Europe should take on a pioneering role.

SW – 10/2020

The coronavirus pandemic has once again shown that human rights, social and environmental standards are prone to violation along the supply and subcontracting chains in a globalised economy. Examples like sometimes unacceptable living and working conditions of seasonal workers, who are often employed in subcontracting chains, or the hopeless situation of seamstresses in the textile industry in Bangladesh, who were left without income and social security due to cancelled orders have brought the issue into view once more.

European action plan

The German Federal Ministry of Labour and Social Affairs (BMAS) has put the issue of sustainable supply chains on the agenda of  Germany's EU Council Presidency. According to the BMAS, Europe should lead the way with an EU action plan on "Human Rights and Good Work in Global Supply Chains" when it comes to strengthening corporate responsibility in global supply chains, promoting human rights, social and environmental standards and transparency and taking account of the experience from the COVID-19 pandemic.

A conference on 6th and 7th October 2020 as part of the Council Presidency with representatives of European governments, the European Commission, international organisations, trade unions, employers' organisations, companies and academia on the topic of "Global supply chains, global responsibility" was intended to provide impetus on how to design such an EU action plan.

In its conclusions on the centenary of the ILO on 24th October 2019, the Council had already called on the EU Commission and the Member States to take appropriate measures to support responsible management in global supply chains and to communicate clearly to companies what is expected of them in terms of responsible business conduct. If these expectations are not adequately met, the necessity of specific measures must also be considered.

European law on due diligence

At the start of next year, the EU Commission intends to present a European initiative on corporate due diligence obligations. It would like to hold not only the companies accountable but also the company management, which according to its analyses is often too focused on short-term investor interests. In order to reduce the burden for small and medium-sized enterprises, an approach proportional to the size of the enterprises must be adopted.

The EU Commission would like to gather suggestions from the various stakeholders as part of a public consultation announced for the second half of 2020. As early as July, it presented a first "Impact assessment in the initial phase" on a European legal framework for company law and corporate governance and gave interested parties the opportunity to comment on it.

The question of the specific legal form of the initiative still seems to be open. According to current planning, if embedded in a possible EU action plan, it could be a legislative and a non-legislative initiative e.g. guidelines. In a debate with members of the European Parliament's Committee on Legal Affairs on 2nd September 2020, the responsible Commissioner for Justice, Reynders did not comment on this, referring to the ongoing consultation process.

Initiatives by the Member States

Some Member States, such as France, the United Kingdom, the Netherlands and Denmark, have already adopted or plan to adopt due diligence systems for companies. The French "Droit de Vigilance" is often cited as a "model" for an EU-wide initiative. The law added non-financial reporting obligations to existing reporting obligations under the French Commercial Code.

Public limited companies with a head count of 5,000 in France or 10,000 worldwide are required to draw up and apply a so-called "due diligence plan". The plan must include measures that are suitable for identifying and preventing risks of human rights violations, environmental damage and health hazards arising from the activities of the company itself. The same applies to activities of a company controlled by it and its subcontractors and suppliers over which it has decisive influence. The plan shall be included in the annual report and published. A fine of up to EUR 10 million shall be imposed in the case of non-compliance with the obligations.