The EUs new supply chain law – what you should know

The directive on human rights and environment will apply to EU and Non-EU companies and parent companies with over 1.000 employees and a turnover of more than 450 million Euro. It will also apply to companies with franchising or licensing agreements in the EU ensuring a common corporate identity with worldwide turnover higher than 80 million Euro.

The CSDDD now needs to be formally endorsed by the Council, signed and published in the EU Official Journal. Twenty days later it will enter into force and member states will have two years to transpose the new rules into their national laws.

The EU has adopted a phased-in approach for the CSDDD:

• From 2027, the CSDDD applies to companies with over 5000 employees and worldwide turnover higher than 1500 million Euro
• From 2028 to companies with over 3000 employees and a 900 million Euro worldwide turnover
• From 2029 to all the remaining companies within the scope of the directive

The new rules oblige companies to mitigate their negative impact on human rights and the environment. Companies have to integrate due diligence into their policies, make related investments, seek contractual assurances from their partners, improve their business plan or provide support to small and medium-sized business partners to ensure they comply with new obligations. 

Scope

• Mandatory human rights due diligence
  Obligations from the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, the Convention on the Rights of the Child and more
• Mandatory environmental due diligence
  Obligations from Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), United Nations Convention on the Law of the Sea (UNCLOS), Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, Minamata Convention on Mercury and more 
  
• Mandatory climate transition plans
  Companies have to adopt a transition plan to make their business model compatible with the Paris Agreement global warming limit of 1.5°C

Organization: Some approaches how to establish due diligence obligations

• Code of conduct
  Companies should integrate mandatory human rights and environmental due diligence into their policies.
• Risk management systems
  Companies have to establish risk management systems conceerning human rights and environmental due diligence at all relevant levels of operation with the folowing steps

1. Identify and assess actual and potential adverse human rights and environmental impacts
2. Prevent – or, where not possible, mitigate – potential adverse impacts and where impacts are identified, bring them to an end.
3. Prioritize where necessary
4. Provide remediation where needed

• Stakeholder consultation
• Notification mechanism and complaints procedure

Enforcement

• New civil liability regime: Companies can be liable for damages where they ‘intentionally or negligently’ failed to prevent, mitigate, bring to an end or minimize an adverse human rights impact which led to damage.
• Fines: The CSDDD will be enforced nationally by the authorities of the EU member states. Companies that do not comply with the CSDDD may face sanctions including fines of up to 5% of their global turnover.
• Public tenders: It is possible for national authorities to make compliance with the CSDDD a criterion for the award of public contracts and concessions.

Go to the  Directive on Corporate Sustainability Due Diligence (accepted proposal)

The due diligence obligations enshrined in the law draw attention to the origin of materials and products. Pioneers for certificates of origin can be found in the 2003 Kimberley Process for diamonds. Proofs must also be provided for the conflict minerals gold, tin, tantalum, and tungsten – this has been mandatory in the EU since January 1, 2021.

Furthermore, individual states in Europe have passed laws against child labor and human rights violations. For example, back in 2015, the British Parliament passed the Modern Slavery Act against modern forms of slave labor and against forced labor. In the Netherlands, the Child Labor Due Diligence Law applies, and in France, the Loi de vigilance sets out corporate human rights due diligence requirements for larger companies along the supply chain.

In short: The CSDDD completes other more specific due diligence obligations introduced under the EU’s Conflict Minerals Regulation, the EU’s Deforestation Regulation and the new procedures companies will have to adopt to ensure compliance with the EU’s ban on products made with forced labour.