BEERG Newsletter - Comment: Proposed EU Due Diligence Directive must be looked at again

Axel Voss is a senior and highly respected German Christian Democrat Member of the European Parliament and a member of the European Peoples Party. In this opinion piece for BEERG, he writes of his concern about the overreach of the proposed Due Diligence Directive:   The European Commission has presented a proposal for a European Due Diligence Directive, which is currently negotiated in the European Parliament. One thing is clear: the standards for the protection of human rights and the environment in our supply chains must be harmonised at European level. At the same time, we need a Directive that is practicable for companies and creates legal clarity.  

In our increasingly globalised world, corporate action is more closely linked to responsibility than ever before. Products consumed by European citizens are still too often accompanied by violations of human rights or environmental standards in the supply chain. So far, non-binding mechanisms have been relied on as far as possible, but they have proven to be insufficient. 

Supply chain laws, or rather due diligence laws, therefore encourage companies to take more responsibility for the protection of human rights and the environment by addressing weaknesses in their supply chains. In France and Germany, national supply chain legislation has been passed in recent years. 

However, in order to promote competitiveness in the EU, there is a need to introduce a uniform directive that applies to companies in all member states, precisely because supply chains are internationally ramified and uniform rules prevent unnecessary bureaucracy. That is why the European Commission proposed a uniform Directive at the beginning of the year.

Due diligence obligations are obligations to make an effort, not an obligation to solve every problem 

The European Commission's proposal stipulates that all companies with 500 or more employees, as well as companies in particularly high-risk sectors such as textiles with 250 or more employees, must review their entire value chain. This approach rightly raises a lot of criticism. It in fact demands that every direct supplier needs to be checked and that it is ensured by means of contractual clauses that there are no risks. 

This leads to a lot of bureaucracy without fulfilling the purpose of the law. Large companies in particular often have more than 10.000 suppliers in the first part of the chain (Tier 1) alone. It is simply impossible to check these and, if in doubt, to go beyond them, and risks are often not present there. Moreover, contractual cascading would mean that virtually all companies, regardless of size, would be affected by the law, but without support. 

Due diligence in the supply chain should also not mean that one has to solve every identifiable problem oneself, unless it is directly responsible for it. Rather, due diligence is about a duty of effort. Every company should do its best to be aware of its supply chain and any risks and mitigate known risks to the extent possible. It should also not be about the complete value chain, but about the product-based supply chain, which also takes into account aspects of the value chain that are particularly relevant for environmental standards, such as disposal. However, the Commission's proposal does not meet this requirement for due diligence either.

Only the risk-based approach is purposeful

Because of these difficulties, we in the European Parliament are clearly in favour of a risk-based approach. Instead of checking every single supplier, checks should only have to be carried out where risks can actually occur. Within the EU, for example, Member States are already responsible for enforcing human rights and environmental standards. Thus, one should focus on certain risk-based sectors outside the EU. 

Moreover, companies should be required to take actions to mitigate the risk if it was directly responsible. If there is knowledge of risks beyond direct responsibility, the company should use its leverage and do its best to mitigate those. However, it is oftentimes impossible to get the data on such cases. 

Civil liability can thus only be considered if damage has already occurred in the supply chain and the company is directly responsible for it. This risk-based approach thus reflects the long-standing international standards on due diligence of the OECD and the UNGPs and leads to actual results rather than pure bureaucracy. 

Axel Voss MEdP website and contacts: https://www.axel-voss-europa.de/