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EU Puts Focus on Sustainable Supply Chains

On 10 March, the European Parliament adopted a Report addressing the environmental and human rights issues in the supply chains of EU businesses. This Report comes ahead of the European Commission’s legislative proposal on corporate due diligence for all companies operating in the EU Single Market, expected to be published by June this year.

The Members of the European Parliament (MEPs) emphasized the need for mandatory due diligence to ensure supply chains do not include environmental or human rights violations and called for fines and sanctions for those found breaching the rules. The Report called on the European Commission to level the playing field and develop a more robust framework that would replace the current patchwork of legislation and voluntary schemes.

The Rapporteur for the Report, Lara Wolters (S&D Group, the Netherlands) during the debates in Plenary stressed that “due diligence should be exercised by all companies with risks in their supply chains”. She explained: “The status quo means companies doing the right thing are at a competitive disadvantage. That time is at an end. Businesses fully understand that mandatory standards are the only path to a level playing field and to business certainty.”

Binding EU due diligence rules would oblige companies to identify, address and remedy aspects of their value chain (all operations, direct or indirect business relations, investment chains) that could or do infringe on human rights (including social, trade union and labour rights), the environment (contributing to climate change or deforestation, for example) and good governance (such as corruption and bribery). MEPs stressed that due diligence is primarily a preventative instrument that requires companies to take proportionate measures based on the likelihood and severity of the impact, the sector of activity, the size and length of the value chain and size of the company.

The European Commissioner for Justice Didier Reynders insisted that the EU wants “to incentivise outside of the EU good practice that protects the environment in line with our international commitments and our efforts in climate change and environmental protection”. For instance, the EU estimates that European consumption is responsible for 10% of global deforestation. In this sense, the Commission’s proposal in June will take a holistic approach with corporate due diligence as an obligation.

A range of solutions for SMEs is under consideration, including limitations of the scope and application according to size as well as funding support. How the new rules would be applied to SMEs was also discussed during the debates in the European Parliament. MEPs noted that SMEs may be involved in supply chains with a high risk of exploitation, but may not necessarily have the resources to monitor it.