Due diligence law – Time to End Social Dumping

This Wednesday, the European Parliament gave a final green light to new rules obliging firms to mitigate their negative impact on human rights and the environment. The Corporate Sustainable Due Diligence Directive (CSDDD), as the adopted legislation is called, mandates companies to integrate due diligence (thoroughly researching and mapping supply chains) into their policies and seek contractual assurances from their partners to ensure compliance with new obligations. Companies will also have to adopt a transition plan to make their business model compatible with the Paris Agreement global warming limit of 1.5°C.

“Today’s vote is a milestone for responsible business conduct and a considerable step towards ending the exploitation of people and the planet by cowboy companies. In Parliament’s next mandate, we will fight not only for its swift implementation, but also for making Europe’s economy even more sustainable”, said lead MEP Lara Wolters (S&D, NL).

ESMC expects the new rules to have a positive impact on solar PV industry as all large companies will be obligated to have full control over their supply chains and make them sustainable. Together with the Forced Labour Regulation — also adopted this week — sourcing from industries with forced labour, excessive pollution, and other unethical practices will no longer be an option. Many of the areas in China, such as the Xinjiang province, should not meet the requirements for supplying products and material to the European solar industry and market.

“This new legislation presents a historic opportunity to stand up for the environment, human rights and level the playing field in favour of European manufacturing. In Europe we already manufacture with minimal environmental impact and, in general, we have excellent labour conditions compared to China and other Asian competitors. The CSDDD will benefit our members and is a strong instrument to reshore manufacturing to Europe,” says Jens Holm, Sustainability Policy Director of the European Solar Manufacturing Council.

The CSDDD will apply to EU companies and parent companies with over 1000 employees and a worldwide turnover higher than €450 million. It will also apply to companies with franchising or licensing agreements in the EU. There will be penalties for companies that do not comply with the rules, with fines of up to 5 percent of the companies’ net worldwide turnover. For the solar industry, all Chinese solar manufacturers — who control more than 90 percent of the market — will have to comply with the new due diligence obligations, whereas few of the European manufacturers will fall within the scope of 1000 employees and 450 million euros turnover. ESMC welcomes the new requirements on manufacturers.

“This should put an end to social and environmental dumping in the market. Now, Chinese manufacturers cannot any longer hide behind glossy folders and empty PR slogans. If you do business in Europe, you need to disclose your supply chains and ensure they are sustainable and free from forced labour. That’s what we always have done in Europe; our Chinese competitors have not,” says Jens Holm.

Next step

The Corporate Sustainability Due Diligence Directive was approved in the European Parliament with 374 votes in favour, 235 against and 19 abstentions. The CSDDD also requires formal approval from the EU Council, which should be a formality. After adoption, the EU’s 27 member states will have two years to implement the directive into national legislation. Member states will also be required to provide companies with detailed online information on their due diligence obligations via practical portals containing the Commission’s guidance. They will also create or designate a supervisory authority to investigate and impose penalties on non-compliant firms. The Commission will establish the European Network of Supervisory Authorities to support cooperation and enable the exchange of best practices. Companies will be liable for damages caused by breaching their due diligence obligations and will have to fully compensate their victims.