Europaudvalget 2021-22
EUU Alm.del
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Udenrigsudvalget 2020-21
URU Alm.del - Bilag 125
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NOTE
1. februar 2021
The Danish Government’s response to the public consultation on an
initiative on sustainable corporate governance
It is a key priority for the Danish Government to enable a green and susta-
inable transformation of the society. Private companies play a vital role in
order to fulfil the ambitions of the Paris agreement, the UN Sustainable
Development Goals, the purpose of the UN Guiding Principles for
Business and Human Rights and the OECD Guidelines for Responsible
Business Conduct.
The Danish Government supports the initiative of the Commission in the
European Green Deal to address how private companies can be further en-
couraged to structure decisions in terms of sustainability. The Danish
government believes that sustainability, growth and competitiveness must
be aligned and not be contradictions. That the most profitable and success-
ful companies of tomorrow are the companies where management acknow-
ledges that long-term sustainability is fundamental to their business. The
Danish Government appreciates the opportunity to comment on the Euro-
pean Commission’s preliminary approach to an initiative on sustainable
corporate governance. This response builds on a national consultation
about sustainable corporate governance in the autumn of 2020.
The Danish Government supports the intention of the initiative, but notes
that the approach indicated by the Commission contains two different sets
of regulations: mandatory due diligence and corporate governance. The
Danish Government, broadly supported by Danish stakeholders, strongly
encourage the Commission to treat the two sets of regulation separately.
Both the initiative on due diligence and the initiative on corporate gover-
nance are closely related to existing and new EU measures that aim at en-
couraging companies to further integrate sustainability. In order to achieve
an integrative approach, effective regulation and prevent unnecessary po-
licy overlap and incoherent regulation the Danish Government encourages
the Commission to ensure a detailed alignment with ongoing and newly
implemented initiatives such as the Non-Financial Reporting Directive
(NFRD), the Shareholder Rights Directive II (SRDII), the Disclosure Re-
gulation, the Taxonomy Regulation and the Circular Economy Action
Plan. This would also be in line with the principles for Better Regulation.
Due diligence
The Danish Government supports the purpose of the regulation on due di-
ligence to ensure that companies contribute to sustainable and responsible
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business conduct by describing possible risks of their adverse impacts on
e.g. human rights and labour rights issues, the environment etc. and on that
basis take steps to address the risks. Implementing risk-based due diligence
processes is key for a responsible supply chain management in line with
the UN Guiding Principles on Business and Human Rights, the ILO Tri-
partite Declaration of Principles concerning Multinational Enterprises and
Social Policy and the OECD Guidelines for Multinational Enterprises. It is
recommended that this basic purpose is clearly stated in the regulation and
mirrored in proposed requirements.
The Danish Government believes that regulating due diligence processes
will have
a significant impact in private companies’ sustainable decision-
making. This includes the engagement of directors in the process, which is
needed in order to further integrate sustainability in private companies and
to make questions of sustainability and responsible supply chain manage-
ment a matter for directors, and not just a sustainability department.
When considering due diligence regulation, it is the view of the Danish
Government that the following issues must be addressed in order for the
regulation to have the intended and needed impact:
Creating legal certainty
The aim for companies to identify and manage risks, ultimately and ideally
to avoid harm, presumes an ongoing and contextual process suited to the
dynamic character of the risks in question. A set standard of conduct for
companies’ due diligence to be measured against
can deliver legal certainty
for companies in regard to social expectations or potential penalties, or to
ensure a level playing field between companies. However, defining due
diligence as a standard of conduct might shift companies’ focus towards
compliance with that standard [tick-the-box]. This might detract from their
efforts to effectively identify and manage risks through an ongoing and
contextual process.
It is therefore the view of the Danish Government, that the Commission
should make careful considerations on this difficult issue of how to intro-
duce a legal standard of conduct without a trade-off in terms of the effec-
tive operational results of the due diligence process.
Proportionality
Considering the complex nature and novelty of due diligence legislation a
step-by-step approach in terms of scope and detail is a sensible and cauti-
ous approach. The Danish Government recommends the Commission to
start by regulating only larger companies (in line with the current require-
ments of the NFRD). Larger companies are also often the companies that
are engaged in complex value chains and who holds enough leverage to
influence the different parts of the value chains. The smaller companies
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will be affected indirectly as requirements trickle down the supply chains.
After gathering experiences, the scope can possibly be adjusted over time.
Access to remedy
The Danish Government finds it essential that any authority dealing with
supervision is competent and independent. However, there can be challen-
ges related to such supervision due to the complexity of cases dealing with
risked-based due diligence. Therefore, it can be beneficial to consider ex-
periences from the National Contact Point system, which is established as
a part of the OECD Guidelines, and deals with cases concerning risked-
based due diligence.
The Danish Government recommends the Commission to learn from the
NCP system that handles cases of violation of international standards and
principles of global responsible business conduct. Moreover, NCPs are re-
sponsible for raising awareness of what responsible business conduct
entails. Since the Danish NCP is law-based, it can handle cases of whether
public authorities in addition to civil society organizations and companies
act in compliance with the due diligence principles set up by the OECD
Guidelines. Moreover, the Danish NCP has the possibility to take on cases
on its own instigation.
