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EU vote paves the way for rules on supply chain due diligence as human rights continues to rise up investor agenda

Moves come as John Ruggie weighs on Germany’s proposed human rights bill

Members of the European Parliament have approved the introduction of rules forcing companies to consider green and social risks across their supply chains in a landslide vote yesterday. 

In total, 504 MEPs supported the urgent adoption of a binding law requiring all businesses operating in the EU to conduct due diligence on human rights, the environment and governance across their value chains. 79 voted against and 112 abstained.   

The vote relates to a draft legislative initiative approved in January by the Parliament’s Legal Affairs Committee. It lays out plans for companies to be held accountable for ESG abuses linked to their companies, and to be fined for contraventions. The rule would apply to non-EU companies operating in Europe, as well as those headquartered in Member States. 

The European Commission will present a legislative proposal on the matter later this year. 

“This new law on corporate due diligence will set the standard for responsible business conduct in Europe and beyond,” said the initiative’s rapporteur MEP Lara Wolters. “We refuse to accept that deforestation or forced labour are part of global supply chains. Companies will have to avoid and address harm done to people and planet in their supply chains.”

MEPs have also called for a ban on importing products linked to severe human rights violations, such as forced labour. They have asked the Commission to thoroughly review whether companies based in Xinjiang, China, that export to the EU, are involved in human rights breaches - especially those related to repression of the Uighur muslim population in the region.

Meanwhile, Norway’s $1.3trn Government Pension Fund Global (GPFG), will investigate whether investee companies are exploiting Uighurs workers, or those from other Muslim communities in Xinjiang, according to the Norwegian Council of Ethics’ annual report

“This new law on corporate due diligence will set the standard for responsible business conduct in Europe and beyond. We refuse to accept that deforestation or forced labour are part of global supply chains. Companies will have to avoid and address harm done to people and planet in their supply chains.”

The report explained that, although “media and research reports generally focus on western companies’ links to forced labour through their supply chains, the Council will initially investigate whether companies in the GPFG portfolio themselves make use of this type of labour.”

Earlier this week, Johan Andresen, Chair of the Council of Ethics, told Reuters: “We are concerned that some of our companies in the fund may make use of this labour. This is possibly a widespread practice.”

Elsewhere, Harvard professor and architect of the UN Guiding Principles on Business and Human Rights, John Ruggie, wrote this week to several German ministers regarding the country’s national plans to create a law on mandatory human rights and environmental due diligence in corporate supply chains.

The law, which is due to be discussed by the German cabinet this month, will initially apply to companies that employ at least 3,000 workers, and later for those with at least 1,000 workers, which have their headquarters, principal place of business, or registered office in Germany. 

Despite congratulating the government on the move, “a close review of the draft raises significant questions about several specific formulations in the law, and how they may be interpreted in practice”, said Ruggie. 

He flagged the focus on ‘Tier 1’ suppliers rather than those further down the supply chain, and stressed the need for the law to drive “meaningful stakeholder engagement” with those that are, or could be, affected by businesses and their value chains. He noted that “identifying these issues also could be of assistance to the European Commission, which is in the process of drafting EU-wide legislation”.

John Ruggie will be interviewed by RI Co-Founder and Joint Managing Director, Hugh Wheelan, as part of the forthcoming RI Switzerland digital conference week on April 26-30. Check out the agenda here

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