The European Model Clauses (EMCs)
Introduction
The European Model Clauses (EMCs) are a set of contractual tools being developed to align with the EU Corporate Sustainability Due Diligence Directive (CSDDD) and other international human rights and environmental due diligence (HREDD) standards. Designed to promote shared responsibility and effective collaboration between parties, the EMCs aim to improve the use of contracts as tools for preventing and addressing human rights and environmental impacts in global supply chains. The first version, EMCs 1.0, is expected to be published in March 2025, following an extensive consultation process involving diverse stakeholders worldwide.
The EMCs 1.0 Consultations and Timeline
The European Model Clauses (EMCs) are a set of model clauses designed to align with the EU Corporate Sustainability Due Diligence Directive (CSDDD), which entered into force in July of 2024. The clauses are the product of the European Working Group (EWG), which is composed primarily of European legal experts from practice and academia.
The EMCs 1.0 are under development with an estimated publication date of March 2025. A preliminary version of the EMCs was first released for consultation in October 2023. Feedback from this initial phase informed the development of the "Zero Draft", which was workshopped in late 2024 and early 2025 through an inclusive consultation process coordinated by RCP with the financial support of the Initiative for Global Solidarity (IGS), which is implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic Cooperation and Development.
The consultations aimed to ensure that the EMCs 1.0 are the product of an inclusive, balanced, and legitimate process and included:
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Over 775 individuals from Africa, Asia, Europe, and Latin America
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Over 65 feedback submissions from organizations and individuals
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Various stakeholder groups participated, including in-scope companies and smaller companies in the Global North and the Global South, civil society organizations, academics, think tanks, consultancies, and national and international governmental organizations
The feedback on the Zero Draft is currently being integrated anonymously into the final set of clauses.
The consultation period for the Zero Draft is now closed. The feedback received will be integrated (anonymously) into the EMCs 1.0, which should be published in Spring 2025.
UPCOMING CONSULTATION EVENT ALERTS: We have two upcoming consultation events taking place around the UN Business & Human Rights Forum in Geneva
Tuesday November 26, 2024, 5:10pm - 5:35pm CET, United Nations, Room XXIV (open to BHR Forum registrants) -
Snapshots series on practical approaches and tools on HRDD for business: The European Model Clauses and Responsible Contracting in Supply Chains
Speakers: Zsofia Kerecsen, Team Leader Corporate Governance Policy, DG JUST, European Commission and Martijn Scheltema, Attorney-at-law and Partner, Pels Rijcken & Droogleever Fortuijn N.V and head of the Working Group for the EMCs.
Click here for more information
Wednesday, November 27, 2024, 4:00m - 5:30pm CET (light reception to follow until 6:30pm)
Address: White & Case, Geneva, 3rd floor, 3 Quai du Mont-Blanc, 1201 Geneva
Please register here, note that space is limited to 25 participants.
This session will be dedicated to receiving feedback on the Zero Draft of the EMCs from participants. We will begin with a short presentation of the EMCs by members of the European Working Group, followed by a group discussion on the EMCs.
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Background and Key Principles
The EMCs aim to serve as a key reference for the European Commission as it prepares the guidance on model contractual clauses contemplated under Article 18 of the EU Corporate Sustainability Due Diligence Directive (CSDDD). The guidance and the EMCs are distinct instruments that are being developed independently, but the European Working Group (EWG) is cooperating with the Commission to ensure that the instruments are in alignment.
When finalized, the EMCs will be in alignment with:
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The EU CSDDD
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The German Supply Chain Due Diligence Act (LkSG)
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The United Nations Guiding Principles on Business and Human Rights (UNGPs) (2011)
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The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (2023)
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The OECD Due Diligence Guidance for Responsible Business Conduct (2018)
What's more, the EMCs build on the 2021 Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0 (MCCs 2.0). The key difference is that, while the MCCs 2.0 were written primarily for US companies operating in the US legal context, the EMCs are written for companies that are, or will be, subject to - or otherwise impacted by - the new mandatory human rights and environmental due diligence (mHREDD) laws coming from Europe. Like the MCCs 2.0, the EMCs are pan-industry and modular, meaning that companies can select which clauses to include in their contracts and adapt them to suit their particular HREDD-related needs.
The EMCs include clauses that can support companies’ HREDD processes, including on cooperation, stakeholder engagement, information sharing, responsible purchasing practices, internal grievance mechanisms, and human rights remediation. Critically, the EMCs include clauses that operationalize the “exit as a last resort” principle enshrined in the UNGPs, the OECD guidance, and the new mHREDD laws. This means that the EMCs contractualize the prioritization of remediation over traditional contract remedies (e.g., suspension of payment, termination, and damages) in the event of an actual adverse impact.
