The European Union (EU) is set to introduce the EU Supply Chain Act, which will impose additional bureaucratic obligations on companies. The agreement on the Act was reached on December 14, 2023, between the European Parliament and member states, but it still needs approval from the European Council. Once implemented, the European Supply Chain Act will go beyond the already ambitious German Supply Chain Act, strengthening due diligence and inspection measures in the supply chain. The Act will require companies to conduct thorough examinations of human rights and environmental standards throughout their supply chain. Additionally, companies above a certain size will be required to document and transparently present these assessments in an annual report.
The EU Supply Chain Act aims to address the growing concerns regarding ethical and sustainable practices in global supply chains. It seeks to ensure that companies take responsibility for the impact of their operations on human rights and the environment, both within the EU and beyond. By imposing stricter due diligence requirements, the Act intends to prevent and mitigate any adverse effects caused by companies’ activities.
Under the Act, companies will be required to conduct comprehensive assessments of their supply chains, examining various aspects such as labor rights, environmental protection, and the use of conflict minerals. These assessments will need to be carried out regularly and thoroughly, ensuring that companies have a clear understanding of the conditions and practices within their supply chains. By doing so, companies will be better equipped to identify any potential risks and take appropriate measures to address them.
One of the key provisions of the EU Supply Chain Act is the requirement for companies to publish an annual report detailing their due diligence efforts. This report will serve as a tool for transparency, allowing stakeholders, including consumers and investors, to assess a company’s commitment to ethical and sustainable practices. By making this information publicly available, the Act aims to promote accountability and encourage companies to improve their supply chain management.
While the EU Supply Chain Act presents significant challenges for companies, it also offers an opportunity for them to enhance their reputation and competitiveness. By demonstrating a strong commitment to ethical and sustainable practices, companies can attract socially-conscious consumers and investors who prioritize responsible business conduct. Moreover, complying with the Act can help companies mitigate potential legal and reputational risks associated with non-compliance.
However, implementing the EU Supply Chain Act will not be without its difficulties. Companies will need to invest in systems and processes to ensure effective due diligence and monitoring of their supply chains. This may require additional resources and expertise, particularly for smaller companies with limited capacities. Furthermore, companies will need to navigate complex international supply chains, where different jurisdictions and standards may apply.
The introduction of the EU Supply Chain Act reflects the EU’s commitment to promoting sustainable and responsible business practices. By establishing stricter requirements for companies, the Act aims to drive positive change in global supply chains and contribute to the achievement of the UN Sustainable Development Goals. As the Act progresses through the approval process, companies will need to prepare themselves for the new obligations it will impose, ensuring that they are well-equipped to meet the requirements and seize the opportunities it presents.