The European union is moving forward with human rights due diligence legislation and an import prohibition on goods made from forced Labour. Details below.
Corporate Sustainability Due Diligence Directive (CS3D):
In 2022, the European Commission adopted a proposal for a Directive on corporate sustainability due diligence. (CS3D). The aim of this Directive is to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance. The new rules will ensure that businesses address adverse impacts of their actions, including in their value chains inside and outside Europe. This legislation will pass the final hurdle in April.
- After last-minute amendments to the text provisionally agreed between the negotiators, Member States endorsed the deal on 15 March, which means the proposal now enters the final stage of formal adoption by the European Parliament and the Council
- The CS3D will apply to larger companies with more than 450 million Euro turnover and 1000 employees, there will be no high-risk sectors (previously listed were agricultural products, textiles, minerals)
- The CS3D will apply:
- After 3 years for companies with more than 5000 employees and 1500 million turnover;
- After 4 years for companies with more than 3000 employees and 900 million turnover;
- After 5 years for companies with more than 1000 employees and 450 million turnover.
- Due diligence requirements:
- The due diligence obligations for companies apply to actual and potential adverse impacts on the environment and human rights for their business chain of activities which covers the upstream business partners of the company and partially the downstream activities, such as distribution.
- Companies will have to identify, assess, prevent, mitigate, bring to an end to and remedy the negative impact of their activities and on people and the planet.
- To do so, they will be required to make investments, seek contractual assurances from the partners, improve their business plan or provide support to their partners from small and medium-sized enterprises.
- Businesses in scope will have to integrate due diligence into their policies and risk-management systems, including descriptions of their approach, processes and code of conduct.
- Stakeholder engagement:
- Companies will have to meaningfully engage with those affected by their actions, introduce a complaints mechanism, communicate on their due diligence policies and regularly monitor its effectiveness.
- Meaningful engagement including a dialogue and consultation with affected stakeholders is considered one of the measures of the due diligence process.
- Civil liability:
- The agreement reinforces the access to justice of persons affected. It establishes a period of five years to bring claims by those concerned by adverse impacts (including trade unions or civil society organisations).
- The next steps will be the final vote in Parliament on 24 April and formal adoption by the Council soon after.
Related articles/links:
- https://commission.europa.eu/business-economy-euro/doing-business-eu/corporate-sustainability-due-diligence_en
- https://kpmg.com/xx/en/home/insights/2023/02/the-eu-corporate-sustainability-due-diligence-directive.html
- https://commission.europa.eu/business-economy-euro/doing-business-eu/corporate-sustainability-due-diligence_en
Forced Labour Ban Regulation:
- Negotiators agreed on a provisional deal on the Forced Labour Ban Regulation on 4 March and on 13 March Member States endorsed the deal, formal adoption is now expected in April for the Parliament and for the Council in April/May
- The main points of the agreement:
- The database of forced labour risk areas and products:
- The Commission will establish a database containing verifiable and regularly updated information about forced labour risks, including reports from international organisations such as the International Labour Organization.
- The Commission will be leading investigations outside the EU territory, if the relevant company and the government of the third country agree to it.
- Risk-based approach - the following criteria that need to be applied by the Commission and national competent authorities when assessing the likelihood of violations of this regulation:
- the scale and severity of the suspected forced labour, including whether state-imposed forced labour may be a concern
- the quantity or volume of products placed or made available on the Union market
- the share of the parts of the product likely to be made with forced labour in the final product
- the proximity of economic operators to the suspect forced labour risks in their supply chain as well as their leverage to address them
- No reversal of the burden of proof:
- The law does not create a rebuttable presumption of forced labour for goods from regions with state-imposed forced labour (= reversal of the burden of proof) but foresees the creation of a list of high-risk areas and high-risk products, which enforcement authorities will consider when assessing risks.
- However, the Commission can also identify products or product groups for which importers and exporters will have to submit extra details to EU customs, such as information on the manufacturer and suppliers of these products.
- Decision in proven cases of forced labour:
- If the investigation concludes that forced labour has been used, the authorities can demand that relevant goods be withdrawn from the EU market and online marketplaces and confiscated at the borders.
- The goods would then have to be donated, recycled or destroyed.
- If companies eliminate forced labour from their supply chains, banned products can be allowed back on the market
- Guidelines and support measures:
- The Commission will issue guidelines for economic operators and competent authorities to help them to comply with the requirements, including best practices for bringing to an end and remediating different types of forced labour.
- The guidelines will also include accompanying measures for micro, small and medium-sized enterprises.
- All guidelines and support measures will be made available via the new Forced Labour Single Portal, which aims to be the central place for businesses to find information related to this legislation.
- The Forced Labour Single Portal will include guidelines, information on bans, database of risk areas and sectors, as well as publicly available evidence and a whistleblower portal.