Supply Chain Regulation & Public Policy

Certification Not Enough to Uphold EU’s Supply Chain Due Diligence Laws

These laws have been several years in the making — enough time for proactive companies to develop mechanisms to ensure their supply chains are free of deforestation, human rights abuses and forced labor. And while Europe is leading, other markets are likely to follow.

By Nithin Coca | Published 2 months ago | About a 5 minute read

Image: Brands that sell leather goods in the EU will need to prove their supply chains don't negatively impact forests or workers. | Toni

Selling products in the European Union (EU) is about to become a lot harder for large brands. In addition to the recently passed Ecodesign for Sustainable Products Regulation — which sets out a series of environmental design requirements for almost all products — the world’s largest economic bloc, home to more than 600 million consumers, has passed several other regulations that will soon raise standards for due diligence around deforestation, human rights and labor.

Finalized in 2023, the EU Deforestation Regulation (EUDR) requires companies that import any of several high-risk tropical commodities — cacao, cattle, coffee, palm oil, paper pulp, rubber and soy — to ensure that they’re not linked to deforestation. It was followed by the passing of a Human Rights Due Diligence regulation that aims to ensure that imports linked to human rights abuses anywhere along the supply chain aren’t allowed into Europe. And the latest, the Forced Labor regulation, will ban the import of any product suspected of being made with forced labor.

“The EU’s directive represents a landmark shift from voluntary corporate responsibility to mandatory obligations for corporations to prevent and address human rights abuses,” said Tirana Hassan, executive director at Human Rights Watch, in a press statement. “This groundbreaking law is a major victory for rights groups, trade unions and civil society networks at the forefront of the fight for corporate accountability.”

A key detail is that the burden of proof of compliance will now fall on brands, not governments — a big shift from previous rules. And a recent report by the non-profit Earthsight, published in the journal Forest Policy and Economics, finds that the use of most third-party certifications won’t be enough to meet Europe’s new requirements.

The report analyzed the ability of several prominent commodity certification schemes to align with the EUDR’s definitions and requirements. The study concluded that the assessed certification schemes are “limited” in providing deforestation-free products because they “fall short” in assuring production according to relevant legislation and their “traceability systems do not fully cover EUDR requirements;” therefore, these schemes “can support due diligence, but not demonstrate compliance with the EUDR.”

In the worst cases, some certifications were found to have allowed bad actors — companies linked to deforestation or human rights abuses in their supply chains — to remain certified or have flawed mechanisms for ensuring accountability.

“All the schemes assessed had a lenient attitude towards non-compliance — with actors being allowed to retain certification despite violating laws, increasing the risk of non-compliance,” Earthsight explained in a post. “Policymakers must continue to ensure that such schemes are not relied on for implementation.”

In the past, brands could shift the blame to their certifying bodies when these wrongdoings occurred. Now, however, the EU’s new laws will hold the brands themselves responsible — which may result in brands facing real, financial and legal repercussions for conditions along their supply chain for the first time. For years, brands have pushed voluntary regulations — such as zero-deforestation or no-forced-labor pledges — which, unfortunately, have proved too easy to break and hard to enforce. Europe’s new laws, on the other hand, could include penalties of up to “4 percent of the company's EU turnover” or “confiscation or exclusion from public funding or contracts.”

“If companies don't comply, they should face sanctions; and if harm occurs that they should have avoided, then victims should be able to get justice in court,” said Lara Wolters, a Member of European Parliament.

These regulations have been several years in the making — enough time for proactive companies to develop mechanisms to ensure their supply chains are free of deforestation, human rights abuses or forced labor; those that aren’t are running out of time to act. And while Europe is leading, other markets are likely to follow.

The United States already has the Uyghur Forced Labor Prevention Act, which restricts imports from the Chinese-controlled region where there are well-founded and documented allegations of widespread forced labor camps and cultural genocide. Japan, the world’s third-largest economy, is considering making its voluntary supply chain due diligence guidelines mandatory.

“The new directive is groundbreaking as it makes due diligence mandatory, EU-wide, for companies within scope,” said Johannes Blankenbach, senior Europe researcher at the Business & Human Rights Resource Centre. “We need to ensure its potential in tangibly improving the situation for rights holders, as well as promoting more equitable value chains and a level playing field.”

Time is running short. The EU’s deforestation regulation will be enforced from December 30th of this year, with the human rights and forced labor regulations to follow. A future in which supply chains are transparent, ethical and benefit those along the entire chain is possible (and now, imperative), if brands take an active role in shaping them.

Nithin Coca

Media, Campaign and Research Consultant

Nithin is a freelance writer who focuses on global economic, and environmental issues with an aim at building channels of communication and collaboration around common challenges.

Tags:

Systems Shift