of equal value (see above), and the fact that
employers must define these criteria, they can only
apply to their own workers and not across sectors or to
different employers.
Background
The gender pay gap in Czechia was at 18.9% in 2019, higher than the EU-28 average
of 14.1% with only four countries (EE, LV, AT and DE) having a higher gap.
A digital tool called Wage and Salary Calculator was developed which calculates
average earnings for individuals with given characteristics and the percentage
difference in earnings between women and men based on these parameters. The
project also included an in-depth study of the causes of gender wage gap (public
opinion research, analysis of linked employer/employee data, qualitative research in
companies); Methodologies for various stakeholders (Labour Inspectors, Labour
offices); Action plan for equal remuneration of women and men and a Public
awareness campaign

SUSTAINABLE CORPORATE GOVERNANCE
The Confederation of Industry of the Czech Republic attended the dedicated hearing
of social partners on the sustainable corporate governance initiative on 22 February
2021, but it did not submit a contribution there, nor did it participate in the
Commission’s open public consultation on sustainable corporate governance
(between 26 October 2020 and 8 February 2021). Only 5 out of 855 contributions
(not counting the replies through NGO campaigns) originated from Czechia,
including one of the 12 contributions from Member States’ public authorities.
Thec Czech Ministry of Justice agreed that there is a need for directors to take into
account all stakeholder interests in corporate decisions and supported the law
requiring directors to set science based targets. The Ministry also agreed on the need
for an EU legal framework for supply chain due diligence to address adverse impacts
and favoured the most ambitious and most preferred option of overall respondents,
namely a horizontal minimum process and definitions approach complemented with
further requirements in particular for environmental issues. As regards scope, the
Ministry expressed support for excluding SMEs (except for the riskiest sectors) from
some of the proposed (stricter) obligations and advocated for finding additional
means to reduce the burden for SMEs through e.g. less reporting, guidance, etc.
In comparison, EuroChambres, as the umbrella organisation of the Czech Chamber
of Commerce - the largest and the most representative business association in the
Czech Republic - which you met on 29 April 2021, expressed scepticism about need
to regulate directors’ duties by EU law, while supporting harmonisation of certain
corporate due diligence practices.
x
Defensives
1. Due diligence:

Issues that are not directly influenced by companies
should not be their responsibility. Due diligence duty
should be limited to direct contractual partners
(“first tier”). The responsibility for compliance with
the legal framework of third countries must lie with
the respective local companies.
x Due diligence means that companies have to take all
reasonable steps that can be expected from them in
the specific context. The expected standard of care
would need to be in line with the leverage that a
company, individually or jointly with others, can
exercise over its suppliers including further down in
the supply chain.
x Ideally, due diligence would cover the entire value
chain, as human rights violations and environmental
harm occurs more often beyond tier one. The French
law in this area, for instance, goes beyond tier one.
There is a balance to be struck here. Our aim is also to
ensure that the measure is effective, also to the
benefit of the company.
The EU should focus on well-targeted policies to
ensure that local governments (in third countries)

protect human rights and social and environmental
standards.
x Other policies, such as development cooperation,
neighbourhood policy, trade and external relations
contribute to reaching our ultimate goals with support,
funding, dialogue, agreements.
x There is also an ongoing reflection about
strengthening sustainability chapters in trade
agreements to support the transition better and help
levelling the playing field globally. These policies
reinforce each other.
x At the same time, the experience with the French Duty
of Vigilance Law shows that a legal standard can
contribute to changing the regulatory and
behavioural environment in the third country of the
supply chain. Such positive impact of an EU standard
would be even higher.

The impact on EU companies’ global competitiveness
should be considered.
x Evidence shows that benefits of sustainable
corporate behaviour outweigh the costs on the short,
medium, and long run. For instance, investments in
low-carbon technologies can reduce operational costs
significantly, to the extent that they pay back in a
relatively short time. This improves competitiveness.
x Our initiative is looking into building upon existing
UN and OECD standards and guidelines (the
United Nations’ Guiding Principles on Businesses and
Human Rights, as well as on the OECD Guidelines for
Multinational Enterprises and the related Due
Diligence Guidance for Responsible Business
Conduct), which are global and apply to non-EU
companies as well.
x We are also reflecting on strengthening sustainability
chapters in EU trade agreements to help level the
playing field globally. These policies reinforce each
other.

x We are also looking into covering third country
companies, possibly linked to them having a
significant turnover in the EU.
Due diligence should be limited to high-risk
industries, at least in the case of SMEs.
x The Commission is considering the possibility to
identify sectors which are more prone to human rights
or environmental adverse impacts for the purposes of
reducing the regulatory burden on SMEs that are not
active in these sectors.
UN and OECD standards should be the basis of
duties but SMEs’ efforts should be supported by
NGOs and with additional guidance.
x Our initiative is looking into building upon existing
UN and OECD standards and guidelines (the
United Nations’ Guiding Principles on Businesses and
Human Rights, as well as on the OECD Guidelines for
Multinational Enterprises and the related Due
Diligence Guidance for Responsible Business
Conduct).

