Mediaboss Marketing

March 11, 2022

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On 23 February 2022, the European Commission (EC) published its long-awaited draft directive on Corporate Sustainability Due Diligence (the Directive),[1] which sets out mandatory human rights and environmental due diligence obligations for corporates, together with a civil liability regime to enforce compliance with the obligations to prevent, mitigate and bring adverse impacts to an end.[2]

The draft Directive will now undergo further review and debate, with its likely adoption by the European Parliament and subsequent implementation into domestic legal systems anticipated by 2027.

This was hailed as an opportunity to introduce uniform standards for corporates operating in Europe, in circumstances where numerous individual jurisdictions have been developing their own, differing human rights and environmental due diligence and/or reporting obligations (see our previous client alert).

Key features of the Directive

Introduction of four key corporate due diligence obligations

The Directive lays down four key due diligence obligations regarding actual and potential adverse human rights impacts and adverse environmental impacts (both of which the Directive defines by reference to international conventions). The due diligence is to be conducted not only in relation to companies own operations and those of their subsidiaries, but also the operations of their established business relationships (whether direct or indirect), where those operations are related to the companys value chains.[8]

Value chain is broadly defined as activities related to the production of goods or the provision of services by a company, including the development of the product or the service and the use and disposal of the product as well as the related activities of upstream and downstream established business relationships of the company. For regulated financial services companies, the Directive gives further guidance, noting that the value chain shall only include the activities of the clients receiving such loan, credit, and other financial services and of other companies belonging to the same group whose activities are linked to the contract in question.

Integrate human rights and environmental due diligence

First, companies are required to integrate human rights and environmental due diligence into all of their corporate policies and have in place a specific due diligence policy which contains: (i)a description of the companys due diligence approach; (ii) a code of conduct to be followed by company employees and subsidiaries; and (iii) a description of processes put in place to implement due diligenceincluding measures taken to extend its application to established business relationships.

Identify actual or potential adverse impacts

Second, as noted above, companies are required to take appropriate measures to identify actual and potential adverse human rights and environmental impacts arising not only from their own operations, but their subsidiaries and the operations of established business relationships in their value chains. (Certain companies are, however, confined to identifying only severe adverse impacts.)[9] This is an ongoing, continuous obligation for companies within the scope of the Directive, except for financial institutions which need only identify adverse impacts before providing a service (such as credit or a loan).

In terms of how to identify the adverse impacts, the Directive contemplates the use of both qualitative and quantitative information, including use of independent reports, information gathering through the complaints procedure (see below) and consultations with potentially affected groups.

Prevent or mitigate potential adverse impacts

Third, companies have an obligation to prevent potential adverse impacts and, where this is not possible, to adequately mitigate adverse impacts that have been or should have been identified pursuant to the prior identification obligation. This is contemplated through a number of strategies:

Bring to an end or minimise actual adverse impacts

Finally, companies must bring to an end actual adverse impacts that have been or should have been identified. Where this is not possible, companies should ensure that they minimise the extent of such an impact. Companies are required to take the following actions, as necessary: (i)neutralise the adverse impact or minimise its extent, including through the payment of damages to the affected persons; (ii)implement a corrective action plan with timelines and indicators; (iii) seek contractual assurances; and (iv)make necessary investments. As with the obligation to prevent and mitigate potential adverse impacts, there are provisions governing circumstances where the actual adverse impact cannot be brought to an end or minimised.[10]

Standalone climate change obligation

Group 1 companies are required to adopt a plan to ensure that the business model and strategy of the company are compatible with limiting global warming to 1.5C in line with the Paris Agreement. The plan should identify the extent to which climate change is a risk for, or an impact of, the companys operations. Fulfilment of the obligations in the plan should then be taken into account in the context of directors variable remuneration, where such remuneration is linked to the directors contribution to business strategy and long-terms interests and sustainability.

Expansion of directors duties

The Directive introduces a directors duty of care provision requiring directors to take into account the human rights, climate change and environmental consequences of their decisions in the short, medium and long term. Directors[11] should put into place and oversee due diligence actions and policies, and adapt the companys strategy where necessary. Member States must ensure that their laws applicable to breach of directors duties are extended to the provisions in the Directive. As currently drafted, the Directive itself does not impose personal liability on directors for non-compliance.

