European Union supply chain due diligence regulations
The European Union (EU) was one of the earliest adopters of the UNGP (as early as 2011) and has subsequently codified these due diligence responsibilities in multiple regional legal documents.
With its strong orientation toward sustainable trade, the EU is currently a global leader in supply chain due diligence legislation. EU regulations cover a diverse range of due diligence areas (from comprehensive human rights and environmental standards to specific issues such as privacy and forest protection) and vary in both nature and scope of obligations (from recommendations to binding requirements, from disclosure obligations to full due diligence obligations).
Below is a summary of some notable EU documents on supply chain due diligence
1. EU Non-financial Reporting Directive 2014
This Directive requires large enterprises to disclose information on non-financial matters, including: (i) significant risks of human rights violations and environmental impacts associated with the enterprise’s business activities, products, services, and business partners; (ii) risk response policies and due diligence processes employed by the enterprise.
Although mandatory, the due diligence requirement in this Directive is still at an early stage. Enterprises are not obliged to carry out due diligence, but only to disclose information regarding due diligence processes if they have actually performed such due diligence. Moreover, the Directive allows enterprises to opt out of this disclosure obligation if they can justify legitimate reasons.
2. EU Timber Regulation (EUTR) 2013
The EUTR implements certain measures under the EU Forest Law Enforcement, Governance and Trade (FLEGT) Regulation 2003.
EUTR requires operators of timber and timber products in the EU market (including EU importers) to establish and use a due diligence system that allows for a comprehensive assessment of the risk that timber and timber products placed on the EU market have been illegally harvested or traded. Specifically, this system requires enterprises to: (i) gather information on relevant timber/timber products; (ii) assess the legality of the timber/timber products; and (iii) take necessary measures to mitigate the risk of illegal timber/timber products. Enterprises that fail to perform this due diligence obligation may be sanctioned, even if the timber/timber products they trade are not illegal.
Although the term “due diligence” is not explicitly used, EUTR can be considered the first EU legal instrument to impose a mandatory due diligence obligation in the sense of the UNGP.
In 2023, the EU adopted the Regulation on Deforestation-free Products (EUDR), which integrates and replaces EUTR with a broader product scope and stricter direct due diligence obligations.
3. EU Conflict Minerals Regulation 2014
This Regulation requires EU importers of tin, tantalum, tungsten, and gold to comply with a 5-step due diligence process, including: (i) establishing a robust management system; (ii) Identifying and assessing supply chain risks; (iii) designing and implementing strategies to address identified risks; (iv) independent auditing of the due diligence system; and (v) annual reporting on supply chain due diligence.
4. General Data Protection Regulation (GDPR) 2016
This Regulation sets out supply chain due diligence obligations for enterprises regarding a specific human right - the right to privacy.
Under this Regulation, enterprises based in the EU must perform due diligence on their processing of personal data (whether this processing occurs within or outside the EU). Enterprises not established in the EU but processing personal data of EU subjects must also perform due diligence if: (i) the data processing activities relate to goods or services offered in the EU; or (ii) the conduct of the subjects takes place in the EU, and monitoring/supervision of such conduct is carried out in the EU.
5. Regulation on Deforestation-free Products (EUDR) 2023
To reduce the impact of deforestation for agriculture and promote the global consumption of “deforestation-free” products, in line with the European Green Deal (EGD), the EU adopted EUDR in 2023.
As of 2023, EUDR is considered the most representative EU instrument regarding supply chain due diligence in the environmental field.
The core requirement of EUDR is that EU-relevant enterprises must perform due diligence on goods covered by the regulation through a 3-step process (including tnformation gathering; risk assessment; risk mitigation), which must be conducted within the framework of an ongoing due diligence system, reviewed annually by the enterprise. For each consignment covered by the regulation, whether imported, placed on the market, or exported from the EU, the enterprise must carry out due diligence according to its system, prepare a Due Diligence Statement, and submit it to the competent EU authority via the relevant EU online management system.
Compared with the EU Timber Regulation (EUTR) 2013, EUDR not only provides more direct due diligence obligations but elevates them to a comprehensive enterprise due diligence system, with an expanded product scope (11 product groups), target entities (including EU exporters), and specific due diligence requirements.
6. EU Corporate sustainability due diligence Directive (CSDDD) 2023
CSDDD can be regarded as the most comprehensive and direct EU instrument on supply chain due diligence. The Directive establishes fundamental principles for supply chain due diligence, based on which EU Member States will develop and adopt domestic legislation detailing due diligence obligations for relevant enterprises within their territories.
The content and detailed provisions of CSDDD will be analyzed in Chapter II of this Report.
Source: Compiled by the TTWTO-VCCI Research Group