Binding due diligence through EU supply chain law

European Business & Biodiversity Campaign - News

Binding due diligence through EU supply chain law

On 23 February 2022, the EU Commission published its "Proposal for a Directive on corporate sustainability due diligence", the so-called EU supply chain law, which also addresses biodiversity protection.

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03/09/2022: The directive, once transposed into national law by member states, will require companies to identify risks of human rights abuses and environmental degradation in their supply chains and take countermeasures. Companies with more than 150 million EUR annual turnover and more than 500 employees will be primarily affected, but also smaller companies with more than 40 million EUR annual turnover and more than 250 employees, if they achieve more than 50% of their turnover in certain sectors (e.g. textiles, raw materials trade, chemicals, agriculture, food...). This means that an estimated 13,000 companies would be affected by the regulation, which would represent only 1% of EU-wide companies - a key criticism of the Commission's draft, but there are also positives...
Civil liability regulation

A decisive tightening, which was already demanded in particular by civil society in the German Supply Chain Sourcing Obligations Act, are regulations on civil liability, which have now been included by the EU in the draft. In addition, the Paris climate protection targets must now be anchored in the corporate strategy of the companies concerned.
Reasons for an EU supply chain law

Corporate due diligence has so far been based on a voluntary basis. Some companies address sustainability issues in order to gain a competitive advantage, because 'sustainability sells' or to prevent reputational damage to consumers and investors. The EU supply chain law now aims to transform voluntariness into bindingness and to combine it with the necessary legal certainty for both sides, companies and injured parties. Especially since previous voluntary due diligence measures have apparently not led to major improvements in all sectors, as the draft law explains. There are still negative effects from EU production, and consumption, both inside and outside the Union, it says. These include, in particular, human rights violations such as forced labor, child labor, inadequate occupational health and safety, and exploitation of workers, as well as environmental impacts such as greenhouse gas emissions, pollution, or the loss of biodiversity and destruction of ecosystems.
Biodiversity knows no borders

In its proposal for an EU supply chain law, the Commission emphasizes the need for an EU-wide regulation in order to effectively combat certain problems in the first place. After all, pollution, climate change and the loss of biodiversity know no national borders, so the efforts of one member state can be hampered by the inactivity of a neighboring one. So, for example, in order to effectively implement the Convention on Biological Diversity, it makes sense to bundle the actions of all EU members through a common directive.[SK1] And even the companies individually usually do not act nationally, but EU-wide or globally and have supply chains that involve other member states or third countries.
Consistency with the biodiversity strategy

The EU Supply Chain Act will complement or contribute to the achievement of other existing and planned Union measures in the field of human rights and environmental protection. This is the case, for example, with the EU Biodiversity Strategy, which aims to put biodiversity in Europe on the road to recovery by 2030 through concrete actions and commitments. It says: "To ensure that environmental and social interests are fully taken into account in companies' business strategies, the Commission will present a new initiative on sustainable corporate governance in 2021. This initiative may take the form of a legislative proposal and will address human rights, environmental due diligence and due diligence carried out across economic value chains in an appropriate manner and according to the size of companies." The EU Supply Chain Act would fulfill this requirement.
Where do we go from here?

The Commission's draft EU supply chain law now goes to the European Parliament as well as the Council in further proceedings. Once adopted, the EU member states must convert the directive into national law. In that case, Germany will have to adapt its supply chain law, which was passed in 2021.

Author: GNF