Due diligence in global value chains: Conceptualizing ‘adverse environmental impact’

• Published date: 01 November 2021
• Author: Colin Mackie
• Date: 01 November 2021
• DOI: http://doi.org/10.1111/reel.12406

RECIEL. 2021;30:297–312.

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297wileyonlinelibrary.com/journal/reel

1 |  INTRODUCTION

Corporate due d iligence is primarily a prevent ative mechanism that

requires enter prises to identify potent ial or actual adverse imp acts in

their value chains1 and deploy measures to address them.2 An array of

adverse impac ts may fall within it s scope, including to wo rkers, human

rights, consumers and the environment.3 This article is concern ed

solely with the latter. When an enterprise identifies that it has caused

or contributed to a n adverse environmen tal impact then it sh ould pro-

vide for its rem ediation (i.e. ‘make good’ the i mpact).4 This could com-

prise, for example, providing financial or non- financial compensation

to affected individuals.5 Althoug h not strictly a compon ent of due dil-

igence, the provis ion of a remedy is perceive d to be a ‘separate, critic al

process’ to be enab led and supported by it .6

Due diligence reco mmendations are found in ‘vo luntary’

standards, with the United Nations’ Guiding Principles on

 1In this arti cle, ‘value cha in’ will be used to me an all activit ies, direct a nd indirect

business relationships and investment relations of an enterprise, including entities that

supply good s or services to i t, or which recei ve goods or serv ices from it.

 2European Pa rliament, ‘Re solution of 10 Marc h 2021 with Recomm endations to th e

Commission on Corporate Due Diligence and Corporate Accountability’

(2020/2129(INL)) para 2.

 3See, e.g., OEC D, ‘OECD Due Dilige nce Guidance fo r Responsible Bu siness Condu ct’

(OECD 2018) <http://mnegu ideli nes.oecd.org/OECD- Due- Dilig ence- Guida nce- for-

Respo nsibl e- Busin ess- Condu ct.pdf> 3.

 4ibid 15, 72 and 88 .

 5See, e.g., ‘R ecommendati ons for Drawing u p a Directive of th e European Par liament and

of the Council o n Corporate Du e Diligence and C orporate Accou ntability ’ (Draft CDDC A

Directive) , annexed to Europ ean Parliamen t (n 2) art 10(3) (‘T he remedy shall b e

determine d in consultatio n with the affe cted stakeho lders and may con sist of: financ ial

or non- financial compensation, reinstatement, public apologies, restitution,

rehabilitation or a contribution to an investigation.’)

 6OECD (n 3) 88.

Received: 13 Febr uary 2021 

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 Accep ted: 24 May 2021

DOI: 10 .1111/reel .12406

ORIGINAL ARTICLE

Due diligence in global value chains: Conceptualizing ‘adverse

environmental impact’

Colin Mackie

This is an open ac cess article und er the terms of the Crea t ive Comm o ns Attr i bution L icense, which perm its use, distrib ution and reprodu ction in any medium ,

provided the o riginal work is prop erly cited.

© 2021 The Author s. Review of European , Comparative & Intern ational Environme ntal Law published b y Wiley Periodica ls LLC.

Correspondence

Email: c.mackie@leeds.ac.uk Abstract

Due diligence norms often require enterprises to address ‘adverse environmental im-

pacts’ in their v alue chains. It is, however, rare for that phrase to be d efined. Thus, it is

not known precisely w hat effects are to be prevented or r emedied or, where relevant,

when sanction s and/or liability can be i mposed. This article seeks to de termine how

‘adverse environmental impact’ should be conceptualized in these norms, a question

largely unexplor ed in the literature. It is argued that the p olluter- pays principle, and

theory of cost inte rnalization that it is built upon, offe rs a stable normative base from

which to sculpt a robust d efinition. With specificit y garnered from exemplar legal

frameworks, it is d emonstrated that ‘tradition al damage’ (e.g. damage to property

or human health) and dam age to the environment itself ought to be covere d by the

phrase. This will ensu re that incentives for prevention can be harn essed and that the

costs of an enterpris e’s goods and services will reflect th eir true social cost more

closely.

Business and Hu man Rights (UNGPs)7 and the Organisation for

Economic Co- operation and Development’s (OECD) Due

Diligence Guidance for Responsible Business Conduct (OECD

Due Diligence Guidance)8 being two high- profile examples.

However, in recent years, t here has been an intensif ication in the

political ap petite to ‘harden’ due diligence st andards within the

European Union (EU ), specifically for human ri ghts abuses and

environmenta l impacts. That the Europ ean Parliament has re-

cently passed a re solution setting out reco mmended text for a

Directive on C orporate Due Diligence and Co rporate

Accountabilit y (draft CDDCA Direct ive), imposing a mandatory

cross- sectoral (i.e. n ot sector specific) due dilig ence duty in

global value cha ins is evidence of this.9 And Law N o 2017- 399 of

27 March 2017 on the corpor ate duty of vigilance for par ent and

instructing companies (Vigilance Law)10 provides a prominent

example from French domestic law. This shift towards binding

measures refle cts the fact that whils t venerable in their goals,

voluntary s tandards have failed to delive r sufficient progress in

preventing harm s to human rights and the environ ment.11 The

take- up by ente rprises has also been low.12

However, when attempting to operationalize these and other

due diligence norms,13 invariably, we find ourselves in so mewhat

of an interpretative lacuna. Terms crucial to their efficacy are

often unclear, if not entirely undefined, hindering their regula-

tory potentia l. It is, for instance, ofte n not apparent what factor s

are (and are not) covere d by the phrase ‘adverse environ mental

impact’ in t hese norms, or what thres hold must be met before an

‘impact’ (or ha rm) is deemed to occur. Even where a threshold i s

provided (e.g. ‘signi ficant’ or ‘severe’), it is ofte n not clearly

articulated.

