In a significant move toward sustainability and social responsibility, the European Union (EU) Parliament has passed and is considering multiple new pieces of legislation that signal a new way of operating for the global businesses with third party suppliers.
This legislation is designed as the social component of the Green New Deal, not only to enhance the sustainability of products but also to ensure ethical practices throughout global value chains—from brands and manufacturers to end consumers.
Overview of new EU Legislation
The EU's legislative framework includes several key components:
Corporate Sustainability Due Diligence Directive (CSDDD): This directive requires companies to identify, prevent, and mitigate adverse human rights and environmental impacts within their operations and their entire value chain. This provides guidance for “how” companies should operate in order to align with new reporting requirements such as ERFS and CSRD.
Forced Labour Goods Ban (Effective from 2027): This upcoming ban emphasizes the EU's commitment to eradicating forced and child labor in supply chains, prohibiting the export from or sale in the EU of goods produced under such conditions.
Right to Repair Directive: Extending the lifespan of products through repairability, this directive mandates suppliers to offer repair services for goods long after their sale.
Ecodesign for Sustainable Product Regulation (ESPR): Aimed at making sustainable products the norm, this regulation sets stringent criteria for the design and production of goods, focusing on durability and recyclability.
Nearly Every Company is Impacted
While the laws directly apply roughly 9,400 EU companies and 2,600 non-EU companies and expanding to another 4,800 companies in year two, the impact will be felt globally throughout all of these companies’ vast supply chains.
Transformational for Global Supply Chains
The amalgamation of these regulations will lead to a transformative shift in the way companies source products. The implications are profound and will require a fundamental change in the way global companies operate. The laws are so far-reaching and expansive it will take decades for companies to catch up and all the impacts to be felt. In the short term these laws will result in brands being risk adverse and conducting traditional due diligence, but that approach will quickly prove insufficient.
CSDDD is impactful, "because it deals with the way the supply chain is actually mandated to collaborate in order to deal with the other topic specific environmental and social laws. From a manufacturers’ point of view, a correctly implemented CSDDD is what stands between a tough but collaborative approach to industry transition and an exploding list of demands for investments, improvements, data and assurances,'" explained, the International Apparel Federation's secretary general Matthijs Crietee in an interview with Just Style.
Crietee underscores the potential of CSDDD to shift the industry from a compliance-based to a due diligence-based approach, which is more likely to achieve meaningful results. "CSDDD not only means that manufacturers get a better deal, the entire industry should be better off moving from a compliance-based to a due diligence-based approach because it is simply better equipped to achieve results."
Challenges lie ahead, particularly in balancing the implementation of CSDDD with other laws like the EU's forced labor act. These two laws seemingly govern many of the same activities and could end up coming into conflict with each other or result in brands and retailers pushing in the direction of transferring risk towards their suppliers.
The EU's ESG legislation represents a pivotal turning point for the supply chains, setting a precedent for other regions and sectors. As companies navigate this new regulatory landscape, they must adopt more integrated and proactive approaches to sustainability and social responsibility.
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