Last year, the European Commission introduced a proposal known as the Directive on corporate sustainability due diligence – or the EU Supply Chain Act. Since then, significant progress has been made on the topic of conducting human rights and environmental due diligence, both within specific jurisdictions and at the European Union (“EU”) level. Various EU Member States have either enacted or are in the process of enacting legislation supply chain due diligence, such as the German Act on Due Diligence in Supply Chains.
In this article we discuss the national initiatives within the EU that are focused on developing due diligence frameworks alongside the EU-wide process of the EU Supply Chain Act. In a second article we will threat the current status of the EU Supply Chain Act and the anticipated timeline for its approval and implementation.
National initiatives within the EU focusing on developing due diligence frameworks alongside the EU-wide process of the EU Supply Chain Act take the form of four different categories of states, namely: (1) the countries that have regulated the matter; (2) the countries that are willing to regulate, but that have stalled the adaption of legislation due to the upcoming EU directive; (3) countries that do not have an overarching regulation but are regulating sector by sector; and (4) countries that do not have any of the above.
Against that background, we delve into these four individual categories of countries …
(1) Countries having supply chain due diligence regulations into force – In 2017, France adopted a law on the Duty of care/Duty of vigilance. Germany has a German law on Supply Chain due diligence Act (Lieferkettensorgfaltspflichtengesetz – or “LkSG”). Due to economic ties, the LkSG already impacts companies in Austria, Hungary, Slovenia, Slovakia, Bosnia, and Herzogovina. While transposing the actual Directive on Non-Financial Reporting (which will be replaced by the European Supply Chain Act), Portugal has adopted a legislation on corporate social responsibility, which requires large companies to report on their environmental, social, and governance (“ESG”) performance.
(2) Countries in the process of regulating value chains, but that stopped due to the upcoming EU Directive – Belgium submitted a law proposal for a Duty of Vigilance in April 2021, but the process has been stalled following the announcement of the EU Supply Chain Act. In the Netherlands, an initiative bill for Responsible and Sustainable International Business was submitted on March 11, 2021. The Dutch proposal is more far-reaching than the EU Supply Chain Act and is facing significant resistance in parliament due to fears that a stricter regime in the Netherlands would hinder the local economy. Meanwhile, Austria has a draft for a Social Responsibility Law, but it is stalled for the same reasons.
Finally, Spain’s preliminary law draft for the protection of human rights, sustainability, and due diligence in transnational business activities has been on hold since last May and is still awaiting approval – also waiting on the EU Supply Chain Act.
(3) Countries that are regulating sector by sector – Austria, for one, has regulations on construction, renewable energy, and finance, which are applicable to all companies, no matter their size. The Macedonian Stock Exchange has adopted ESG reporting guidelines that are a practical tool for listed companies on ESG-related issues. And in Sweden, the environmental code touches upon topics relevant to the EU EU Supply Chain Act – albeit without the same due diligence obligations and formalities.
(4) None of the above – Malta, Croatia, and Slovakia are highly impacted by the German Act. Albania, Bosnia, Herzegovina, and Serbia are not part of the EU, but their economies highly dependent on trade with the EU and their legislation is, thus, harmonized with the EU legislation. (Note: in these countries, teams have reported that the economy is mainly made of SMEs so they expect low adoption amongst companies.)
THE BOTTOM LINE: All in all, many of the aforementioned submissions for legislation of their own mention the fact that the scope of application (“big companies”) will not significantly impact and/or involve smaller, local companies. The potential for broader applicability has sparked fears of increased administrative burden and corresponding expenses, which could have a direct impact on companies’ competitiveness. As such, many of the countries that were in the process of adopting similar legislation decided to wait to harmonize their proposals with the EU obligations and avoid being too strict, and hence, less competitive.
Lidia Mahillon is an ESG Consultant at Seeds. She specializes in commercial and economic law, environmental law, and sustainability.
Koen De Puydt is a Partner at Seeds, where he specializes in commercial and economic law, real estate, administrative law, construction law, urban planning and environmental law, and sustainability.