The EU is working on its next move toward sustainability and plans to oblige companies to address adverse sustainability impacts in their own operations and in their value chain. While the European Commission is working on the draft of its Sustainable Corporate Governance Directive, some EU member states have already moved forward and adopted national supply chain acts requiring companies to examine and monitor suppliers for human rights and environmental compliance.

Following its political goals to enhance sustainability and to further embed sustainability into its corporate governance framework, the European Commission is working on a proposal for a Sustainable Corporate Governance Directive. The Sustainable Corporate Governance Directive will introduce comprehensive restrictions on supplier selection and sourcing, obliging companies, including food manufacturers and distributors, to take measures to address their adverse sustainability impacts, such as climate change and environmental and human rights harm, in their own operations and in their value chain by identifying and preventing relevant risks and mitigating negative impacts. While the presentation of the law was originally scheduled for 2021, publication was postponed twice after the law failed Regulatory Scrutiny Board review and is now planned for the first quarter of 2022.

SUSTAINABILITY AS COMPANY DIRECTORS' DUTY OF CARE

In addition to the due diligence duty in supply chains and companies’ own operations, the European Commission also intends to hold company directors themselves accountable for the long-term sustainability of their respective firms. According to the European Commission, stakeholders’ interests and corporate sustainability risks, impacts and opportunities shall be defined and integrated into the corporate strategy with measurable and time-bound, science-based targets – including climate targets aligned with the Paris Agreement, and biodiversity and deforestation targets – and in accordance with the company’s size and activity, and corporations shall implement such strategy through proper risk management and impact-mitigation procedures.

MEMBER STATES HAVE ADOPTED NATIONAL SUPPLY CHAIN ACTS

While the European Commission is continuing to work on the draft of the Sustainable Corporate Governance Directive, Germany, France and the Netherlands have already moved forward and adopted national supply chain acts requiring companies to examine and monitor suppliers for human rights and environmental compliance.

France adopted its Corporate Duty of Vigilance Act in 2017, obliging large companies with over 5,000 employees in France or over 10,000 worldwide to minimize human rights-related and environmental risks along their supply chains. The Corporate Duty of Vigilance Act establishes a “civil duty of vigilance” aimed at preventing risks related to and serious abuses of fundamental rights, health, personal safety and the environment in connection with business activities. Violated parties can invoke a liability mechanism for breaches of these obligations.

Germany followed the French legislature and adopted its similar Supply Chain Due Diligence Act in 2021, obliging companies with 2,000 employees or more to map human rights and environmental risks covering both their own activities and those of their controlled subsidiaries, subcontractors and suppliers; determine mitigating measures addressing these risks; and implement and publish risk-management plans and policy statements by January 1, 2023. As of January 1, 2024, the threshold will be lowered further, and the requirements under the Supply Chain Due Diligence Act will apply to companies with 1,000 employees or more.

In the Netherlands, the Dutch Due Diligence Act of 2022 will complement the country’s Child Labor Due Diligence Act and oblige companies to investigate whether their goods or services have been produced using child labor and to develop a plan to prevent child labor in their supply chains. The Dutch Due Diligence Act applies to all companies that sell or supply goods or services to Dutch consumers, regardless of where the company is based or registered and without exemptions for legal form or size.

ACTION ITEMS FOR FOOD BUSINESSES

In response to the above supply chain legislation in the EU, food manufacturers and distributors need to take action and to reevaluate sourcing strategies for EU-based entities. Both their own business operations and the entire value chain need to be transparent about sustainability and risks of human rights and environmental violations as determined by the EU’s upcoming Sustainable Corporate Governance Directive and the respective national member state laws.

Establishing appropriate and effective risk management, EU-based food manufacturers and distributors must conduct a risk analysis to identify human rights-related and environmental risks in their own business operations and those of their suppliers. Where a risk is identified, companies must immediately take appropriate preventive measures and, in the case of a violation of human rights or environmental safety, immediately take appropriate remedial action. Taking into consideration the sustainability requirements and the scope of responsibility beyond corporations’ own operations, the implementation of the sustainability requirements poses a comprehensive challenge for corporate compliance.