Sedex statement on human rights due diligence in the European Union

On Wednesday 23 February, the European Commission published draft legislation that will require some companies operating in the European Union (EU) to conduct human rights due diligence in their supply chain.

The new rules set out the responsibility for companies regarding the social and environmental impact of their own operations, the operations of their subsidiaries, and their suppliers – setting out companies’ responsibility to identify risks, prevent adverse impacts in their supply chains and operations, communicate progress and, where appropriate, provide remedy.

Sedex welcomes this draft legislation, which aims to create a level playing field for EU companies to protect people and the environment in their global supply chains.

 

Who will this law apply to?

The scope of the new rules applies to:

  • EU companies with more than 500 employees that generate a turnover greater than EUR 150 million, or non-EU companies that generate a turnover greater than EUR 150 million in the Union each year.
  • EU companies with more than 250 employees that generate a turnover of more than EUR 40 million, and non-EU companies that generate a turnover between EUR 40 million – EUR 150 million in the Union in the last financial year, operating in high risk sectors such textiles and leather manufacturing, agriculture, forestry, fisheries, minerals and mining.

 

What do companies need to do?

In order to comply with the new due diligence duty, companies will have to:

  • Integrate this due diligence into their policies
  • Identify actual or potential adverse human rights and environmental impacts in their own operations, subsidiaries and supply chain
  • Prevent or mitigate potential impacts
  • Bring to an end or minimise actual negative impacts
  • Establish and maintain a complaints procedure
  • Monitor the effectiveness of the due diligence policy and measures
  • Publicly communicate on due diligence.

Companies will be legally responsible for respecting the human rights of workers, through tackling issues such as child or forced labour and discrimination.  Companies of a certain size will also have to adopt a plan to ensure that their business strategy is compatible with limiting global warming to 1.5°C, in line with the Paris Agreement.

There is a range of tools that companies will be able use to meet the requirements of the proposal, including risk assessment, supplier self-assessment and on-site audit. Crucially, internal due diligence processes and policies to manage human rights and environmental impacts must be embedded into the business, with company directors held responsible for the organisation’s actions. In addition, there are a range of tools including human rights impact assessments, supply chain partnerships and worker voice tools will increase.

Next steps are for the draft legislation (known as a legislative proposal) to go to the European Parliament and the EU Council for their approval. If and when adopted, the 27 Member States of the EU will have two years to implement the legislative directive into national law.

For more information on actions addressing human rights and forced labour abuses as well as environmental policies in the European Union, we encourage you to contact Sedex and speak with one of our experts in Consulting.

 

Sedex analysis

The draft legislation combines organisations’ responsibilities in regard to human rights, environment and how businesses manage their impacts in these areas. It will require companies to look at their whole environmental, social and governance (ESG) approach and identify their impacts not only in their own organisation but also their supply chains.

Similarly to Sedex’s approach to sourcing responsibly, the proposal highlights the importance of businesses taking a collaborative approach to enable responsible operations, for example by participating in industry schemes and collective initiatives.

While Sedex welcomes this legislative proposal, the current draft it is quite confusing. As a first step, we suggest companies work to understand the requirements of the draft legislation, what your business needs to do and already does, and identify any gaps.

The draft is heavily based on Organisation for Economic Co-operation and Development (OECD) guidelines and the United Nations Guiding Principles on Business and Human Rights (UNGPs), which Sedex tools and consulting services are built on. This means we are able to support you at any stage of preparing to meet the requirements of this legislation, and this support can be adjusted to meet the requirements of the associated national laws when they introduced in the next 2-3 years.

While small-to-medium enterprises (SMEs) are unlikely to be caught by this legislation itself, they are likely to have the responsibility of due diligence passed or ‘cascaded’ down to them. If you are an SME it’s best to be prepared for this responsibility by getting your own systems and policies in place.

 

Will the legislation protect workers?

One area the current draft legislation will need to be clearer on is how it will protect workers. Currently, only organisations that businesses have lasting relationships with will be included. This means that factors that lead to high risk, such as temporary contracts/seasonal suppliers, could be excluded, creating a loophole in the legislation.

These factors represent some of the most at-risk workers and hinder the detection of issues. If these companies, contracts and workers are not included in this legislation, they may fall through the gaps and worker rights and the environment may be damaged.

 

Contact Sedex today to learn more about this legislation and how we can support your business.

 

 

 

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