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The European Commission wants to tighten corporate responsibility for supply chains

21.06.2022

The Commission is taking regulatory measures which, if implemented, will significantly increase corporate responsibility requirements. While it takes time for the proposed Corporate Responsibility Directive to become legally binding, it is worthwhile to be prepared for increased regulation well in advance.

The proposal for a directive on Corporate Sustainability and Due Diligence regulates the company's due diligence obligations in promoting sustainable development. The proposal, which has been the subject of much debate, would, among other things, require large companies to have a duty of due diligence.

This means that the company must have processes for identifying, preventing, mitigating and correcting adverse human rights and environmental impacts arising from the activities of the group as a whole and established business partners. In addition, the company must also monitor the measures taken. The new requirements should also reflect, among other things, to the remuneration of the CEO.

This is the first proposal for general corporate responsibility legislation at EU level.

EU-wide regulation brings some Businesses under clearly stricter obligations.

“The sustainability debate is in a process of transformation and corporate responsibility is becoming legally regulated, rather than leaving the development of accountability to the voluntary action of companies,” says Lotta Uusitalo, a lawyer who, in addition to the competition law team, leads the sustainability and green transition team at Procopé & Hornborg.

The Commission's goals clearly show the direction, although there may still be changes to the proposal.

The requirements affect the entire supply chain

“Companies must examine the function of their entire value chain. In practice, this means an increasing load of work even for smaller companies who face requirements in the form of comprehensive contracts if they want to cooperate with the bigger ones”, says Uusitalo.

The company must know its subcontractors and business partners and know where raw materials and materials come from and how responsibly they are produced. The more international the activity is, the more work is required to collect data and verify the accuracy of the data regarding responsibility.

The Commission also wants to ensure that stakeholders' concerns about failures in accountability requirements are brought to the attention of companies. That's why companies need to build channels through which stakeholders can report their concerns and claims about potential damages. Similarly, companies should have processes for handling complaints.

The proposal for a directive also includes the possibility of imposing fines based on turnover and liability for damages.

What Is the Legislator’s Solution?

The really interesting part with the development of the Corporate Responsibility Directive will be the national legislative solution.

The due diligence directive applies only to relatively large companies, where sustainability is already quite advanced.

“It is an open issue whether only some companies can be directly sanctioned through national legislation if corporate responsibility is not borne, and would be the national solution in this respect,” says Uusitalo.

By the national entry into force of the proposed new directive, accountability matters will have to be considered by the board and CEO of companies.

Procopé & Hornborg is actively monitoring the progress of the directive. We will tell you more about this theme in the autumn newsletters when the content of the proposal for a directive is clarified.


For further information, please contact:
Lotta Uusitalo

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