The EU's new supply chain law – what you should know
Risks in SCM

The EU's new supply chain law – what you should know

In its draft for a new supply chain law, the European Union puts corporate due diligence for supply chain in concrete terms. What should companies expect?

Will the European supply chain law take effect in 2022?

The goals of the draft law include harmonization, legal certainty, and ensuring a level playing field for all EU states. This ambition may result in both national flagship legislation and legislation to track individual commodities being included in a forthcoming EU law. Laws that have already been passed are therefore already explicitly listed.

In the draft, the European Parliament emphasizes that “voluntary due diligence standards [...] have not achieved significant progress.” While companies have a duty to respect human rights and the environment, it is the responsibility of states and governments to protect human rights and the environment. This responsibility should not be transferred to private actors. 

The draft is to be introduced before the end of 2021, with agreement between the Parliament, Commission, and Council expected in 2022.

The main elements of the draft law

According to the ideas of the EU parliamentarians, small and medium-sized companies should also be covered in addition to large companies if they are publicly listed or operate in a high-risk sector (e.g. raw materials and textiles).

In addition, the draft calls for a risk analysis of indirect suppliers. This means that companies would have to act even before there are any indications of a breach. In addition, a ban on imports of products associated with forced labor has been proposed.

The draft law also explicitly states that companies that violate human rights through action or omission would have to pay compensation.

 In this article, you can learn more about regulations on human rights violations in the EU, US, and UK

Background to the draft supply chain law

The due diligence obligations enshrined in the law draw attention to the origin of materials and products. Pioneers for certificates of origin can be found in the 2003 Kimberley Process for diamonds. Proofs must also be provided for the conflict minerals gold, tin, tantalum, and tungsten – this has been mandatory in the EU since January 1, 2021.

Furthermore, individual states in Europe have passed laws against child labor and human rights violations. For example, back in 2015, the British Parliament passed the Modern Slavery Act against modern forms of slave labor and against forced labor. In the Netherlands, the Child Labor Due Diligence Law applies, and in France, the Loi de vigilance sets out corporate human rights due diligence requirements for larger companies along the supply chain. 

Other voluntary commitments are in place in countries such as Germany. Now these efforts are being given a common legal framework.

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