In everyday economic reality, due diligence in the supply chain plays an increasingly important role, which should be understood as increased awareness of the activities of your business contractor. Price or speed of delivery is also important, but whether a contractor respects human rights or environmental regulations is equally important. This is because it influences the choices of consumers who make a purchase decision also taking into account other factors than just the price or the attractiveness of the packaging. We can see it now.
Member states of United Nations Organization launched its voluntary guidelines for business and human rights in 2011. As a consequence, some countries took their own legislative initiatives in this area.
Legal regulations in EU
The result of the above is also the Directive on Corporate Sustainability Due Diligence, the draft of which was presented by the European Union in February 2022. The proposed directive applies to the following companies:
- EU companies with more than 500 employees and more than 150 million euros global net turnover;
- EU companies operating in high-impact sectors with more than 250 employees and a global net turnover of 40 million euros
- Non-EU companies that are active in the EU and generate turnover in the EU exceeding the above-mentioned thresholds.
Companies need to monitor their performance in relation to issues like child labour, exploitation of workers, safe and healthy working conditions, biodiversity loss and pollution. In consequences, they need to:
- Integrate due diligence into policies;
- Identify actual or potential adverse human rights and environmental impacts;
- Prevent or mitigate potential impacts;
- Bring to an end or minimise actual impacts;
- Establish and maintain a complaints procedure;
- Monitor the effectiveness of the due diligence policy and measures;
- Publicly communicate on due diligence;
After the directive is adopted, the EU member states will be obliged to implement the EU regulations into their national legal systems. This should happen in the next few years.
Legal regulations in selected countries
Some Member States do not wait for EU regulations in this area and are starting to adopt their own regulations. An example of such a country is Germany. On January 1, 2023, the German law will enter into force, which imposes on entities operating in Germany and employing more than 3,000 employees (from January 1, 2024 more than 1,000 employees) the obligation to analyze the risk of human rights violations and threats to the environment in the supply chain of goods and services that they use in the course of their business.
The above means that an entrepreneur supplies goods or services from any other country to entities meeting the above criteria and operating in Germany, the supplier will be forced to present its rules and regulations regarding the prevention of human rights violations and due diligence. It is worth emphasizing that German entrepreneurs will be particularly interested in fulfilling the obligations in this regard due to the possible penalties in the event of failure to comply with them.
The due diligence obligations include:
1. Establishing a risk management system;
2. Designating a responsible person or persons within the enterprise;
3. Performing regular risk analyses;
4. Issuing a policy statement;
5. Laying down preventive measures in its own area of business and vis-à-vis direct suppliers;
6. Taking remedial action;
7. Establishing a complaints procedure;
8. Implementing due diligence obligations with regard to risks at indirect suppliers and
9. Documenting
Similar regulations apply or are to come into force in the following countries:
- Netherlands;
- Norway;
- Switzerland.
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