Is Due Diligence becoming mandatory through EU legislation?
Disclaimer: This document provides guidance and is not a legally binding interpretation and shall therefore not be relied upon as legal advice.
Is Due Diligence becoming mandatory through EU legislation?
Due Diligence has been, up to now, largely a matter of self regulation*. Some EU Member States already have Due Diligence legislation, but the problem is only that this legislation is either too sector-specific or only covers certain aspects of the Due Diligence. Furthermore, the legislation can be evaded by transferring business to Member States without the Due Diligence legislation.
The EU has noticed that that buying and selling responsibly and in a sustainable matter, with respect to human rights and fair treatment to everyone in the supply chain, is not improving. Also the existing legislation is fragmented and can be evaded. Companies do not seem to really wish to improve Due Diligence.
Furthermore, in a recent EU publication (Study on due diligence requirements through the supply chain (https://op.europa.eu/en/publication-detail/-/publication/8ba0a8fd-4c83-11ea-b8b7-01aa75ed71a1/language-en) it has been determined that there is a significant number of companies that do not respect human, labour and environmental rights in their daily processes.
The European Union (EU), has announced that it will introduce Due Diligence legislation that applies throughout the EU. This Due Diligence legislation would ensure that human and environmental rights throughout the supply chain are respected. Subject are a.o.:
- Child labour
- Corruption
- Deforestation
- Forced labour
- Pollution
Because it is the first kind of Due Diligence legislation in the EU, we expect that the EU will introduce it as a Directive. This means that when the new directive is introduced, Member States must incorporate it into that national legislation.
When will the Due Diligence legislation be applicable?
The EU Parliament has already approved the outline proposal for ‘Mandatory Human Rights, Environmental and Good Governance Due Diligence’. We expect that the EU Parliament will approve the new legislation in 2022. This means that the Directive will be transposed and applicable to businesses in 2023 at the earliest**.
What can we expect from the new legislation?
The outline proposal for Due Diligence legislation states that the new legislation will apply to businesses active on the EU Market. This would (thus) include non-EU companies. The companies must follow the new Due Diligence legislation. This means that they must take measures to prevent harm to human right, environmental issues and good governance. If harm is caused, a penalty will be given, unless it can be proven that the company has acted in line with the Due Diligence legislation.
What can/should companies do now?
Companies without Due Diligence can start with drafting a Due Diligence strategy document. In this document will be the strategy for the approach in Due Diligence in the overall business strategy. The document can contain for example the business practices of the suppliers and subcontractors, in- and outside the EU. You can ask your suppliers for their Due Diligence documentation and draw your conclusions from the existence or non-existence of the documentation. You can also include Due Diligence into your contractual clauses, codes of conduct or required certification in the buying processes.
How can ProductIP help?
- In every product category, you see the question in the Q&A if you would like to add social compliance to your technical file. There is a significant list of social compliance certification schemes that can help you with social compliance (Due Diligence).
- We will update the info on Due Diligence legislation on ProductIPedia
- Include the legislation when it is applicable into the requirements list.
* Due Diligence is already mandatory under article 6 of Regulation (EU) No 995/2010 of 20 October 2010, laying down the obligations of operators who place timber and timber products on the market
** N.B. Further to the new EU Due Diligence legislation, the German government has advanced plans to approve a due diligence act during the summer of 2021. This act would make mandatory rules apply to companies with 3,000 or more employees from 1 January 2023.