In practical terms, this will likely carry with it obligations of transparency, and boards should document how they are engaging with sustainability requirements and considering risks in all relevant decision-making, including on matters of strategy. Directors should also ensure that they are sufficiently informed on how due diligence processes and reporting lines are resourced and managed within the company, and conduct training on ESG matters.

What will be required of the board will ultimately be industry-specific, but it will be important to demonstrate that the board is actively engaging with these issues.

Sanctions and enforcement

Non-compliance with the substantive requirements of the Directive carries the threat of civil liability and specific sanctions. A civil liability provision requires Member States to ensure companies are liable for damages if: (a) they have failed to prevent or mitigate potential adverse impacts; and (b) as a result of this failure, an adverse impact that could have been avoided in fact occurred and caused damage. Importantly, a company cannot escape liability by relying on local law (for example, where the jurisdiction of the alleged adverse impact does not provide for damages). Where, however, a company has taken the appropriate due diligence measures identified in the Directive, there should be no such liability unless it was unreasonable in the circumstances to expect that the action taken (including as regards verifying business partners compliance) would be adequate to prevent, mitigate, bring to an end or minimise the extent of the adverse impact. This begs the question as to what may be considered unreasonable and what measures are to be considered appropriate for the relevant company, to which there are no clear answers in the Directive. Further guidance on the scoping of expectations and nature of appropriate due diligence will be essential.

Meanwhile, the Directive requires Member States to set up supervisory authorities to monitor compliance, but gives discretion as regards sanctions for non-compliance. These authorities will be empowered to conduct investigations, issue orders to stop violations, and publish their decisions.

In-scope companies which are incorporated outside the EU must also appoint an authorised representative, i.e. a natural or legal person domiciled or established in the EU Member State in which that company generated most of its annual net turnover in the EU in the previous year. The authorised representative must have a mandate to act on the companys behalf in relation to complying with the Directive, and will communicate and cooperate with supervisory authorities.

Next steps

The draft Directive will now be presented to the Council of the European Union and the European Parliament, upon whom it is incumbent to reach agreement on a final text. It is expected that the Directive will be subject to further debates by a range of industry, government and NGO stakeholders, and it remains to be seen whether any material changes will be made. The political tailwinds behind EU-wide action in this area are strong,[12] particularly as national governments across the EU continue to implement their own legislative measures and the European Parliament has already advocated for similar legislation. Current best estimates envisage adoption in or around 2023, with subsequent transposition into national law two to four years thereafter. Hence, it is likely that the earliest that companies will be required to report pursuant to the proposed Directive will be in relation to the financial years ending 2025 or 2026.

The draft Directive is an ambitious proposal and there remain a number of open questions regarding the scope and nature of the duties envisaged. Further guidance on issues such as the nature of due diligence has been promised by the Commission, and will be critical as corporates seek to understand their obligations and address them in practical terms.

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[1]On the same date, the European Commission also published a Q&A publication and a factsheet which provide further colour and background to the draft Directive. These are available on the European Commissions Corporate Sustainability Due Diligence website.

[2]This follows a public consultation period held between 26 October 2020 and 8 February 2021, and an EU Parliament draft directive on Corporate Due Diligence and Corporate Accountability published on 10March 2021 (the EU Parliament draft Directive). See our previous client alert, addressing the 27January 2021 report containing the proposed EU Parliament draft Directive.

[3]The definition of companies extends beyond corporate entities to other forms of enterprises with separate legal personality by reference to the Accounting Directive 2013/34 and to certain regulated financial undertakings regardless of their legal form. See Article 2(iv) of the draft Directive (defining Company).

[4]See Article 2(2) of the draft Directive. Whilst the parameters of application of the Directive draw upon thresholds and definitions that have been utilised in other EU sustainability and ESG-related regulations (such as the Non-Financial Reporting Directive and the proposed new Corporate Sustainability Reporting Directive (CSRD)), this threshold relating to turnover attributable to high impact sectors is a new development.

[5]Namely, the reporting requirements under Articles 19a and 29a of Directive 2014/95/EU (the Non-Financial Reporting Directive), which will soon be replaced by the Corporate Sustainability Reporting Directive).

[6] This compares to the broader scope of the CSRD which is expected to capture around 50,000 entities.

[7]See Article 2(iv) of the draft Directive (defining Company).

[8]The italicized terms are defined under the Directive (Article 3).

