{"id":3765,"date":"2022-03-10T18:17:30","date_gmt":"2022-03-10T17:17:30","guid":{"rendered":"https:\/\/bernstein-group.com\/?p=3765"},"modified":"2022-09-13T12:46:13","modified_gmt":"2022-09-13T10:46:13","slug":"european-commission-unveils-proposal-for-ground-breaking-supply-chain-due-diligence","status":"publish","type":"post","link":"https:\/\/bernstein-group.com\/en\/2022\/03\/10\/european-commission-unveils-proposal-for-ground-breaking-supply-chain-due-diligence\/","title":{"rendered":"European Commission unveils ground-breaking Proposal for Supply Chain Due Diligence"},"content":{"rendered":"

The EU proposal on Corporate Sustainability Due Diligence has been long awaited. Now, the Commission presented a draft Directive that is not as ambitious as initially demanded by the EU Parliament, but clearly goes beyond the provisions of e.g. the German \u201cAct on Corporate Due Diligence in Supply Chains\u201d (applicable as of 2023). Yet, this proposal represents only the first step of a legislative procedure that will determine the agenda of 2022\/2023 \u2013 and affect numerous companies across Europe.\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n

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Publication with a pinch of salt<\/span><\/b>\u00a0<\/span><\/p>\n

With a remarkable delay of 238 days the Commission finally presented its <\/span>proposal for a Directive on \u201cCorporate Sustainability Due Diligence\u201d<\/span><\/a> on Wednesday, 23 February 2022.\u00a0<\/span>\u00a0<\/span><\/p>\n

The postponement was due to quarrels within the Commission and the fact that the Commission\u2019s Regulatory Scrutiny Board (RSB) repeatedly rejected the accompanying Impact Assessment (for further detail, see our blog post from September 2021 <\/span>here<\/span><\/a>).\u00a0<\/span>\u00a0<\/span><\/p>\n

Not only did it take long to present the final draft, also the title underwent changes. The initiative started off as a <\/span>Resolution<\/span><\/a> by the European Parliament (EP), named\u00a0 <\/span>Corporate due diligence and corporate accountability, <\/span><\/i>which was published in March 2021 and provided a first draft for a Directive with a concrete call on the Commission to act. Subsequently, the initiative quickly started trading under the working title of <\/span>Sustainable Corporate Governance<\/span><\/i> on the Commission schedule.<\/span>\u00a0<\/span><\/p>\n

Momentum and demand are clearly there<\/span><\/b>\u00a0<\/span><\/p>\n

Few question the need for a harmonized EU approach; the proposal as such has been advocated for by certain companies and civil society alike. For businesses, a fragmented legislative landscape caused by national laws comes with legal uncertainty and potentially ever-growing compliance costs. Additionally, the demand for social bonds among investors is growing \u2013 a trend that the Commission seeks to accelerate by exploring the possibility of a \u201cSocial Taxonomy\u201d.<\/span>\u00a0<\/span><\/p>\n

Mathijs Peters, Director of Corporate Affairs in the European Union and International Organizations at PepsiCo, for example, comments that they are <\/span>\u201csupportive of human rights and environmental due diligence legislation that drives better outcomes for the people and planet by ensuring all businesses prioritize these issues. As a company operating across the EU and beyond, one of our priorities is to prevent a patchwork of diverging rules across the EU, and we hope lawmakers in the European Parliament and the Council will help achieve that goal.\u201d<\/span><\/i>\u00a0<\/span><\/p>\n

Public pressure for the Commission to publish the proposal had therefore significantly risen in the weeks leading up to the publication. While <\/span>Social Democrat (S&D) MEPs criticised<\/span><\/a> the delay in reference to the EP Resolution, even several companies, including Danone, Ericsson, IKEA and Jack Wolfskin, <\/span>called for<\/span><\/a> an ambitious approach to human rights and environmental due diligence.\u00a0<\/span>\u00a0<\/span><\/p>\n

Objective and provisions of the proposed Directive<\/span><\/b>\u00a0<\/span><\/p>\n

The contentious points in the discourse leading up to the final proposal were notably based on the Directive\u2019s scope as well as on the means to enforce corporate sustainability due diligence. The notion of civil and criminal liability in case of non-compliance had already been discussed in the EP Resolution and was highly criticised by business associations.<\/span>\u00a0<\/span><\/p>\n

The Directive\u2019s general objective is to prevent or mitigate \u201cadverse impacts\u201d of business conduct on both the environment and human rights (cf. <\/span>Article 1<\/span><\/i>), such as \u201cgreenhouse gas emissions, pollution, or biodiversity loss and ecosystem degradation” and \u201cforced labour, child labour, inadequate workplace health and safety, exploitation of workers\u201d.<\/span>\u00a0<\/span><\/p>\n

The scope of application<\/span><\/b>\u00a0<\/span><\/p>\n

The companies subject to this Directive include businesses based in an EU Member State (cf. <\/span>Article 02<\/span><\/i>)\u00a0<\/span>\u00a0<\/span><\/p>\n