2022 will be a year in which the EU further expands upon its trade policy and sustainability ambitions. For businesses active in global supply chains, it is high time to anticipate the changes foreseen, especially flowing from the EU Green Deal implementation plans (‘Fit-for-55’) and EU’s new trade strategy (2021).
Indeed, the ever-present link between trade and sustainability is shaping into what looks like a steady marriage, one based on dialogue and mutual respect but likely not without repercussions and sanctions in case of wrong-doing.
This article provides insights and clarity around the new ‘blend’ of trade and sustainability instruments pursued by the European Commission (as well as Member States such as Netherlands, Germany and others). It also provides practical tips on how to translate EU policy options into business practices.
Trade and sustainability: an increasingly steady marriage?
The growing interlinkage between the EU’s evolving trade policy and sustainability policies is increasingly apparent when it comes to advancing responsible business conduct at home, and in the global markets where European businesses area active.
Overall, the EU’s approach to protecting human rights and the environment at home and abroad, is two-fold:
Activating the business responsibility: By nailing down the business responsibility in global supply chains, the EU and different EU Governments (including Germany, France, Netherlands) are putting in place a system of mandatory human rights due diligence obligations to advance responsible supply chains. Through OECD- and UNGP- inspired business obligations, these initiatives exercise a stronger push for business responsibility to ‘respect’ human rights and environmental impact in global supply chains.
Motivating and enforcing Government responsibility: Through it’s trade policy, to step up the pressure on Government responsibility to ‘protect’ human rights and the environment, through an increasingly assertive trade policy.
The EU approach to responsible supply chains: specific risks or general approach?
To date, the EU approach to protect human rights at home and abroad (in global supply chains connected to it’s business relations) covered a broad range of human rights and environment risks. The rationale behind this approach had been strongly aligned with the OECD Due Diligence Guidance on Responsible Business Conduct (RBC), which emphasizes the need to acknowledge the correlation and inter-play between a variety of risks and negative impact, especially in vulnerable and high-risk areas. However, with recent proposals for an EU Deforestation Law, and an announced initiative on a ban for products made with Forced Labour ban, the general approach seems to be complemented by risk-specific approach.
What are the most relevant EU policy initiatives around responsible supply chains, recently adopted or expected for this year (2022)? An EU Deforestation product ban (draft Regulation adopted Nov 2021), an EU forced labour product ban (plans announced Sept 2021), a cross-sectoral ESG corporate Due Diligence legislation (Commission proposal expected Feb/March 2021?), EU Corporate Sustainability Reporting Directive (CSRD) (first draft presented, amending the existing reporting requirements of the NFRD). Furthermore, accompanying trade measures will be stepped up through the review of the Trade and Sustainable Development chapters (TSD) (expected springtime 2022) as part of the EU’s trade policy. And already in place: the EU Conflict Minerals Regulation (implemented since Jan 2021, with a review planned for 2023).
A key feature of the new EU policy instruments are the ’new style’ process-and-production measures (PPM). Businesses bear the responsibility to show it’s operations are fully aligned, and EU Governments and the European Commission take up a control and enforcement role.
For example, when a company is sourcing from high-risk countries or products, EU Governments may watch more carefully through ‘enhanced scrutiny’ of your business to research and prove origin, risks and impact in the supply chain. The key concept? ESG Due Diligence, building on OECD Guidelines for Responsible Business Conduct.