Firms confused over supply chain responsibilities

26 February 2020

A report on the extent to which businesses tackle human rights and environmental issues in their supply chains found significant disagreement about who should take the lead.

The report, by the European Commission, said more needed to be done to ensure these issues are considered but firms were confused about their responsibilities.

It identified that just over a third of businesses, who responded to a survey, undertook due diligence measures taking into account both human rights and the environment. Another third undertook due diligence in certain areas, while the majority of those undertaking due diligence were doing so with tier one suppliers only.

The report noted “the current legal landscape does not provide companies with legal certainty about their human rights and environmental due diligence obligations”. It found that what is currently available is not deemed by organisations as being “efficient, coherent and effective”.

Even though organisations have a low opinion of existing frameworks, the report revealed organisations’ preference was for voluntary guidelines, and they didn’t think introducing additional voluntary guidelines would make any major difference. Almost all firms, nearly 300, indicated they would be in favour of a “general standard at the EU level”.

The report, which examined the regulatory framework for businesses around human rights and the environment, surveyed 334 firms across the EU.

Didier Reynders, commissioner for justice, said: “Companies told us they believe EU rules here would provide legal certainty and a harmonised standard for businesses' duty to respect people and the planet.”

Multinational companies were found to be in favour of mandatory due diligence regulations, but there was no agreement among them about the “form of liability and enforcement mechanisms”. It found most organisations were in favour of the “least enforceable regulatory options”.

The report accepted there was currently “no general duty on companies to undertake due diligence for the human rights and environmental harms” – other than individual national legislation that has developed to fill the void. 

The report listed a range of options that could be available to redress this, including no further guidelines, new voluntary guidelines, mandatory reporting, statutory oversight options, new regulations for all, and new regulations covering just large companies. It concluded new regulation requiring mandatory due diligence as a legal duty of care would have the “most impact”.

Reynders added: “As working towards climate neutrality is among the top priorities of this Commission, I will make sure the results of this important study are taken into account for future work.”

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