On 12 July 2021, the European Commission and European External Actions Service published Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in their Operations and Supply Chains, which provides practical advice on the implementation of forced labour corporate due diligence. The publication of the Guidance fulfils a specific commitment included in the Communication on Trade Policy Review released in February 2021.

The Guidance (available in full here) reflects the increasing trend - both internationally and within individual jurisdictions - towards mandatory human rights due diligence (see in particular our blog post on the German Supply Chain Act) and the growing commercial, public and political expectations on companies across all sectors to assess and mitigate human rights risks in their business and supply chains. 

Although the Guidance is non-binding, relatively brief and expressly states that it does not reflect any official policy position, it is of particular interest in light of the Commission’s intention to introduce legislation to create a new mandatory obligation on companies to carry out human rights and environmental due diligence (see our blog post). 

Due diligence framework

The Guidance is based heavily upon existing international standards and in particular the ILO fundamental conventions, UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises. It recommends that due diligence be implemented in accordance with the six-step framework established by the OECD Due Diligence Guidance for Responsible Business Conduct: 

• Embed responsible business conduct into policies and management systems.

• Identify and assess actual and potential adverse impacts associated with the enterprise’s operations, products or services.

• Cease, prevent and mitigate adverse impacts. 

• Track implementation and results.

• Communicate how impacts are addressed.

Most of these steps are not addressed in detail by the Guidance, but recommendations are provided on how policies and management systems should be tailored to forced labour risks, with particular emphasis given to the need for a “zero-tolerance policy”, building awareness with staff and suppliers, and protection for whistle-blowers. 

Risk assessment

The Guidance lists a number of ‘red flags’ to consider when assessing supply chains based upon:

• Country risk factors (such as countries with state-orchestrated programmes, laws which outlaw peaceful strike action, or prison labour policies).

• Risk factors linked to migration and informality (such as the employment of migrant workers, provision of worker accommodation, and the absence of written employment contracts). 

• Risk factors linked to the presence of debt risk (such as credit arrangements for workers, lack of access to identity and residency documents, and excess working hours). 

Additional advice is provided on considerations to be factored into in-depth risk assessment of higher risk suppliers and sectors, including on enhanced training and worksite inspections. 

Action to address and remediate forced labour

The Guidance sets out a series of considerations for businesses to take into account after risks or incidences of modern slavery are identified. These are focused on around the following themes:

• Action to address risks of forced labour (mainly supporting suppliers and businesses to agree corrective action plans, including “where appropriate financial support”).

• Dealing with risks of state-sponsored forced labour (mainly focussing on direct and indirect communication to governments).

• Responsible disengagement from business relationships (relatively detailed guidance is given on how and in what circumstances companies might disengage). 

• Remediation (companies are advised to “seek to restore the affected person or persons to the situation they would be in had the adverse impact not occurred (where possible) and enable remediation that is proportionate to the significance and scale of the adverse impact” but little further practical guidance is provided). 

The Guidance also addresses how due diligence can be made gender-responsive by taking into account different risks in the supply chain for men and women, and how discrimination of ethnic or religious minorities can also be taken into account. 

Next steps

The Guidance includes some novel aspects including around disengagement from business relationships and gender, but is largely based on existing standards and especially the OECD Due Diligence Guidance. The guidance provided on remediation is relatively brief and undeveloped, but clearly sets high expectations on businesses. 

Any future EU legislation on human rights due diligence, or guidance issued pursuant to that legislation, may reflect similar approaches to those taken in Guidance. Legislation to introduce mandatory environmental and human rights due diligence was expected to have been introduced during the first half of 2021 but has been delayed following a negative assessment by the Commission's Regulatory Scrutiny Board.

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