[9]Namely, Group 2 companies, and non-EU companies generating a net turnover of more than EUR40million but not more than EUR 150 million in the EU in the preceding financial year, provided at least 50% of its net worldwide turnover was generated in a high-impact sector.

[10]Namely, as in Article 7, the company may seek to conclude a contract with an entity with whom it has an indirect relationship with a view to achieving compliance with the companys code of conduct or corrective plan (Article 7(4)), and refrain from entering into new or extending existing relations with the partner in connection with or in the value chain where the impact has arisen, and shall temporarily suspend commercial relationships or terminate the business relationship where the adverse impact is severe (Article 7(6)).

[11]Directors is defined broadly in the draft Directive as those who are part of the administrative, management or supervisory bodies of a company, the CEO and any Deputy CEO, in addition to other persons who perform similar functions. Board of directors is broadly defined as the administrative or supervisory body responsible for supervising the executive management of the company, or those performing equivalent functions. See draft Directive, Articles 3((o), (p).

[12]This proposal also comes off the back of a flurry of other developments in the EU in relation to ESG-related regulation. These developments include the European Commissions presentation of the same date of a Communication on Decent Work Worldwide, and very recent feedback and developments on proposed changes to the CSRD from various European Parliament committees, including the Permanent Representatives Committees (Coreper) general approach regarding the European Commissions proposed CSRD, published on 18February 2022 and European Parliaments Economic and Monetary Affairs Committees (ECON) opinion and proposed changes to the CSRD, published on 28February 2022.

Gibson Dunns lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firms Environmental, Social and Governance (ESG) practice, or the following authors:

Susy Bullock London (+44 (0) 20 7071 4283, sbullock@gibsondunn.com)Selina S. Sagayam London (+44 (0) 20 7071 4263, ssagayam@gibsondunn.com)Sophy Helgesen London (+44 (0) 20 7071 4261, shelgesen@gibsondunn.com)Stephanie Collins London (+44 (0) 20 7071 4216, SCollins@gibsondunn.com)Ashley Kate Hammett London (+44 (0) 20 7071 4240, ahammett@gibsondunn.com)

Please also feel free to contact the following ESG practice leaders:

Susy Bullock London (+44 (0) 20 7071 4283, sbullock@gibsondunn.com)Elizabeth Ising Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)Perlette M. Jura Los Angeles (+1 213-229-7121, pjura@gibsondunn.com)Ronald Kirk Dallas (+1 214-698-3295, rkirk@gibsondunn.com)Michael K. Murphy Washington, D.C. (+1 202-955-8238, mmurphy@gibsondunn.com)Selina S. Sagayam London (+44 (0) 20 7071 4263, ssagayam@gibsondunn.com)

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European Commission Proposes Far-Reaching Human Rights and Environmental Due Diligence Obligations - Gibson Dunn

Batteries are critical to a clean energy economy. They help decarbonise the transport and energy sectors, by electrifying vehicles and providing stationary storage for the renewable-powered grid. Advancing the battery supply chain therefore requires an all-hands-on-deck, global approach.

On 14 March 2022, the Commission and the U.S. Department of Energy (DOE) announced support for a collaboration between the European Battery Alliance and the U.S. Li-Bridge alliance to accelerate development of robust supply chains for lithium-ion and next generation batteries, including the critical raw materials segments.

Bolstering the clean energy economy and strengthening the battery value chain is a top priority for the European Union and the United States. This is in step with their commitment to address the climate crisis and accelerate the transition to clean energy, through renewables, energy efficiency and necessary technologies like batteries.

With each passing year, the growing urgency of the climate crisis demands swifter action, smarter solutions, and more comprehensive collaboration. The European Battery Alliance and U.S. Li-Bridge Alliance are collectively assuring the resilience of battery supply chains by

In the months ahead, EIT InnoEnergy and Argonne National Laboratory (ANL) will lead efforts between the two alliances to build bridges across the battery ecosystems and conduct forums to carry out specific collaborative efforts to ensure resilient battery value chains.

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European Commission and US Department of Energy support collaboration between the European Battery Alliance and US Li-Bridge Alliance to strengthen...

Overshadowed by other world events is the possibility that European courts help resolve differences between U.S. interests and the European Union on tech and antitrust policy. The dust is settling after the most recent round in the fight between Intel, the American semiconductor giant, and the EUs European Commission. Rounds one and two went to the commission and three and four went to Intel. The final victor remains uncertain, but courts appear increasingly willing to make it a fairer fight.

