EU supply chains conference: “It’s not about ticking a box”

On Monday, 26 September 2022, the Federal Ministry for Economic Cooperation and Development (Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung, “BMZ”) hosted a livestream conference entitled “The CSDD Directive from a Development Policy Perspective”. 

>> See the conference agenda

It’s not about ticking a box: The conference featured national and international speakers from the political sphere and from business and focused on the following questions concerning the Corporate Sustainability Due Diligence Directive (CSDD) proposal, which was published in February 2022:

1. How can the CSDD Directive improve working and living conditions along global value chains, particularly in developing countries?
2. What actions are expected from the EU and its Member States to support stakeholders along global value chains?
3. What constitutes an effective smart mix of accompanying measures at EU level?

Of particular interest were the insights of Carsten Stender of the Federal Ministry of Labour and Social Affairs (Bundesministerium für Arbeit und Soziales, “BMAS”) on the Federal Republic of Germany’s work on and approach to the development of the CSDD Directive:

• In particular, Germany advocated for due diligence along the entire supply chain – that is, for both upstream chains (e.g. raw materials extraction) and downstream chains (e.g. disposal of environmentally harmful waste).
• Germany is currently working on changing damages law in individual Member States so that victims of due diligence violations can also assert claims for damage occurring abroad before the courts of the Member States. This includes ensuring that victims have easy access to these courts.
• “Enablement before withdrawal”: Businesses should also operate in countries with less stringent human rights, occupational health and safety and environmental standards and use their influence to improve conditions. But there must be limits to this – situations where business relationships ultimately have to be terminated as a last resort. Clear regulations should be put in place to give companies guidance and legal certainty, especially those operating in unstable countries.

The key messages of the conference make one thing particularly clear: At EU level, supply chain compliance will be required broadly across industries to ensure effective worldwide protection of human rights and the environment – the same approach as Germany has taken with its Supply Chain Due Diligence Act (Lieferkettensorgfaltsplichtengesetz, “LkSG”). While it is recognised that implementing due diligence will be a time-consuming and expensive process for companies, and they have been assured of support, it is nevertheless crystal clear that they will be expected to take their obligations seriously or otherwise face severe consequences such as sanctions or civil claims for damages.

Risk-based approach a key feature of the CSDD Directive

The risk-based approach applied for the LkSG will also be pursued at EU level to successfully implement the CSDD Directive’s objectives. The following were mentioned as essential elements: prioritisation; contribution; collaboration within the supply chain; engagement; and accountability. It was repeatedly emphasised that due diligence is not and should not be about “checkbox compliance” – and has to be more than something that just looks good on paper. Businesses are expected to be proactive and creative.

Measures for effectively implementing the CSDD Directive include:

• Civil liability and sanctions: Member States are in particular to lay down rules governing civil liability for due diligence violations.
• Building on existing regulations (ILO, OECD guidelines): “From voluntary to mandatory”
• Easy and effective access to legal remedies
• Close cooperation with the individual groups concerned, international organisations, trade unions, etc.; creation of simple and effective reporting options on the ground.
• Involvement of the relevant third countries

Implementation difficulties/risks:

• Coordination between Member States: desire for extensive information sharing, avoidance of inconsistent rules within the EU; “European Action Plan” needs to be clearer.
• Problem of companies moving to countries with stricter human rights and environmental standards instead of putting remedial measures in place locally (“cut and run” vs “stay and behave”). Solution: Extend due diligence to as many companies in as many countries as possible; assist companies with implementation; moving elsewhere should be the last resort.
• Timing: Companies will need some time to implement the Directive’s requirements, they can’t do this from one day to the next. Putting supply chain compliance into practice can therefore be seen as a learning process. But while it is clear that businesses will be expected to make steady progress in implementing the requirements, it is not yet clear what criteria that progress can be measured against.

Support for companies (“enabling, not blaming”):

• Dissemination and advancement of best practices; support through smart tools
• Clear guidance and broad and easy access to information for companies (help desks etc.)
• Financial support, especially for SMEs (subsidies etc.)

CONCLUSION

More or less the same questions are now arising at EU level that arose when the LkSG was implemented in Germany. There is, in particular, a certain tension between the justified desire for human rights, occupational health and safety and environmental standards that are effective, and the actual due diligence implementation process at companies – something that will likely tax them to their limits.

Whether and how this will be resolved in practice will become clear in Germany, at least, from 1 January 2023, when many businesses will have to implement the requirements of the LkSG. This will no doubt highlight one aspect that came up at the conference: supply chain compliance is a learning process – for both companies and the authorities.