Companies doing businesses in the European Union should note an important development that could introduce a duty of care for companies. On 10 March 2021, the EU Parliament approved an outline proposal for an EU Directive on Mandatory Human Rights, Environmental and Good Governance Due Diligence (Directive). The proposal, if implemented, would become EU law, after which member states would have two years to implement it. The Directive would have a significant impact on corporate accountability within the European Union.

The proposal follows a period of heightened political awareness, in Europe and worldwide, of the need for a more sustainable and responsible economy and society where environmental, social, and corporate governance (ESG) is an integral part of companies' long-term business strategies. The EU Parliament resolution containing recommendations to the EU Commission noted that “around the globe there are around 25 million victims of forced labour, 152 million victims of child labour, 2,78 million deaths due to work-related diseases per year and 374 million non-fatal work-related injuries per year,” and that, according to a Commission study, “only 37% of business respondents currently conduct environmental and human rights due diligence.” Other studies have shown that firms that had invested in ESG strategies and activities before the COVID-19 pandemic were more resilient to the economic crisis that it caused.

The Directive is aimed at ensuring that companies operating in the internal market “fulfil their duty to respect human rights, the environment and good governance and do not cause or contribute to potential or actual adverse impacts on human rights, the environment and good governance through their own activities or those directly linked to their operations, products or services by a business relationship or in their value chains, and that they prevent and mitigate those adverse impacts.”

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