The result of round four alone may have broad implications for other companies entering the ring with the European Commission in the future. Innovation, growth, and economic stability are all on the line, with the commission pushing for a tech market that can best be described as permission-based. Reducing the incentives to innovate and invest freely in the EU could have ripple effects across the global economy.

European and American antitrust enforcers have already been on the same page in the sense that they favor an ever more prescriptive regulatory environment, presuming that conduct by large businesses is anticompetitive unless proven otherwise an almost impossible task. In Europe, the Digital Markets Act (which becomes effective in 2023) seeks to rebalance the digital economy and is clearly targeted at some of the most successful U.S.-based technology companies.

In a speechlast October, European Commission antitrust chief Margrethe Vestager stressed that over the past few years, antitrust ideas have increasingly been converging, in Europe and America, and that the growing sense of a common approach to the new challenges for competition law tells me that now is the time to cooperate even more closely than weve done before.

Indeed, the United States is following in the EUs footsteps. Some U.S. bills target only seven technology companies and would make corporate acquisitions or self-preferencing a companys use of its platform to boost its own products or services presumptively illegal, regardless of the effects on the economy. These proposals put aside economic analysis in favor of hard-and-fast rules about what a dominant company can and cannot do and imposes hefty fines for offenders.

The concept of rigid legal presumptions, devised by the European Commission and directed against certain large firms practices, is far from new. Its been used against Intel as far back as 2009. Intel, the dominant semiconductor manufacturer then and now, gave price rebates (loyalty discounts) to manufacturers (think Dell or HP) in exchange for those companies buying nearly all their computer chips from Intel alone. The European Commission claimed that Intel abused its market power and fined the company over 1 billion euros.

The commission did not come to this conclusion by conducting a careful and robust economic analysis. It asserted that since discounts can be anticompetitive, under the right conditions, they must be anticompetitive, despite a lack of evidence. The commission alleged harm between 2002 and 2005 using only evidence from the final quarter of 2002.

But the European General Court pushed back against the commissions overreach. In a recent decision, the need for better evidence was put front and center, and the court struck down the fine. In so doing, the court adopted an approach that has long been accepted by the U.S. Supreme Court.

Economic evidence has now become a powerful right hook for companies operating in the European Union. This should always be the case, but the new development nonetheless represents a victory for objective, innovation-friendly policy. No longer is the European Commission able to ignore similar evidence in cases where discount schemes were presumed illegal. No longer is the commissions judgement infallible, and this could mean a new wave of fights in court.

American companies are among the most ridiculed within the European Union, having faced numerous fines over the last decade. Until now, European courts have generally sided with the commission, leaving little recourse for companies fighting these fines. Google, Microsoft and Qualcomm have received some of the harshest fines ever imposed by the commission.

Other punches have begun to land. Both Apple and Amazon have won rounds against the commission on tax cases. But the European Commission has signaled that it is still ready to enter the ring with the whole gamut of industry-leading American technology companies, alleging wide-ranging anticompetitive harm across the European Union.

Likely gone are the days when companies tap out after the first round. Is the commission beginning to lose steam, and is it at risk of a knockout in a future case? Its too early to call, but some of the commissions punches seem to be weaker thanks to the European courts.

Alden Abbottis a senior research fellow with the Mercatus Center at George Mason University and a former general counsel with the Federal Trade Commission.AndrewMercadois an adjunct professor with the Antonin Scalia Law School.

Link:
US companies should bring their boxing gloves to Europe's courts | TheHill - The Hill

Rendering of Intel's planned factories in Magdeburg, Germany.Source: Intel

Intel announced plans to invest as much as 80 billion into semiconductor initiatives within the European Union. The company's plans include an initial 17 billion investment to create a fab mega-site in Germany and will advance research and development and manufacturing across the EU. Intel will create a new R&D hub in France, expand its investment in its foundry services in Ireland, and increase its manufacturing and foundry services in Italy, Poland, and Spain.

It will take some time for the investment to yield results, but it should greatly expand Intel's production capabilities with Europe once completed.

Intel will build two semiconductor fabs in Magdeburg, Germany, which is the capital of Saxony-Anhalt. Planning will begin immediately, and construction should start in the first half of 2023. Those fabs should begin production in 2027, though that is pending European Commission approval.

