While the discussions surrounding the PPWR take centre stage, two important pieces of EU legislation have continued to develop inexorably in recent weeks, which will have a profound impact on global supply chains. On 24 April 2024, the European Parliament approved the draft EU Forced Labour Regulation and adopted the renegotiated version of the Corporate Sustainability Due Diligence Directive (CSDDD). These new laws signal a clear move towards greater social sustainability in supply chains and a stronger commitment by companies to ethical practices. They will not only change the way companies do business but can also make an important contribution to improving working conditions and environmental protection worldwide.
Draft of the EU Forced Labour Regulation
On 24.04.2024, the European Parliament approved the “Proposal for a Regulation on prohibiting products made with forced labour on the Union market” (COM/2022/0453). The draft negotiation plans to ban products manufactured using forced labour from the EU market. This regulation is in line with the Modern Slavery Act in the UK, the Forced and Child Labour Act in Canada and the Uyghur Forced Labor Prevention Act (UFLPA) USA
- The draft must now receive final formal approval from the EU Council. According to reports, this is expected to happen after the EU elections in June. The regulation will then be published in the Official Journal. The regulation will take effect three years after its entry into force, in 2027.
- The new regulation would create a framework for enforcing a ban, including through due diligence investigations, new IT solutions and cross-border co-operation between authorities. According to the agreed text, national authorities or, if third countries are involved, the EU Commission will investigate suspicions of forced labour in companies’ supply chains.
- If the investigation concludes that forced labour has been used, the authorities can demand that the goods in question will be withdrawn from the EU market as well as online marketplaces and confiscated at the borders. The goods must then be donated, recycled or destroyed. Once companies have eliminated forced labour from their supply chains, the products can be put back on the market.
- Companies that do not comply with the regulations can be fined.
- Goods of strategic or critical importance to the Union may be detained until the company bans forced labour from its supply chains.
- High-risk goods and sectors: At Parliament’s insistence, the Commission will draw up a list of specific sectors of the economy in certain geographical areas where there is state-imposed forced labour. This will then be a criterion for assessing whether an investigation needs to be initiated. The Commission may also identify products or product groups for which importers and exporters must provide additional information to EU customs.
CSDDD clears another hurdle
On 24 April 2024, the European Parliament adopted the renegotiated version of the proposed Corporate Sustainability Due Diligence Directive (CSDDD, also known as CS3D). The European Council had already approved the compromise text of the Corporate Sustainability Due Diligence Directive (here as pdf) on 15 March 2024.
- The directive must now be formally approved by the Council, signed and published in the Official Journal of the EU. It will enter into force twenty days later. The member states have two years to transpose the new regulations into their national law. For Germany, this would be done by amending the Supply Chain Due Diligence Act.
- Apart from the reporting obligations, the new regulations will gradually apply to EU companies and non-EU companies that reach the same turnover thresholds in the EU:
- from 2027 for companies with more than 5000 employees and a global turnover of more than 1500 million euros
- from 2028 for companies with more than 3,000 employees and a global turnover of 900 million euros
- from 2029 for all other companies that fall within the scope of the Directive (including companies with more than 1000 employees and a worldwide turnover of more than 450 million euros)
Core of the directive: Companies and their upstream and downstream partners, including suppliers, production and distribution, will be required to prevent, end or mitigate their negative impacts on human rights and the environment. These impacts include slavery, child labour, labour exploitation, loss of biodiversity, pollution or destruction of natural heritage.
Risk-based approach and transition plan: Companies must incorporate due diligence into their business operations, make appropriate investments, seek contractual assurances from their partners, improve their business plan and support small and medium-sized business partners to ensure they fulfil the new commitments. Companies must also adopt a transition plan to bring their business model in line with the 1.5°C global warming cap set out in the Paris Agreement.