The EMCs seek to improve the effectiveness of contracts as tools for HREDD by moving away from a risk-shifting, one-sided, perfect compliance model of contracting toward a shared-responsibility model where the parties cooperate, on an on-going basis, to prevent and, when needed, remedy adverse human rights and environmental (HRE) impacts.
In this way, the EMCs track the new mHREDD laws, which identify contracts as important preventive and corrective measures that must be appropriate and effective for addressing adverse HRE impacts. The CSDDD specifies that contracts should not be used simply to transfer due diligence obligations to business partners, such as suppliers.*
The EU CSDDD and the EMCs
Article 18 of the CSDDD contemplates that the EU Commission will, within 30 months of the Directive’s entry into force, develop guidance on voluntary model contractual clauses that companies can use to meet the new requirements. While the EMCs were not developed at the EU Commission's request, the European Working Group hopes that they will serve as a helpful resource for the Commission as it develops its guidance.
For analysis of the content of mandatory due diligence laws with respect to contracts, see the RCP Policy Brief: What the EU CSDDD Says About Contracts (July 2024) and Complying with Mandatory Human Rights Due Diligence Legislation through Shared-Responsibility Contracting: The Example of Germany’s Supply Chain Act (LkSG), (2023) (2023) (Ch. 14 in ABA Book available here).
For a brief intro to the EMCs, check out this video and accompanying slides.
* Article 18 on Model Contractual Clauses and the accompanying Recital 66 contemplate clarify that the forthcoming European Commission guidance on contracts "should aim to facilitate a clear allocation of tasks between contracting parties and ongoing cooperation, in a way that avoids the transfer of the obligations provided for in this Directive to a business partner and automatically rendering the contract void in case of a breach. The guidance should reflect the principle that the mere use of contractual assurances cannot, on its own, satisfy the due diligence standards provided for in this Directive.".
To date, over 50 organizations and individuals have contributed feedback to the EMCs. Some of the participating organizations include:
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The EMCs reflect the 3 "Rs" of responsible contracting:
1. Responsible allocation of risks and responsibilities: Set aside supplier-only guaranties of perfect compliance in favor of a joint commitment to cooperate in carrying out human rights and environmental due diligence (HREDD)
2. Responsible purchasing practices: Commit the buyer to engage in purchasing practices that can support effective HREDD
3. Remediation first and responsible exit: If an adverse impact happens, provide remedy to victims and take measures to ensure the harm stops and does not reoccur before turning to traditional contract remedies (e.g., suspending payment and canceling orders). Exit should only be pursued as a last resort, taking measures to mitigate the impact.
The EMCs seek to improve the effectiveness of contracts as tools for preventing and addressing adverse HRE impacts**, as required by the new mHREDD laws. As traditionally used, contracts tend to undermine the effectiveness of companies’ HREDD processes by transferring both the contractual and the financial responsibility for upholding HRE standards to other actors in the supply chain, namely their suppliers (e.g. manufacturers).
Traditional, one-sided contracts that place the entire responsibility for upholding HRE standards on suppliers and allow the buyer to exit the contract immediately in the event of--even small--deviations from the supplier code of conduct, are ineffective for avoiding adverse HRE impacts. By extension, traditional contracts are not fit for purpose when it comes to carrying out effective HREDD, as required by the new laws**.
The EMCs move away from the traditional, one-sided model of contracting towards a model of shared-responsibility contracting where both parties to the contract, the buyer (e.g. brands and retailers) and the supplier, contractually commit to carry out on-going and risk-based HREDD in cooperation with one another.
For a brief intro to the EMCs from several members of the European Working Group, including Martijn Scheltema, Co-Chair of the Working Group, Beata Faracik, Co-Founder, Polish Institute for Human Rights, and RCP Director, Sarah Dadush, check out this video and accompanying slides.
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** For analysis of the content of mandatory due diligence laws with respect to contracts, see the RCP Policy Brief: What the EU CSDDD Says About Contracts (July 2024) and Sarah Dadush, Daniel Schönfelder & Bettina Braun, Complying with Mandatory Human Rights Due Diligence Legislation through Shared-Responsibility Contracting: The Example of Germany’s Supply Chain Act (LkSG), Chapter 14, Contracts for Responsible and Sustainable Supply Chains: Model Contract Clauses, Legal Analysis, and Practical Perspectives, (Susan Maslow & David Snyder eds., ABA Business Law Section, 2023) (Book available here).
***Article 18 on Model Contractual Clauses and the accompanying Recital 66 contemplate the development of guidance on contracting by the European Commission and clarify that this guidance "should aim to facilitate a clear allocation of tasks between contracting parties and ongoing cooperation, in a way that avoids the transfer of the obligations provided for in this Directive to a business partner and automatically rendering the contract void in case of a breach. The guidance should reflect the principle that the mere use of contractual assurances cannot, on its own, satisfy the due diligence standards provided for in this Directive.".