EU Regulation: Next step towards Supply Chain Act

The EU Parliament's demand that companies consider human rights and environmental standards in their supply chains is part of efforts to ensure social and environmental responsibility along the entire value chain. The demand aims to minimize the negative impact of corporate activities on human rights and the environment.

A large number of companies have already taken voluntary measures in order to monitor their supply chains and ensure that they meet social and environmental standards. However, the EU Parliament and other stakeholders argue that binding legal rules are needed in order to ensure that all companies in the EU comply with the same standards.

In order to meet this objective, a proposal for an EU regulation on due diligence in supply chains has been put forward by the European Commission. Such law would oblige companies above a certain size in the EU to comply with due diligence obligations regarding human rights and environmental aspects in their supply chains. It would also provide mechanisms for enforcing and monitoring compliance with these obligations.

The EU Supply Chain Act - necessary or dispensable?

An EU supply chain law as a new international legal basis seems worth considering in the absence of other global regulations. However, whether a concrete EU law is necessary for ensuring human rights and environmental standards in supply chains is controversial in many respects.

Advocates of the EU supply chain law consider it crucial to hold companies accountable and ensure that their supply chains do not cause any human rights violations or environmental damage. They emphasize that companies have a social and ecological responsibility and that voluntary measures will not be sufficient in order to effectively address these problems. A law at EU level might contribute to holding companies accountable and give them clear incentives to monitor and improve their supply chains. 

In contrast hereto, critics of the EU Supply Chain Act believe that such law might result in a general over-regulation and might impair European companies’ competitiveness. They emphasize that companies have already started voluntary initiatives and that further legal requirements are unnecessary or even detrimental. Some of the critics also argue that the monitoring and enforcement of compliance with the law would be a complex task and resources for an effective implementation might be limited. 

There is also disagreement as to how the law should be implemented. Some advocates call for stricter liability regimes and sanctions for companies violating the regulations, while others emphasize the importance of support and training to help companies meet their obligations.

It should be noted that national laws and regulations in the member states of the European Union may also contain provisions relating to supply chains and corporate responsibility. However, in the individual EU member states, there may consequently be deviations with regard to legal applicability and assessment.

The debate and diversity of opinion on this topic is much more complex than can be presented here. A general evaluation of the EU Supply Chain Act depends on various factors, including its precise structure, the specific impact on companies and implementation in the individual EU member states. It remains to be seen how the EU Supply Chain Act will ultimately be formulated and applied and how companies will subsequently react to it.

The Member States already adopted their position on the draft directive in November 2022. Now that the Parliament has adopted its position, negotiations with the Member States on the legislation’s final wording can begin.