Study calls for more accountability of EU corporations

Corporations should be held liable in Europe for human rights abuses and environmental damage incurred outside the EU, according to a new legal study presented by a civil society network in the European Parliament on 29 May.

The study, unveiled by the European Coalition for Corporate Justice (ECCJ), recommends a set of policy proposals aimed at making companies based in Europe legally responsible for abuses committed by subsidiaries or subcontractors abroad. 

In today’s globalised world, it is developing countries that all too often carry the burden of these ill-treatments as they hope to attract foreign direct investment (FDI) by relaxing social norms. 

“Host states competing to attract FDI from companies are unable or unwilling to protect their populations,” said Professor Olivier de Schutter, a human rights specialist at the University of Leuven and UN Special Rapporteur on the Right to Food. “What’s more, home states of these corporations are mostly reluctant to provide remedies to victims or to impose human rights obligations on parent companies to control their international operations,” he added. 

What the ECCJ hopes to push through is ‘foreign direct liability’ – the notion that parent companies in Europe not only get the economic benefits of operations abroad but also have a legal responsibility for the negative effects they can cause to people and the environment. 

Furthermore, under the proposals favoured by the ECCJ, large companies would take on increased corporate social accountability by reporting on all social and environmental risks relating to their activities. According to de Schutter, this would create a more level playing field. This feeling was echoed by ECCJ Coordinator Ruth Casals, who believed the “proposals would lead to a coherent and harmonised approach to business regulation”. 

Extra-territorial prosecution is already allowed in the EU under the Brussels Convention, but the ECCJ wants the law to be extended to corporations and executive directors. “Now is the time for the EU to have the political will to implement these proposals,” said UK Socialist MEP Richard Howitt, who is Parliament’s rapporteur on corporate social responsibility (see EURACTIV Links Dossier). 

“Foreign direct liability is already carried out in war crimes cases as well as in maritime law,” said Howitt, whose Socialist Party is backing the ECCJ proposals. 

The proposals would be advantageous, according to economist Noreena Hertz of Cambridge University: “Currently there is no legal framework in place for corporations,” she said. “This would give them one.” She dismissed the myth of corporations being anti-regulation, instead arguing this would give them a head-start on the global laws envisaged to cover the issue. 

Commenting on the issue, a representative of BusinessEurope told EURACTIV that EU companies with operations abroad are expected to respect the law of the host country, and in countries where human rights standards were lacking, companies set higher standards to compensate. The official did not comment on whether the proposal should be put into EU law. 

Howitt hopes the proposals will put added pressure on the Commission to include action on the issue in its renewed Social Agenda due to be published on 25 June. 

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