Time for legal reforms?

The European Coalition for Corporate Justice has published a report “Fair Law: Legal Proposals to Improve Corporate Accountability for Environmental and Human Rights Abuses” in which it makes several proposals for regulatory reforms in the European Union designed to improve the accountability of MNE’s.

The European Coalition for Corporate Justice has prepared this study in response to the European Parliaments’s resolution on Corporate Social Responsibility. The European Parliament addressed the issue of MNEs accountability and emphasized that there is a need for more reforms.

Three main areas of reform are analysed:

• enhancing direct liability of parent companies.

The company law principles of limited liability and legal personality allow an MNE, parent company, to receive the profits of its subsidiary. On the basis of the same principles the MNE cannot be held liable for the environmental and human rights consequences of the subsidiary’s operations. The European Coalition for Corporate Justice considers that the best solution would be suspend the effects of the doctrine of separate legal personality and to allocate responsibility for environmental and human rights violations to the company which controls the entity that violated the standards.

• establishing a parental company duty of care.

Under existing European laws, the parent company’s  duty of care with regard to the subsidiary’s operations is limited to “specific situations where the parent is directly involved in the operations or is in fact driving the affiliate’s decisions.” The European Coalition for Corporate Justice considers that the parent company’s duty of care should be extended in order to cover all situations where the parent could significantly influence the adverse impacts  on human rights and on the environment of the operations of the legal persons with which it has business relationships.

• establishing  mandatory social and environmental reporting.

The European Coalition for Corporate Justice considers that voluntary reporting has several limitations and that the following information should be disclosed by the MNE’s: the enterprise structure and its sphere of responsibility; the risks of human rights and environmental abuses within the  MNE’s operations or the operation within its sphere of responsibility and the measures adopted to prevent such abuses; data on direct and indirect environmental and social impacts of the MNE’s operations in the preceding reporting period according to a specified and standardised set of performance indicators.