Towards a mandatory EU system of due diligence for supply chains

22-10-2020

The growth of international supply chains has undoubtedly brought enormous benefits to developing countries, but at the same time it has had certain negative impacts, relating for instance to violations of human and labour rights, including forced labour and child labour, environmental damage, land grabbing, and corruption. Multinational companies have gained unprecedented power, creating asymmetries in relation to weak regulation and enforcement in developing countries. For several decades, multinational companies have been encouraged to take responsibility for their supply chains on a voluntary basis. Whereas in some sectors, where violations have been most egregious, particularly in the extractive industries or in timber extraction, mandatory frameworks have already been adopted at EU level, for others it was hoped that the voluntary approach, guided by several international frameworks, would suffice. The evidence available, however, from academic research, civil society organisations, implementation of the EU Non-financial Reporting Directive, and studies commissioned by the EU institutions, has made it clear that the voluntary approach is not enough. Against this background, many voices consider that the EU should adopt mandatory due diligence legislation. Human rights and the environment stand out as two areas where such legislation would be both most needed and most effective. Beyond its expected intrinsic positive impact, such legislation would have important advantages, such as creating a level playing field among all companies operating on the EU market, bringing legal clarity, and establishing effective enforcement and sanction mechanisms, while possibly improving access to remedy for those affected, by establishing civil and legal liability for companies. The European Commission has undertaken some preliminary steps, including publishing a study and conducting public consultations, towards a possible legislative initiative on mandatory due diligence. Its 2021 work programme includes a proposal for a directive on sustainable corporate governance that would also cover human rights and environmental due diligence.

The growth of international supply chains has undoubtedly brought enormous benefits to developing countries, but at the same time it has had certain negative impacts, relating for instance to violations of human and labour rights, including forced labour and child labour, environmental damage, land grabbing, and corruption. Multinational companies have gained unprecedented power, creating asymmetries in relation to weak regulation and enforcement in developing countries. For several decades, multinational companies have been encouraged to take responsibility for their supply chains on a voluntary basis. Whereas in some sectors, where violations have been most egregious, particularly in the extractive industries or in timber extraction, mandatory frameworks have already been adopted at EU level, for others it was hoped that the voluntary approach, guided by several international frameworks, would suffice. The evidence available, however, from academic research, civil society organisations, implementation of the EU Non-financial Reporting Directive, and studies commissioned by the EU institutions, has made it clear that the voluntary approach is not enough. Against this background, many voices consider that the EU should adopt mandatory due diligence legislation. Human rights and the environment stand out as two areas where such legislation would be both most needed and most effective. Beyond its expected intrinsic positive impact, such legislation would have important advantages, such as creating a level playing field among all companies operating on the EU market, bringing legal clarity, and establishing effective enforcement and sanction mechanisms, while possibly improving access to remedy for those affected, by establishing civil and legal liability for companies. The European Commission has undertaken some preliminary steps, including publishing a study and conducting public consultations, towards a possible legislative initiative on mandatory due diligence. Its 2021 work programme includes a proposal for a directive on sustainable corporate governance that would also cover human rights and environmental due diligence.