How Europe shapes the future due diligence agenda
Progress on Human Rights and Environmental Due Diligence so far… During the last decade pressure from investor and civil society actors as well as ineffective private sector efforts paved the way for European and national legislations on mandatory human rights and environmental due diligence (HREDD). Given that EU regulatory and industry initiatives are in place to create a level playing field, businesses still struggle to operationalise the conceptual foundations of HREDD, lack information about supply risks and dependency, and have insufficient capacity to meet normative requirements and trace their raw materials beyond tier one (RE-SOURCING, 2021; OECD, 2021).
A coherent and effective EU policy landscape
The European Union (EU) under its political economic prosperity and sustainability agenda perceives HREDD as a means as well as an end: HREDD is urgently needed for
- assuring sufficient supply of (primary & secondary) raw materials critical for the EU industrial value chains and strategic sectors and its twin green and digital transition, and
- changing sourcing and business practices to minimize societal and environmental harm in- and outside the EU in the light of international commitments to sustainable development.
However, EU and EU Member State’s (EU MS) policy has deployed a plethora of instruments to cover the complexity of DD and RBC. Because of a broad range of voluntary industry standards, there is a fragmented and complex landscape of sometimes incoherent and multiple DD and RBC requirements. Consequently, companies face difficulties understanding and navigating these and, ultimately, fail to respond in cost-effective and impactful ways. Therefore, the EU will try strengthen its HREDD policy agenda by, for example (Endl, 2024):
- Foster effective national transposition of EU Law: Considering the impacts on livelihoods of affected rights holders or the natural environment, the EU policy and institutional setting on RS is still in its infancy, and therefore difficult to assess, as changes to supply chain practices take time. This is reinforced since EU directives or acts (Critical Raw Materials Act or EU Corporate Due Diligence Directive), compared to regulations, have EU Member States transposition timelines, which delay effective implementation by EU Member States by one to two years. However, given the possibility of learning from the shortcomings of the Dodd-Frank Act, such as disengagement from the Great Lakes region or the de facto embargo of conflict minerals, costly downstream chain-of-custody systems across the supply chains, and avoiding regional scope (global CAHRA), the EU regulation has been designed accordingly.
- Close gaps and improve on existing EU policy: Even though due diligence regulations have been partially successful with regard to conflict minerals, the effectiveness of these policies is perceived as highly contested for lacking comprehensiveness, enforcement, and stringency. As regards comprehensiveness, the current Conflict Minerals Regulation fails to impose legal requirements on downstream companies, refiners, or smelters that are either not required to comply with the Regulation or over whom European importers might not have sufficient leverage. Addressing its enforcement mechanisms, the current design lacks strong mechanisms, performance indicators, or processes for remedial actions and, therefore, runs into danger of giving rise to a box-ticking approach and failing to concretely incentivise RS. Against this background, the application of legal liability and access to remedy are necessary cornerstones for enforcing effective due diligence
- Improve of positive outcomes for affected people and the environment: The existence of liability for corporate accountability and access to remedy are crucial for enforcing future EU legislation. Failing accountability by non-disclosure or reporting on due diligence would need to be penalised, fined, or should ultimately lead to the suspension of authorisation to place products on the Union’s internal market. Furthermore, access for victims and rights holder to RS violations should be characterised by a decreased burden of proof for corporate misconduct. However, it is yet to be seen how recent or upcoming legislative proposals will interpret liability and corporate accountability and, on level of enforcement, how public administration will monitor company reporting, provide channels for remedy and support for victims, as well as an appropriate court system.
Concerted action on global level
Europe on its own will not be able to fundamentally transform global mineral value chains towards more sustainable outcomes for affected people and the environment. Instead, global value chains are constituted of interconnected and interdependent actors, and, therefore, no one actor can identify and prevent risks or remedy impacts alone. Many businesses work in markets with weak governance and institutional infrastructure and do not enjoy the support necessary to develop the required capacity on HREDD. For businesses that want to undertake HREDD, a competitive and thus somewhat diluted landscape for collective solutions and limited pooling of resources leads to a fragmentation of efforts. Therefore, the achievement of ethical and sustainable value chains will require collaboration and coordination between interdependent value chain actors and global institutions. Future Masures must support the development of coalitions, alliances and partnerships capable of operationalizing that mutual responsibility. Trust is a vital and necessary component and will need to be fostered through accompanying measures that support cooperation, partnership and new forms of governance that rebalance the asymmetries in many value chains (DG INTPA & ITC, 2022).
Further reading
European Commission Directorate-General for International Partnerships (DG INTPA), International Trade Centre (ITC) (2022) “Making mandatory human rights and environmental due diligence work for all – Guidance on designing effective and inclusive accompanying support to due diligence legislation”. https://international-partnerships.ec.europa.eu/publications/making-mandatory-human-rights-and-environmental-due-diligence-work-all_en
OECD, (2021): Study of Global Uptake of the Due Diligence Guidance for Responsible Mineral Supply Chains from Conflict-Affected and High-Risk Areas Based on Corporate Disclosure https://www.oecd-ilibrary.org/governance/oecd-due-diligence-guidance-for-responsible-supply-chains-of-minerals-from-conflict-affected-and-high-risk-areas_9789264185050-en
RE-SOURCING D1.2 (2020): The RE-SOURCING Common Approach https://re-sourcing.eu/reports/d12-in-rs-template-final/
Endl, A. (2024): Chapter 4. Legislating for Harmonisation of Practices. In “Advancing Responsible Sourcing in Mineral Value Chains – Environmental, Social, and Economic Sustainability” https://www.springerprofessional.de/en/advancing-responsible-sourcing-in-mineral-value-chains/27331850
Due Diligence in Mineral Value Chains: Responsible Business Conduct
Due Diligence in Mineral Value Chains: Responsible Business Conduct
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