The EU has drafted a proposal for a new due diligence law that intends to bring in new mandatory requirements for certain companies to follow up and report on human rights and environmental metrics. In this blog we’ll be exploring everything you need to know about this new proposed EU due diligence law, including:
- What is the new EU due diligence law?
- How will the new law affect you and your business
- Why should you care?
- What can you do to prepare for this legal evolution?
What is the new EU Due Diligence Law, really?
On 23 February 2022, the European Commission attempted to kickstart a new era of due diligence when it published its proposal for a Corporate Sustainability Due Diligence Directive. The proposal is part of the EU’s effort to achieve the goals set by the Paris Agreement and the recent European Green deal. The main elements of the EU due diligence directive concern human rights and environmental provisions.
The aims of this new EU due diligence legislation include:
- Prevent the fragmentation of due diligence requirements within the single market.
- Make wholesale improvements to corporate governance practices throughout Europe. Ultimately, legislators at the EU are looking to integrate mitigation processes and risk management with the corporate approach to environmental risks and human rights policies.
- Improve corporate accountability
- Enhance access to remedies for people and businesses impacted by poor human rights and environmental behavior.
The EU supply chain due diligence proposal aims to increase accountability for corporate leaders. By 2025, for large companies, and 2027 for medium sized companies in high-risk sectors, corporate directors will have their duty of care expanded. If the proposal goes through, this new duty of care will include five main areas:
- Integration of robust due diligence provisions within corporate policies
- Identification of actual or potential adverse impacts
- The prevention and mitigation of potentially adverse impacts
- To establish, maintain and manage a thorough complaints procedure
- To conduct ongoing monitoring of the effectiveness of due diligence policies and actions
In a nutshell, this legislation aims to enforce more responsible business practices, at scale; encouraging ambitious ESG targets, management and reporting.
How will the new law affect you?
So you’ve got an idea what this new law is about, but will it affect your business?
Simply put… probably so!
The proposed EU due diligence directive makes a distinction between two types of companies:
- Group 1: EU-incorporated limited liability companies that have at least 500 employees and a net turnover of €150 million worldwide.
- Group 2: Other smaller limited liability companies operating in resource-intensive industries with over 250 employees and a net turnover of €40 million worldwide.
You will also have to pay attention even if you are headquartered in a non-EU country. If you operate in the EU and generate turnover similar to that in Groups 1 and 2 then you may be affected by the EU due diligence law.
If you operate a small to medium-sized enterprise (SMEs) then you will not be affected by this new proposal. However, this new law is a part of a trend of things to come. Therefore it is important to keep an eye on the evolution of environmental and human rights requirements even if you operate a small family-run business.
According to Didier Reynders, the European Commissioner for Justice,
“This proposal is a real game-changer in the way companies operate their business activities throughout their global supply chain. With these rules, we want to stand up for human rights and lead the green transition. We can no longer turn a blind eye on what happens down our value chains. We need a shift in our economic model. The momentum in the market has been building in support of this initiative, with consumers pushing for more sustainable products. I am confident that many business leaders will support this cause.”
Why should you care?
The consequences for ignoring these laws and failing to adapt your business can be severe. If companies fail to comply they will be considered accountable for any adverse impact arising as a result of their activities. This is a broad area of accountability and will leave your business open to risks from many different points; especially negative impact upon brand value.
Victims will be empowered to bring civil liability claims against companies that fall short of these new proposed laws. This liability encompasses a companies’ own operations as well as those of its subsidiaries, suppliers and established relationships.
People want to do business with businesses that care about their own people, the planet and how their profit is made. The broadened stakeholder requirements that come with this legislation on the broader supply chain concretely solidifies the importance of responsible sourcing and procurement practices.
How Kodiak Hub can help
Let’s think… what type of tools do you need in order to meet the new standards?
Kodiak Hub’s cloud-based SRM solution aids global procurement teams to manage supply chain risks, improve supplier compliance, boost supplier engagement/development and improve upon supply chain performance within ESG criteria.
Modern solutions, like Kodiak Hub automates supplier due diligence management, hosting a rating methodology that allows our users to quickly spot where they have risks and opportunities in their supply chain.
We know how difficult it can be to completely overhaul the way you manage and report your supplier relationships, which is why we’ve made the whole process easy, flexible and modern.
To learn more about the new EU Due Diligence Law and how you can make improvements with a Supplier Relationship Management (SRM) platform, book a demo with us below.