The EU Due Diligence Law: Working together for social and economic change

The EU Due Diligence Law is set to be adopted soon. It could be more extensive than the German version because its scope will also include small and medium-sized companies if there is a risk of them violating human or environmental protection rights. The EU legislation rates the textile industry as a risk sector. What does this mean for PPE manufacturers? What role do buyers play?

In Germany, the Due Diligence Act is expected to be adopted by parliament before the summer holidays. “This is a strong signal for the EU,” says Veronika Ertl, Development Policy officer at the Konrad-Adenauer-Stiftung. “Germany is not only a strong economic power but also the third EU country after France and the Netherlands to establish a binding tool to identify risks for people and the planet along the supply chain and to sanction non-compliance with due diligence requirements.”

After Germany, the EU wants to follow suit

According to a study from 2020, only one in three companies in the EU actually complies with its due diligence obligations. However, 70% of the companies surveyed support EU-wide due diligence legislation. This is why the EU also considered it as urgent to set up such a legislation. Didier Reynders, the EU Commissioner of Justice in charge, feels that the adoption of the German Due Diligence Law gives the European project tailwind: “The more countries join in, the greater the pressure.”

In the EU binding rules will require companies to review their supply chain from the raw material to the ready-to-sell product. This includes operational processes, direct and indirect business relationships as well as investment chains. All aspects that might violate human rights including social, trade union and labor law rights, environmental standards and climate goals as well as “good governance” would have to be eliminated. This is primarily intended to protect affected parties in third countries. These rules apply to all companies operating in the EU single market, regardless of their size. After the EU Parliament has made proposals, a draft law from the EU Commission is expected in June 2021. After that, the EU Parliament, Commission and Council will have to agree on a final version in a so-called trialogue. This can be expected next year.

An end to child and forced labor

Whereas under the German draft legislation, companies only have to take action with indirect suppliers if they have received indications of human rights violations, the EU Parliament defines the due diligence obligations more broadly. For example, all companies should independently analyze potential risks throughout the entire supply chain. This applies not only to their own business operations and direct suppliers, but also to subsidiaries and indirect suppliers. In addition, there is to be an import ban on products that are associated with forced labor.

In Germany, the Due Diligent Act will apply to companies with more than 3,000 employees starting in 2023; one year later, it will also apply to companies with more than 1,000 employees. The Federal Office of Economics and Export Control will monitor compliance and sanction violations.

Fines and exclusions are to be expected

Even if it still seems a long time away and most manufacturers of protective wear in Germany do not even reach the company size of 1,000 employees, they are still indirectly affected. “If small companies cooperate with buyers like major discount stores, for example, they practically adopt the requirements of the big business partner by working together,” says Thomas Lange, General Manager of German Fashion. In addition, he says, legal manifestation generally puts pressure on companies.

“The planned new legislation concerns everybody, and everybody should take a close look at it,” explains Lange. Even though no new civil law liabilities were established by the German Due Diligence Act,  affected employees – including those from the manufacturing counties – can complain. The company then has to investigate whether there has been a legal violation at its own business unit or at a supplier. Wronged parties can also obtain NGO support for taking legal action.

Once the legislation is in place, fines must be expected. “Fines in  Germany will range from  EUR 100,000 to Euro 800,000. For companies generating sales over EUR 4 billion the fines will reach up to two percent of the annual turnover,” says Veronika Ertl. There is also the threat of exclusion from public contract awards for up to three years.

Extensive documentation requirements, electronic reporting formats

The Federal Government intends to help business in the implementation of the Act. The relevant authorities use an electronic reporting format into which existing reporting duties such as CSR reporting are integrated. There will also be a recognition mechanism for existing certification systems. “The documentation requirements will be more extensive,” Lange explains. “But many companies are already on their way to where the law takes us, or they’re already there.”

This becomes evident in companies such as Bierbaum Proenen. At the Cologne-based manufacturer of protective wear, social and ecological sustainability are part of the corporate profile. Like other small to medium-sized companies, BP has maintained long, transparent relationships with its suppliers. “Since 2010 we have been a member of the Fair Wear Foundation and since 2019 of Fair Trade,” says General Manager Harald Goost and admits that the effort required for certification is high. “However”, says Fabian Kusch, responsible for purchasing and sustainability at BP, “we did not have to change anything in our habits to get the seals – we just had to put the documentation in place.”

On the one side of the equation there were higher costs for organic cotton. On the other side, however, packaging material was reduced which led to savings. On top of this, new customers are recruited who are looking for products “with a clear conscience”. Very important for Goost is also the appeal for job applicants. Young people want to work in companies they can relate to.

Goost and Kusch agree that the due diligent law will change the culture in general. They are relaxed about the requirements. “Even as small and medium-sized companies, we have to trace and document the supply chain back to the cotton field. However, we are already currently in a position to do this. We can transparently map all processes right down to our preliminary stages.”

Sustainable help for self help

In order to achieve more faster, BP, Greiff, Kübler Workwear, Weitblick Gottfried Schmidt and fabric producer Klopman International joined forces in 2019 to launch the Supporting Fairtrade Cotton project. It focuses on people at the beginning of the supply chain who grow and harvest cotton. For them, the cooperation means fair trading conditions, social change and environmental improvements. In order to comply with the strict standards, the farmers receive Fairtrade premiums – as help for self-help. They can invest these in road construction, reforestation or education, for example. “Such projects help create value locally  That is an important goal,” says Ertl.

A European due diligence law is welcomed by Bierbaum Proenen. “Due to their commitment to sustainability, some companies have already been working with higher prices for years. The market is becoming more and more unequal and that is why an EU law is good. It also improves the conditions of cooperation with countries such as India, China and Pakistan. Because we will have a hard time with them in the long run if we only have such a law in Germany.”

A+A trade fair

The entire range of products and services for personal and occupational safety will be on display at A+A 2021, International Trade Fair with Congress for Safety, Security and Health at Work, in Düsseldorf, Germany from October 26 – 29,  2021. For more information: http://www.aplusa-online.com/