Supply chain risk

New due diligence laws for supply chains in Europe

Large companies with operations in the European Union could start being held responsible for environmental violations or human rights abuses committed by the business and their supply chains under a new law proposed in late February by the European Commission.

The legislation, known as the due diligence law, states that companies will need to establish practices that will detect, prevent and mitigate issues related to human rights, such as environmental dangers, child labour, and any human rights issues. Government would be responsible for defining financial penalties for businesses that violate the rules.

The administrative authorities appointed by EU members will be in charge of supervising the rules, with the power to keep members under the tough supply chain due diligence requirements and take legal action for those not following the rules.

Initially, the proposal will apply to companies with more than 500 employees and annual revenues of over 150 million euros – according to the European Commission, there are around 10,000 European companies inside this range and 2,000 foreign companies with operations in Europe that will also need to follow the new rules. In the initial law proposal, the idea is to also expand this range to smaller businesses in high-impact sectors, like textiles and food products.

Didier Reynders, the commissioner for justice, said: “This proposal is a real game-changer in the way companies operate their business activities throughout their global supply chain. With these rules, we want to stand up for human rights and lead the green transition. We can no longer turn a blind eye to what happens down our value chains. We need a shift in our economic model." 

The next step for the proposal is to be presented to the European Parliament and the Council for approval. If approved, the member states will have around two years to transpose the Directive into national law and communicate the relevant texts to the Commission.

Measures to comply with corporate due diligence

The proposed law applies not only to the business's own operations but also to their subsidiaries and their associated supply chains – with direct and indirect business relationships.

They need to:

  • Integrate the due diligence laws into internal policies;
  • Identify actual and potential human rights violations and environmental impacts;
  • Act on prevention of those potential impacts and mitigate the ones already occurring; 
  • After minimizing, bring to an end the actual impacts;
  • Monitor the effectiveness of the due diligence policy;
  • Publicly communicate on due diligence. 

The intention is to improve upon effective ways to protect human rights and give workers access to safe and healthy working conditions while ensuring that companies directly help to avoid negative environmental impacts contrary to environmental conventions. 

Do you know what is happening in your supply chain? Do you have due diligence worries about certain parts of your tail spend? The Maistro platform uses powerful data analytics to uncover risk within the supply chain with our customers regularly carrying out supplier health checks to ensure their supply chain conforms with their own ESG policies.

To find out how easy it is to implement this into your own organisation, get in touch for a demo.

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