On 24 February, the European Commission Directorate-General for Justice released the long-awaited study on supply chain due diligence requirements. It shows broad support for EU-level legislation on human rights and environmental due diligence throughout the supply chain.
Study Background and Scope
Conducted via a mixture of desk research, country analyses, case studies, interviews and surveys, the study assessed options for possible action at EU level. These include no policy change, new voluntary guidelines, new regulation requiring due diligence reporting and, the most stringent option, mandatory due diligence.
Following an assessment of market practices and a review of the regulatory landscape, the study also estimated the costs and impacts of the various policy options.
- Reputational risks and high standards requested by investors and consumers are the top incentives for companies to undertake due diligence. Despite this, only one in three companies are undertaking human rights and environmental due diligence. Furthermore, supply chain mapping remains limited to mostly tier 1 suppliers.
- Most of the respondents seemed to agree that a policy change is needed. Similarly, they agreed that enough voluntary guidance already exists at EU level.
- The majority of respondents questioned the effectiveness of reporting requirements as they do not require companies to undertake due diligence but only to report on it. Business respondents hinted that voluntary internal processes might not be reported on due to concerns that this information could be used against them in lawsuits.
- The main benefits of a mandatory due diligence option for businesses are harmonisation, legal certainty, levelling the playing field, and increased leverage. It is interesting to note, however, that the views of individual companies differed considerably from those of business organizations. According to those interviewed, liability could incur if companies are not undertaking the due diligence required.
- Most respondents expressed a preference for a cross-sectoral regulation, taking into account the specificities of the sector, size of the company and operating context.
- Stakeholders clearly signalled that any regulatory mechanism should be inspired by the due diligence concept as enshrined in the United Nations Guiding Principles on Business and Human Rights (UNGP) and that it should be part of a ‘smart mix’ of measures.
Possible Next Steps
European Commissioner for Justice Reynders will present the study findings before the European Parliament on 4 March.
In the months to come, the European Commission is likely to launch an impact assessment which will entail a thorough consultation with stakeholders.
amfori recently published a set of recommendations for a coherent, predictable and effective due diligence framework at EU level. Most of our recommendations are aligned with the Commission’s study findings.
To help our members stay informed, we are working on a series of in-depth articles on specific aspects of the Commission’s study and on the broader Commission’s thinking on how to foster corporate governance Keep an eye on our website for further updates.
If you want to know more about amfori’s human rights due diligence advocacy roadmap, please get in touch with email@example.com, Social & Environmental Policy Advisor.