EU Leaders Working on New Corporate Due Diligence Requirements

Last April, European Justice Commissioner Didier Reynders announced he is planning in 2021 to propose legislation with binding due diligence obligations as part of a broader package on sustainable corporate governance. While the exact scope of the proposal is to be determined, it is expected to be broad and cover electronics manufacturing companies. The new requirements would likely obligate companies to establish due diligence systems that identify supply chain risks including forced labor and environmental pollution, and to take steps to mitigate them.

Electronics manufacturers support public and private sector efforts to improve environmental health and human rights around the world, and we have an interest in working constructively with policymakers to ensure that new regulatory requirements are both effective in combatting the issue of concern and practical for the companies affected.

As always, IPC will keep you informed about this legislation’s progress, and we invite your perspectives to help frame our advocacy. As an industry, we must be involved in this policy discussion.

Why are mandatory requirements going to be proposed?

Both civil society and the European Parliament have long called on the European Commission to fully implement the UN’s Guiding Principles on Business and Human Rights (UNGP) in Europe. Under the new Commission led by EC President Ursula von der Leyen, sustainable corporate governance is on the list of strategic objectives as part of the European Green Deal agenda.

Earlier this year, a study conducted for the EC concluded that voluntary measures have not been effective in encouraging companies to identify, account for, and mitigate social and environmental impacts in their supply chains. COVID-19 has accelerated efforts to ensure that Europe emerges from the crisis in a sustainable, fair, and responsible manner while keeping environmental and social challenges at the top of its agenda.

What has happened since Commissioner Reynders’ announcement?

Reynders’ announcement was met with an avalanche of reactions. Among the EU institutions, the idea has received strong support from the German Presidency of the EU Council (a post which rotates among Member States every six months), which held a large virtual conference on Human Rights and Decent Work in Global Supply Chains earlier this month. The event underlined Germany’s willingness, along with Portugal and Slovenia, to support EU-wide due diligence legislation. In fact, Germany is currently planning its own national supply chain law, for which a proposal is expected early next year. Such national laws already exist in other Member States, including France. EU-wide rules would thus avoid a fragmentation of the Single Market, with different rules applying in different Member States.

Meanwhile, the European Parliament’s Committee on Legal Affairs is preparing two non-binding reports on the topic (here and here), outlining their demands for EU sustainable corporate governance and due diligence legislation. In particular, the MEPs are focusing on a broad definition of scope, liability aspects, enforcement, and “proportionality” for small and medium-sized businesses (SMEs).

What are the next steps?

The European Commission is expected to open a public consultation very shortly, during which all stakeholders can provide their comments. The legislative proposal is expected in Q1 2021. It is now time for companies to engage in the legislative process by sharing sector-specific insights, challenges, and best practices. IPC will work with its Government Relations Committees to contribute to the public consultation and engage with the European Commission.

Does your company have a robust due diligence system in place? How do you work with your supply chain to mitigate risks? If you would like to contribute or if you have any questions, please contact me at AlisonJames@ipc.org.