The Vigilance L aw, the first domestic legisla tive measure to im-

pose mandator y due diligence for human rights an d environmental

impacts,14 evinces such co ncerns. Companies that fal l within its

scope must prep are a plan which sets out reaso nable vigilance

measures that ar e adequate to identify risk s and to prevent severe

impacts on h uman rights and fundam ental freedoms, the he alth and

safety of persons and the environment.15 These risks and potential

impacts may d erive from the activiti es of the company, those of the

companies it controls or subcontractors or suppliers with whom

there is an established commercial relationship, when those activi-

ties are related to that relationship.16

However, the Vigilance L aw does not define ‘risks’, ‘severe im-

pacts’ or the ‘environment’.17 During parliamentar y debates, it was

decided that th ere was no need for furt her clarification of key te rms

such as these as Fra nce had committed to suffici ently precise and

comprehensive international obligations.18 The logic ap peared to be

that internatio nal obligations, such as the UN GPs and the OECD

Due Diligence Gu idance, were capable of fil ling interpretative ‘gaps’

in the Vigilance L aw’s drafting.19 The UNGP s and the OECD Due

Diligence Guidance can certainly inform our understanding, albeit in

abstract te rms, of the factors t hat may determine the ‘sever ity’ of an

impact.20 They do, however, have the ir limitations as interpretat ive

guides. The UN GPs are concerned princ ipally with human rights i m-

pacts. Al though they acknowledge t hat these are closely conn ected

to environment al impacts, they contain o ne brief reference to the

term ‘environment al’, and no attempt is made to define i t.21 The

OECD Due Diligence G uidance takes us to a similarly dead e nd. Its

recommendations are intended to support enterprises to implement

the OECD Guidelines for Multinational Enterprises,22 Chapter VI of

which comprises provisions relating to the environment.23 Although

the OECD Due Diligen ce Guidance seeks to ‘pro mote a common un-

derstanding among governments and stakeholders on due diligence

for responsible business conduct’,24 ‘environmental’ and ‘impacts’

are not defined in either document. Moreover, neither the OECD

Due Diligence Gu idance nor the UNGPs are fra meworks of liability.

The former st ates that ‘[t]he OECD Guidelines for MNE s are not

meant to estab lish legal concepts around li ability, including among

 7United Natio ns, ‘Guiding Pr inciples on Bu siness and Huma n Rights’ (2011) <htt ps://

www.ohchr.org/Docum ents/Publi catio ns/Guidi ngPri ncipl esBus iness HR_EN.pdf>

(UNGPs).

 8OECD (n 3).

 9The Resolut ion was adopted by t he European Pa rliament on 10 Marc h 2021; see

European Parliament (n 2).

 10Law No 2017- 399 of 27 March 2017 on the corpor ate duty of vigil ance for parent a nd

instruct ing companies ( Vigilance L aw).

 11European Pa rliament (n 2) par a 1.

 12ibid [W] (‘on ly 37% of business r espondents c urrently cond uct environm ental and

human right s due diligence’ ); ibid [X].

 13In this art icle, the phras e ‘due diligence no rm’ will be used to en compass both

voluntary (i.e. standards and recommendations) and mandatory (i.e. laws and legal

framework s) due diligence, u nless stated o therwise.

 14L Smit et al, ‘S tudy on Due Dilig ence Requirem ents Through t he Supply Chai n, Final

Report’ (January 2020) <https://op.europa.eu/en/publi catio n- detai l/- /publi catio n/8ba0a

8fd- 4c83- 11ea- b8b7- 01aa7 5ed71 a1/langu age- en> 19.

 15Commercia l Code, art L. 2 25- 102- 4.- I., as i ntroduced by th e Vigilance Law (n 10 ). The

English tran slation of the Vi gilance Law use d in this articl e is that provide d by E

Savourey, ‘Fran ce Country Rep ort’ in L Smit et a l, ‘Study on Due D iligence Requi rements

Through the S upply Chain, P art III: Count ry Report s’ (January 20 20) <https://op.europ a.

eu/en/publi catio n- detai l/- /publi catio n/0268d fcf- 4c85- 11ea- b8b7- 01aa7 5ed71 a1/langu

age- en/forma t- PDF/sourc e- search> 56– 94 (France Country Report).

 16ibid.

 17ibid 62.

 18ibid 62– 63.

 19Savourey not es that the UNGP s and OECD Guidel ines for Multin ational Enterp rises

were a ‘source of in spiration’ for t he Vigilance L aw and should be us ed to aid its

interpretation; ibid 65.

 20E Savourey and S B rabant, ‘Th e French Law on the D uty of Vigilan ce: Theoretic al and

Practic al Challenges Si nce its Adopti on’ (2021) 6 Busines s and Human Right s Journal 1

141, 145. We shall see in Sec tion 3.1 that the U NGPs and OECD Due D iligence Guida nce

define ‘severity’ in identical terms.

 21Perhaps the o nly pertine nt reference to th e environment c an be found in the

commentar y to Principle 18 ; see UNGPs (n 7) 20 ( ‘While proce sses for assess ing human

rights impa cts can be inc orporated wit hin other proce sses such as risk a ssessments o r

environmen tal and social i mpact assess ments, they sh ould include al l internation ally

recognized hu man rights as a re ference point , since enterpri ses may potentia lly impact

virtuall y any of these right s.’)

 22OECD (n 3) 3 and 15.

 23OECD, ‘OECD Guid elines for Mult inational Ente rprises’ (OECD 2 011) <https://www.

oecd.org/daf/i nv/mne/48004 323.pdf> Chapter V I, para 3.

 24OECD (n 3) 3.

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MACKIE

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