German Association Highlights ESG/Supply Chain Compliance Issues

Some parallels between manufacturers and insurers here; how much time and money is to be spent checking suppliers, plus who gets the final say on any supplier, the EU or the company looking for parts, services or outsourced staff, accounts, compliance etc? It’s an important point because if a Board can only select from regulator approved supplier lists there is bound to be a knock-on effect on smaller suppliers, start-ups and anyone who doesn’t tick the right public sector/NGO boxes.

Here’s the word from Germany where manufacturing and farming are both under attack from activists, who want to restrict consumption and types of materials used;

In a joint letter to the German government, the EU Council Presidency and other European decision-makers, the business organisations BGA, Gesamtmetall, Mittelstandsverbund – ZGV, Stiftung Familienunternehmen und Politik, textil+mode, VCI, VDMA and ZVEI are calling for the European Corporate Sustainability Due Diligence Directive to be stopped.

The vote of the ambassadors in the Committee of the Permanent Representativesand then the vote of the Council of the EU Member States is due shortly.

SME DECLINE

“The requirements of the German Supply Chain Act have already led to small and medium-sized companies being completely overwhelmed by the burdens within their supply relationships. An EU Directive, as now planned, would result in a new dimension of bureaucratic overload and legal uncertainty,” warn the associations. The directive would make foreign trade more difficult and would be to the detriment of European jobs and value creation.

This applies in particular with regard to three aspects of the directive:

• Companies should therefore monitor almost all stages of their supply chains globally for violations of human rights and environmental or social standards. Industrial companies in particular often have tens of thousands or even a six-figure number of suppliers, a considerable proportion of which change every year. The costs of compliance alone would often run into the millions for individual companies.
• The directive does not make any clear exceptions – not even for supply relationships within the already heavily regulated EU internal market. However, an explicit exemption for all suppliers and customers based in the EU internal market would be urgently required as part of a risk-based approach.
• According to the EU plans, not only suppliers and their suppliers are to be monitored, but also business customers. However, it is a completely unrealistic assumption that SMEs could dictate to their business customers how and where the products they sell are ultimately used.

CIVIL LIBERTIES AND CORPORATE LIABILITY

The associations also clearly criticise the proposed civil liability. “It is simply impractical (unrealistic) to demand that companies from EU member states should be liable for breaches of duty that occur in their supply chains – and worldwide,” the appeal states. While non-governmental organisations are to benefit from their own rights of action, companies may be subject to additional  requirements to prove their diligence. “In this way, the often incalculable liability risks can lead to companies withdrawing from affected regions,” the associations warn. A new litigation industry would emerge, leading to more administrative costs for companies. Uncertainty in foreign trade would increase.  

Respecting human rights around the world is a goal that companies are also clearly committed to.

“The UN Guiding Principles on Business and Human Rights are decisive for European companies. They already base their global supply relationships on them and communicate European standards to the world via their international partners,” emphasise the associations. However, placing European companies under general suspicion would prove to be counterproductive in practice. “The loss of economic substance in the EU would be further exacerbated by such a Corporate Sustainability Due Diligence Directive Directive”, they say.

“Instead of taking the route via the directive, let us make a new start together and consider in dialogue with each other how we can enforce our standards for the protection of human rights and the environment even more effectively worldwide via global supply chains,” the business organisations conclude.