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  • Ildiko Almasi Simsic

Corporate Sustainability Due Diligence Directive - Good news for human rights

The EU has been busy responding to requests to strengthen the management of supply chains both inside and outside the EU. To this end, the proposal for a new Directive was drafted in February 2023 and is now being negotiated in the European Parliament. The reason for this new Directive is largely to give a push to companies within the EU to review the management of their supply chains and integrate human rights due diligence into their policies and management plans. I was excited to see the word management plan because it brings us closer to a more holistic approach to sustainability shifting the discussion from the shiny policies to the practical act of managing risks and impacts.

Let’s just say there is a lot to be happy about if this Directive gets approved. The highlights of the directive for me include reference to human rights, mitigation measures for adverse human rights impacts, integration of sustainability into management systems. The other main highlight for me is the requirement for companies to have grievance mechanisms accessible to workers in the supply chain. The reason I’m happy about these developments, other than of course the immense social benefit it will bring to often vulnerable workers, is that these are the same kind of measures I would want to see in the new ESIA Directive (update of existing EIA Directive).

I’m yet to locate and review the guidance note for implementation. To my knowledge we do not have a best practice for supply chain management that we use as a standard. The approach I have been taking on my projects includes requirements for our clients to have policies clearly stating that they don’t employ forced labour and child labour in their workforce, in contractor and supplier workforce. On the project level, we require a good management system for all things HR with an overarching policy. There is usually a contractor management plan where contractual requirements for compliance with management plans is included. The contractors are typically required to sign the company’s code of conduct, related HR policies, policies for occupational health and safety.

For suppliers, especially for those that were screened as high risk due to the sector, location or previous human rights violations, there are other separate requirements that we typically include. The Supply Chain Management System typically involves a set of procedures to map supply chain, gather data from suppliers through a self-assessment, media search and where appropriate undertake an on-site audit. The supplier’s supply chain management system is also obtained for an assessment. On high profile, high risk projects, the supplier is also required to bring its own supply chain management system in line with the project level ESMS.

It is important that these requirements are included in the Loan agreement with the client, form part of the contractor and supplier contracts with adequate mechanisms to withhold payments or terminate contracts in case of repeated material non-compliance as well as stipulating the right to undertake audits on-site to verify compliance.

Although, there is no practical guidance yet on enforcement of the Directive for companies, there is reference to best practice in terms of the due diligence process. The recommended process follows the OECD Due Diligence guidance for Responsible Business Conduct. I have included the main steps below:

  1. Integrating due diligence into policies and management systems

  2. Identifying and assessing adverse human rights and environmental impacts

  3. Preventing, ceasing or minimising actual or potential adverse human rights and environmental impacts

  4. Assessing the effectiveness of mitigation measures

  5. Communicating actions and results to stakeholders

  6. Providing remediation/mitigation measures

Sounds a bit like an environmental and social impact assessment right? If we are signing up on the EU level to enforce environmental and social best practice in supply chain management, why do we not require developers to undertake environmental and social impact assessment for new projects within the EU (in line with EU EIA Directive Annex II scope)? If we want companies to have a grievance mechanism for their own and external workers, why don't we have the same requirement for developers of new projects? Why don't we identify social impacts for those projects and require developers to incorporate them into the project's management system? Hopefully, the new ESIA Directive will do just that.

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