- Parent companies that employ more than 500 employees and have a worldwide turnover of more than €150 million.
- Non-EU companies with a turnover of more than €150 million, if €40 million of this was generated in the EU.
Due diligence along the entire value chain
To meet the planned requirements, companies must fulfill their due diligence obligations regarding human rights and the environment along the entire value chain.
Specifically, the EU Parliament stipulates that companies must act as follows:
- Identify and prevent negative impacts of their activities on human rights (child labor, slavery) and the environment (pollution, loss of biodiversity)
- Assess negative impacts of their partners along the entire value chain on human rights and the environment (suppliers, sales, distribution, transport, storage, waste management, etc.)
- Establish a transition plan to limit global warming to 1.5°
- Engage with those affected by their actions, including human rights and environmental activists
- Introduce a complaints mechanism
- Regularly review the effectiveness of their due diligence
Stricter requirements for the textile industry
The EU Parliament is in favor of banning the destruction of unsold and returned clothing and advocates making clothing more durable and easier to recycle in the future. With this, the EU Parliament aims to take steps against the fast fashion culture and make it easier for consumers to make sustainable purchasing decisions.
What sanctions can companies expect for non-compliance with the regulations?
- Naming and Shaming
- Withdrawal of a company's goods from the market
- Fines of at least 5% of global net turnover
- Non-EU companies will be excluded from public procurement in the EU in case of non-compliance
Benefits of stricter supply chain controls for companies
In addition to people and nature, companies themselves also benefit when both corporate management and the supply chain are considered with a greater focus on sustainability. Here are a few advantages that come with stricter supply chain controls:
1. Improvement of ESG practices
Due to nationally and internationally increasing ESG regulations, companies must continuously improve and demonstrate their sustainability performance anyway. Through enhanced control of the supply chain, companies can identify sources of problems and thus implement environmentally friendly measures, improve working conditions, promote ethical business practices, and thereby minimize their ESG risks.
2. Review and selection of partners
3. Improved transparency and reporting
The disclosure and communication of ESG measures along the supply chain promote exchange with stakeholders and strengthen their trust in the company.
4. Minimization of reputational risk
Non-compliance with both governmental and societal sustainable standards can lead to loss of image, customer boycotts, and legal disputes. To counteract these risks and remain competitive, sustainability must be integrated into companies' business strategies.
What measures can companies already implement now?
To meet all standards upon the introduction of the EU Supply Chain Act and avoid risking sanctions, companies can already start with enhanced control of their supply chain now. Specifically, this means:
- The control and evaluation of partners along the entire value chain
- The integration of social and ecological sustainability into all corporate processes and corporate policy
- The further training of employees in the area of ESG and corporate sustainability. For this, our Climate Academy offers a wide variety of essential ESG modules and industry-specific deep dives.
In summary, this means...
The planned, stricter EU Supply Chain Act does pose some hurdles for companies, but at the same time offers very significant advantages. To counteract the climate crisis and secure human rights, companies must in the future become aware of the sources of error along their supply chain and eliminate them as much as possible. This also helps to identify quality deficiencies, recognize potential for solutions, and build closer ties with stakeholders.
Directly addressing your own company's supply chain serves to minimize the risk of sanctions and take immediate steps towards a sustainable corporate future, in order to be prepared when the regulation is introduced.
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