Sustainable Sourcing – New EU Requirements for Supplier Selection | King and Spalding

The EU is working on its next step towards sustainability and plans to require companies to address negative sustainability impacts in their own operations and in their value chain. While the European Commission is working on the draft of its Directive on Sustainable Corporate Governance, some EU Member States have already advanced and adopted national supply chain laws obliging companies to review and monitor suppliers in terms of respect for human rights and the environment.

In line with its policy objectives to strengthen sustainability and further integrate sustainability into its corporate governance framework, the European Commission is working on a proposal for a directive on sustainable corporate governance. The Sustainable Corporate Governance Directive will introduce comprehensive restrictions on the selection and sourcing of suppliers, requiring companies, including food manufacturers and distributors, to take action to address their negative impacts on sustainability, such as climate change and environmental and human rights abuses, in their own operations and in their value chain by identifying and preventing relevant risks and mitigating negative impacts. While the presentation of the law was originally scheduled for 2021, the publication was postponed twice after the failure of the review of the law by the Regulatory Scrutiny Board and is now scheduled for the first quarter of 2022.

In addition to due diligence in companies’ own supply chains and operations, the European Commission also intends to hold business leaders themselves accountable for the long-term sustainability of their respective businesses. According to the European Commission, stakeholder interests and corporate sustainability risks, impacts and opportunities should be defined and integrated into corporate strategy with measurable and time-bound objectives based on science – including climate goals aligned with the Paris Agreement, and biodiversity and deforestation goals – and in line with company size and activity, and companies must implement this strategy through appropriate risk management and impact mitigation procedures.

While the European Commission continues to work on the draft directive on sustainable corporate governance, Germany, France and the Netherlands have already advanced and adopted national supply chain laws obliging companies to review and monitor suppliers for respect for human rights and the environment.

France passed its corporate duty of care law in 2017, requiring large companies with more than 5,000 employees in France or more than 10,000 worldwide to minimize human rights risks and the environment throughout their supply chains. The law on the duty of vigilance of companies establishes a “civil duty of vigilance” aimed at preventing the risks associated with and serious violations of fundamental rights, health and safety of persons and the environment in the context of activities. companies. Violated parties may invoke a liability mechanism for breach of these obligations.

Germany followed French legislation and passed its similar supply chain due diligence law in 2021, requiring companies with 2,000 or more employees to map human rights and environmental risks. covering both their own activities and those of their subsidiaries, subcontractors and controlled suppliers; determine mitigation measures to address these risks; and implement and publish risk management plans and policy statements by January 1, 2023. supply chain will apply to businesses with 1,000 or more employees. .

In the Netherlands, the Dutch Due Diligence Act 2022 will complement the national Child Labor Due Diligence Act and will require companies to investigate whether their goods or services have been produced using the child labor and develop a plan to prevent child labor in their supply chains. The Dutch Due Diligence Act applies to all businesses that sell or provide goods or services to Dutch consumers, regardless of where the business is based or registered and with no legal form or size exemptions. .

In response to the aforementioned EU supply chain legislation, food manufacturers and distributors must take action and reassess sourcing strategies for EU-based entities. Their own business operations and the entire value chain must be transparent about sustainability and the risks of human rights and environmental abuses, as determined by the upcoming EU Directive on Sustainable Corporate Governance and the respective national laws of the Member States.

In establishing appropriate and effective risk management, EU-based food manufacturers and distributors must carry out risk analysis to identify human rights and environmental risks in their own operations. sales and those of their suppliers. When a risk is identified, companies must immediately take appropriate preventive measures and, in the event of a violation of human rights or environmental safety, immediately take appropriate corrective measures. Given the requirements for sustainability and the extent of liability beyond companies’ own operations, implementing sustainability requirements poses a complete challenge for corporate compliance.

Martin E. Berry