Corporate Governance
The Danish Government acknowledges that in order to achieve e.g. the
goals of the Paris agreement on climate change and the Sustainable Deve-
lopment Goals it is vital that businesses contributes to a sustainable deve-
lopment. The Danish Government believes that the most profitable and
successful companies of tomorrow are the companies where management
acknowledges that long-term sustainability is fundamental to their business
and who effectively use this knowledge in their everyday management.
The Danish Government agrees with the Commission that it is necessary
to empower directors to further integrate a wider range of interests into
corporate decision-making than just the interests of the shareholders in or-
der to avoid a narrow focus on the short term. For a company to succeed
and maintain its ‘licence to operate’,
directors need to effectively work
with long-term sustainability. However, this is not, in our view, promoted
or achieved by restricting the ability of the directors to act in the way they
deem most effective, or by stripping the directors of instruments at their
disposal. The focus should be on encouraging companies to work with
sustainability, not limit their ability to act the in the manner the see fit.
The Danish Government believes that introducing mandatory due dili-
gence as described above, would be the most effective and proportionate
instrument to achieve the empowerment of the companies and their direc-
tors and to make sure that companies work effectively with long-term
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sustainability. The Danish Government finds that hard regulation of direc-
tors’ duties and liability could hamper the ability of companies to deliver
on the sustainability agenda in the most effective way.
Directors’ duties and directors’ liability
To enable a green and sustainable transformation of the society the Danish
Government finds it essential that private companies use and allocate re-
sources in order to fulfil this transition by making long-term investments
including in new technologies, sustainable business models and supply
chains. However, reducing companies’ opportunity e.g. to pay out divi-
dends to shareholders and share buybacks can potentially harm the perfor-
mance and competitive position of a company, the ability to attract venture
capital, and the possibility to allocate capital to companies that need capital
in order to develop new technology.
Furthermore, the right to hold shares and the economic rights attached to
this ownership, such as the right to dividend in a company, are a part of the
private property rights for the shareholders protected in article 73 of the
Danish Constitution. Limitation of such property rights must comply with
the rules of expropriation.
While we share intention of companies contributing to long-term sustaina-
bility, the potentially harmful effects should therefore be considered very
carefully before moving forward with such proposals.
Stakeholders’ involvement
in company decisions and the enforcement of
the duty of care
It is the view of the Danish Government that many of the most successful
Danish companies in recent years are the ones who have shown that they
take into account the interests of their stakeholders and the surrounding
society. The Danish Government thus supports the view that
companies’
stakeholders’ interests are very relevant and that the best way of engaging
these stakeholders is by introducing mandatory due diligence. However, it
is often unclear who these stakeholders are and it is often difficult to nar-
row down the most relevant stakeholders, and then in which form, how,
and when they should be involved. It is a concern for the Danish Govern-
ment that if the regulation outlined by the Commission is adopted, it may
have negative consequences if the companies do not comply with a duty to
involve certain stakeholders. This could lead to a general increase in the
circle of litigants entitled to sue the company, which then would introduce
a high degree of legal uncertainty for companies.
Scope
As regards the scope of the outlined initiative, it is unclear which compa-
nies will be included, including listed/non-listed companies, large compa-
nies,
SME’s and/or
micro-enterprises. Significant burdens will be imposed
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on
SME’s and micro-enterprises
if they become part of potential legisla-
tion. The Danish Government does not consider it appropriate to allow ex-
ternal stakeholders to have a direct influence on the management of espe-
cially
SME’s and micro-enterprises.
Impact assessment
The Commission’s upcoming proposal is primarily based on the heavily
criticized report by Ernest and Young (EY)
”Study
on directors’ duties and
sustainable corporate governance”.
The conclusions from the report
have
been criticized by e.g. company law professors around the world and nu-
merous business organizations. This criticism was repeated from Danish
stakeholders in the hearing by the Danish Government leading up to this
response. The Danish Government is therefore of the opinion that the need
and the foundation for an upcoming EU proposal on corporate governance
has not been documented and we recommend the Commission to provide
a better basis for decision-making.
Final remarks
The Danish Government has decided not to fill in the questionnaire as we
find it difficult to provide precise and nuanced answers to many of the que-
stions by filling in the questionnaire. This is a viewpoint shared by many
Danish stakeholders and we urge the Commission to consider other inputs
provided by Member States and stakeholders to gain a representative un-
derstanding of the stakeholder engagement. Two annexes are attached to
further elaborate our contributions towards mandatory due diligence and
corporate governance.
The Danish Government would once again encourage the Commission to
separate the two initiatives on mandatory due diligence and corporate
governance and focus on a legislative proposal on mandatory due diligence
since this would be the best way to achieve the goal of companies actively
contributing to a more sustainable future.
The Danish Government remains at your disposal for any further questions
and stands ready to contribute throughout the process.
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