The Pivotal Week: European Parliament’s Approval of CSDDD and EUFLR
The week of 22-26 April could also be called the Week of Last Chances. The European Parliament has reached a significant milestone by approving two crucial pieces of legislation: the EU Forced Labor Regulation (EUFLR) and the EU Corporate Sustainability Due Diligence Directive (CSDDD). These measures aim to address forced labor and corporate sustainability practices, signaling an important step towards responsible business conduct. Let's delve into the details of these regulations.
EU Forced Labor Regulation (EUFLR)
The EUFLR, also known as the Forced Labor Ban, received overwhelming support from the European Parliament, with 555 votes in favor and only 6 against. This regulation seeks to prohibit the import and export of products made with forced labor in the EU market. It also extends its reach to online platforms that cater to EU end-users. To comply, companies must conduct due diligence across their entire supply chain, from raw materials to the point when they are made available on the market, ensuring that their products are free from forced labor.
Enforcement of the EUFLR will occur in two steps, employing a risk-based approach. The likelihood of a violation will be assessed based on criteria such as the scale and severity of suspected forced labor, the quantity of products placed on the market, and the share of the product suspected to have been made with forced labor.
EU Corporate Sustainability Due Diligence Directive (CSDDD)
The CSDDD has undergone a tumultuous journey leading up to this week’s plenary vote. Despite concerns about its passage, it has successfully secured approval with 374 votes in favor and 235 against. After years of voluntary corporate standards on Responsible Business Conduct, this marks a new era with legislation which aims to level the playing field. While the scope of the CSDDD has been reduced to apply primarily to large EU and non-EU companies with substantial EU business, its impact will still be felt throughout B2B relationships.
Under the CSDDD, companies must conduct and report on broad-scoped due diligence within their own operations, subsidiaries, and chain of activities. The chain of activities encompasses a company's upstream business partners related to the production, distribution, transport and storage of goods or the provision of services by the company including the design, extraction, sourcing, manufacture, transport, storage and supply of raw materials, products or parts of the products and development of the product or the service”. The due diligence process aligns with the OECD Due Diligence Guidance for Responsible Business Conduct, and companies must align their business model and strategy with the Paris Agreement.
Implications for Businesses
The proliferation of legislation requiring companies to conduct human rights and environmental due diligence in their own operations and supply chains, means that every company is affected in some shape or form.
Whether it is the CSDDD, EUFLR, CSRD, LkSG, Batteries Regulation, EUDR, and even similar legislation outside the EU, there is something there for everyone. The scope of many new legislations, such as the EUDR and EUFLR, are not built around a company’s size (employees and revenue) but instead focus on risk-based assessment of products or supply chain topics.
Are you interested in understanding all due diligence-based legislations across the globe and how you can prepare and implement for compliance? Check out our Mandatory Human rights and Environmental Due Diligence whitepaper or watch our on-demand webinar on Demystifying the EU CSDDD: a Five-Step Blueprint to Risk-Based Supply Chain Due Diligence
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