x According to these, due diligence is inherently risk
based and requires deploying reasonable efforts. The
expected standard of care is in line with the leverage
that a company, individually or jointly with others, can
exercise over its suppliers and further down in the
supply chain.
x The Commission is considering whether it is useful to
identify sectors which are more prone to human rights
or environmental adverse impacts, for the purpose of
reducing the regulatory burden on SMEs.
x However, the identification and assessment of actual
and potential risks and impacts (risk mapping) is best
done by the company. It is best placed to know its
stakeholders and the related impacts/risks.
x Companies can also use guidance or participate in
joint, e.g. sectorial initiatives, use modern
technologies or trusted third parties. Sustainability
reporting standards (e.g. the possible future EU
standards) may also give some guidance for particular
sectorial risks or impacts.

SMEs should be exempted from compliance and
protected from being excluded from larger
companies’ supply chains during a transitional
period.
x It is possible to envisage that low risk sector SMEs
would only be covered by the scope of the new rules
in a phase-in approach to make transition smoother
and less burdensome. This is part of the ongoing
analysis.

The applicable legal regimes across the EU allow
directors to carefully consider all relevant
stakeholder interests. A legal requirement to take all
interests into account, combined with risk of personal
liability would create legal uncertainity. Voluntary
measures with targeted legislation (Corporate
sustainability reporting Directive, Shareholder
Rights Directive) are enough.
x Our  public consultation revealed some support for
clarifying the principle that corporate directors should
balance the interests of a wide range of stakeholders –
as opoosed to a narrow focus only on the short-term
financial interests of shareholders – as part of their
duty of care for the long-term sustainability of their
firm.
x Companies and business associations supported the
need to integrate sustainability risks, impacts and
opportunities  into a company’s strategy, decisions
and oversight within the company.

x How to do this, is the subject of our analysis. In any
case, directors should continue to owe their duties to
the company, and we should not aim at making a
hierarchy between the different interests. The so
called  “business judgment rule” should remain
applicable.
Background
Last year, two studies were delivered to the Commission to underpin this initiative:
x  Study on due diligence requirements in the supply chain (February 2020)
x  Study on directors’ duties and sustainable corporate governance (July 2020)
First results from the public consultation on the Renewed Sustainable Finance
Strategy, which contained some relevant questions, already showed strong overall
support for directors to take stakeholder’s interests into account in their duty of care
and mandatory EU due diligence rules.
In parallel, in the European Parliament, the own initiative legislative report on
"Corporate Due Diligence and Corporate accountability” (rapporteur Lara
Wolters, S&D/NL) was adopted in the March plenary. It requests the Commission to
submit a legislative proposal on mandatory supply chain due diligence. It also
suggests that compliance with mandatory due diligence provisions should be a
condition for market access, i.e. products related to severe human rights violations
(such as forced labour or child labour) should be banned.
This report is complemented by work led by the JURI Committee on an own-
initiative report on "Sustainable Corporate Governance" (rapporteur Pascal
Durand, Renew/FR). That report was adopted in the December 2020 plenary. It calls
for a legislative proposal to ensure, among others, that directors’ duty of care must
include the long-term interest of the company and wider societal interests, as well as
that of employees and other relevant stakeholders, directors to adopt a sustainability
strategy and science based targets.
The Employment, Social Policy, Health and Consumers Affairs (EPSCO) Council
Conclusions  of 3 December 2020 on Human Rights and Decent Work in Global
supply chains call for a proposal from the Commission for an EU legal framework on
sustainable corporate governance, including cross-sector corporate due diligence
obligations along global supply chains.
Results of the open public consultation
A synopsis of all the Commission’s consultative initiatives will be published as part
of the impact assessment (at the adoption of the proposal). In the meantime, the
consultation responses will be published shortly as well as a factual summary.

As regards directors’ duties, the majority of respondents across stakeholder groups
recognized the need for companies and directors to take account of stakeholder
interests in corporate decisions, with the largest support coming from NGOs,
followed by individual companies and lastly business associations. Some business
associations (and a few Member States) are critical of action on directors’ duties.
As regards due diligence, all stakeholder groups confirm with vast majority (largest
among NGOs, broad support as well from individual businesses and business
associations) the need for developing a horizontal EU legal framework for due
diligence. There is also support across stakeholder groups for an ambitious approach
as regards the content of due diligence duties.
Remuneration seems to be recognized as an important element supporting the
effort, in particular as regards making compulsory the inclusion of sustainability
metrics in the variable remuneration, with however somewhat limited replies on this
topic in the open public consultation.