The two new fabs in Germany will use Intel's Angstrom-era transistor technologies and be used for the company's foundry services and its own chip production.

"Our planned investments are a major step both for Intel and for Europe," said Intel CEO Pat Gelsinger. "The EU Chips Act will empower private companies and governments to work together to drastically advance Europe's position in the semiconductor sector. This broad initiative will boost Europe's R&D innovation and bring leading-edge manufacturing to the region for the benefit of our customers and partners around the world. We are committed to playing an essential role in shaping Europe's digital future for decades to come."

Intel will also spend 12 billion to double the manufacturing space and to bring Intel 4 process technology to its facilities in Leixlip, Ireland. After that expansion, Intel will have invested more than 30 billion in Ireland.

Italy and Intel have also entered negotiations to create a back-end manufacturing facility with an investment of up to 4.5 billion. If created, the factory will start operating between 2025 and 2027.

Intel also announced plans to build a new R&D hub near Plateau de Saclay, France. The company will also make France its European headquarters for high-performance computing and artificial intelligence design capabilities.

By the end of 2023, Intel will increase its lab space by 50% in Gdansk, Poland to focus on deep neural networks, audio, graphics, data center, and cloud computing.

Notably, this investment is being made by Intel within the European Union, not across a broader collection of European countries. The UK lost Intel chip factory consideration due to Brexit. That is now having a real-world impact in the form of Intel choosing to invest elsewhere in Europe.

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Intel to invest up to 80 billion in European Union to expand semiconductor manufacturing and development - Windows Central

How can digital technology then foster plurilingualism in European institutions, in their internal working and in their external communication? What are todays obstacles to the wider teaching of languages in Europe and the development of ambitious policies to promote linguistic diversity? What should be the broad lines of the training and mobility of European citizens and civil servants in terms of strengthening linguistic diversity in Europe? How can the economic sector play a role in this diversity and what are the positive gains for companies?

These are the questions that will be raised and discussed by the conferences participants. Representatives of European Union Member States and European institutions, contributors in the field, civil society leaders and those working to further Francophonie will be called upon to share their experiences. Their common goal is to develop and promote linguistic diversity as a way to build European citizenship.

The event will take the form of four successive round tables, after the session of introductory remarks moderated by French, European and international senior officials.

Following the Innovation, Technology and Plurilingualism Forum organized by the Ministry of Culture from 7 to 9 February 2022, the first round table will question the benefits of digital innovation. It will focus on the benefits of innovation both in terms of the implementation of multilingualism within the European institutions, and how it is communicated to citizens. It will focus on showing how we can strengthen visibility and facilitate access to plurilingual content online.

The language of Europe is translation

Umberto Eco.

The second round table will highlight the benefit for each European of learning a second foreign language. It will show how fluency in several languages fosters employment and mobility, especially through the Erasmus+ programme. It will emphasize the benefit of bilateral cooperation at local and regional levels to promote multilingualism in Europe. This sequence is aligned with the objective of building a European Education Area by 2025, where proficiency in several languages is a condition for studying and working abroad and discovering the cultural diversity of Europe.

"Being able to speak different languages is a condition for studying and working abroad, and fully discover Europes cultural diversity"

European Commission Communication of 30 September 2020 on achieving the European Education Area by 2025.

The third round table will discuss the link between language proficiency, training and mobility in the HR strategies of national and European administrations. It will be an opportunity to talk about language-learning throughout ones career, both for European civil servants and public sector employees who work in the permanent representations of Member States.

The final round table will aim to illustrate that linguistic diversity in Europe contributes to economic growth, the creation of jobs and the employment of European citizens in all businesses. Personal accounts will illustrate the benefits of plurilingualism for Europeans and initiatives in cross-border areas will be highlighted.

Professor Christian Lequesne, author of a report in 2021 on linguistic diversity in the European institutions and within Member States, will oversee the feedback from round tables. The Minister Delegate for Tourism, French Nationals Abroad, Francophonie and for Small and Medium-sized Enterprises, MrJean-Baptiste Lemoyne, and the Minister of State for European Affairs will close the conference and hold a joint press conference.

Key figures Around 4,000 interpreters work in Brussels for the European institutions, and more than 2.5 million pages are translated into the 24 official languages every year.

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Conference on Linguistic Diversity and the French language in the European Union (15 Mar. 22) - France Diplomatie