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Due-diligence rules on environment welcome – Law Society

An Oireachtas committee has heard that the Law Society supports the concept, core rationale, and timing of a proposed EU directive that obliges companies to conduct due diligence on the environmental and social impact of their operations.

Solicitor Conor Linehan SC (small picture) of the Law Society’s Environmental and Planning Committee was speaking at the Joint Committee on Enterprise, Trade and Employment this morning (7 December).

The committee was discussing COM 2022/71, which the European Commission published earlier this year.

Linehan told the committee that the Law Society agreed with the principle of the proposal, describing it as “ambitious”, while acknowledging that implementing some of its measures would be “challenging”.

Clear framework

In a written statement to the committee. Linehan described the directive as an “important proposal” that would influence, not just the activities and governance of the large companies to which it was initially intended to apply, but also the activities of many other businesses and SMEs with which those companies contracted.

“It will also shape and expand the manner in which legal due diligence in business transactions is conducted,” he added.

Linehan outlined the key provisions of the proposal, which establishes a series of core obligations for large companies that, collectively, create a clear framework to integrate an environmental and human-rights due diligence and awareness into companies’ corporate operations and strategies.

He told the committee that the proposed directive included a number of measures that encouraged companies not to regard the required due-diligence policies as “a routine statutory report” – including a provision for civil liability in certain cases, where large companies failed to take measures to prevent, mitigate or terminate adverse impacts.

Financial institutions

Linehan added that the inclusion of financial institutions in the measure would contribute to its overall effectiveness, while he also welcomed the expectation that firms would now have to analyse the impact of their operations outside EU territory.

The solicitor warned, however, that it would be important to ensure that the Irish authority responsible for enforcing the directive had the necessary expertise to fulfil its obligations.

“A number of the most important provisions are concerned with requiring competent authorities to identify breaches of companies' obligations to document human-rights and environmental risks, and breaches of obligations on effective prevention, mitigation, and corrective action in those fields.

“This appears to demand expertise and experience within the competent authority – not just in general corporate governance, supervision and auditing, but also in the field of human rights,” Linehan stated.

Earlier review suggested

He said that planning should begin now on how Ireland’s competent authority would be staffed, resourced, and equipped.

The Law Society is also suggesting that there should be an earlier review of the effectiveness of the directive. The European Commission is currently proposing a review seven years after the directive comes into force.

Linehan stated that the transposition of the proposed directive into Irish law should not present undue difficulty.