The European Due Diligence Act
Responsible and sustainable business and fair treatment of all people in the supply chain are becoming very important topics. To encourage companies to take action to ensure human rights and reduce environmental impacts in their supply chains, the European Union (EU) announced mandatory legislation on due diligence in March 2021. This legislation ensures respect for human rights and the environment throughout the entire supply chain.
Voluntary measures are not enough
The European market offers many opportunities for developing country suppliers. But, some companies do not respect human and labour rights and the environment in their daily processes. Some multinational companies promote their sustainability policies, but have failed to stop:
- forced labour;
- child labour;
- land grabbing; and
in their chains.
An EU report on due diligence shows that a voluntary approach is not enough. To stop bad practices, the EU has decided to approve mandatory due diligence legislation.
Many EU member countries already have due diligence legislation. But it is either sector-specific or only covers aspects such as child labour. Also, it is only mandatory in some countries and there is no guiding legislation at the EU level. On 10 March 2021, the European Parliament approved an outline proposal for the EU Directive on Mandatory Human Rights, Environmental and Good Governance Due Diligence.
We expect the European Parliament to approve this new legislation in 2022. After this, the EU member states will be given time to include it in their national legislation. This means that the new law will likely be in place from 2023 at the earliest. Next to the European legislation, the German parliament plans to approve a due diligence act during the summer of 2021. This act would make mandatory rules apply to companies with 3,000 or more employees from 1 January 2023.
Consequences for suppliers from developing countries
The draft EU legislation states that the rules apply to companies doing business in the European market. This includes non-European suppliers. Companies must follow the new due diligence rules. This means taking measures to prevent harm to human rights, the environment and good governance. If companies cause harm they will have to pay a penalty unless they can prove they have acted in line with due diligence. The new legislation better protects the rights of victims or stakeholders in developing countries.
We expect the legislation to apply to:
- Large companies;
- Publicly listed or high-risk SMEs; and
- Companies providing financial services and products.
These companies must have a due diligence strategy document in which they publicly communicate their approach to due diligence. This must be integrated into their overall business strategy.
To ensure due diligence across the supply chain, companies will have to identify and confirm the business practices of their suppliers and subcontractors. This includes those located outside of Europe. To make sure suppliers follow the rules, companies may ask for specific due diligence documents. These could include contractual clauses, codes of conduct or certification by independent auditors.
To learn more about European market requirements, read our study on buyer requirements for processed fruit and vegetables and edible nuts.
Autentika Global wrote this news article for CBI.
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