Why the EU delay on supply chains? Corporate lobbying

EU Observer. 19 July 2021

Below is an article published by EU Observer. Photo:Mark Fisher.

EU legislation to clean up supply chains and corporate governance has been delayed after fierce industry lobbying.

This law is key to strengthening the global competitiveness of EU companies, delivering the Green Deal, tackling global climate change and biodiversity loss and protecting human rights in the EU and around the world.

Voluntary commitments have repeatedly failed, now it is time for decisive regulatory action.

Failing to clean up supply chains of companies doing business in the EU allows illegal fishing, deforestation, human rights abuses and more to continue unabated.

The EU is a world leader in driving international cooperation for environmental and human rights protections, but EU consumption also continues to fuel the “Triple Emergency” of climate change, biodiversity loss, and poverty; Europeans consume 1.5 to 2.5 times more land, carbon, and water than the global average.

That’s why the delay until the autumn of 2021 of the proposed EU law on Sustainable Corporate Governance for companies is so concerning. This legislation, which would require companies to ensure their supply chains and corporate actions are not driving human rights or environmental abuses, has been held up by intense industry lobbying.

The reasons for opposition range from claims that abuses do not exist to suggesting that regulation is not the right approach to deal with them. However, ensuring that products originating outside the EU are not produced under lower environmental and social standards than those produced within the bloc strengthens the competitiveness of EU companies, and means they no longer have to compete exclusively on price.

At the same time, it provides an opportunity to promote EU values like human rights and environmental standards across the globe.

As many parts of the world become increasingly illiberal, polarised and fractured, and we face the twin crises of climate change and biodiversity loss, this is needed more than ever.

‘Voluntary’ doesn’t work

Voluntary commitments have failed. Deforestation in South America remains rampant, and the EU’s soy deforestation footprint is double that of China’s, per tonne imported.

The reaction of companies has simply been to move back the date for their deforestation commitments, and the world’s biggest banks have sent $3.8 trillion [€3.2 trillion] – that’s $495 for everyone alive today – to fossil fuel companies since the Paris Agreement was signed.

Companies and financial institutions have had ample opportunity to get their supply chains and investments under control and have not done so. While some courts have taken action to make polluting companies clean up their activities – most recently with a landmark decision against Shell in the Netherlands – this too is not enough.

The Commission must complement and reinforce actions taken within the judicial system. But moreover, it must lead, changing the architecture of regulation to require the private sector to meet its responsibilities and contribute actively to eradicating environmental and human rights abuses.

In order to eliminate abuses of human rights and the environment from corporate activities, it is essential to integrate risk mitigation throughout company decision making, with the direct engagement and leadership of the CEO and the Board.

Director duties and corporate strategy making should incorporate sustainable corporate governance within the wholesale transition to a circular global economy. Commissioner Thierry Breton, recently appointed to the file, should use his corporate knowledge to accelerate the shift to sustainability.

By passing world-leading legislation now to ensure transparency, liability for environmental and human rights abuses and remedy for the individuals affected, the EU can point the way to a safer, more sustainable planet, and establish frontrunner status in sustainability and justice.

This means covering the entire supply chain, including the financing underpinning it, and enshrining transparency and accountability in law. It also requires specific support for small and medium-sized enterprises to comply with the legislation.

Crucially, everyone wins when robust sustainable corporate governance is in place, while we all lose when we compete only on price, as we have in past decades. Companies will have a clear, consistent set of rules to follow across the EU, and a first-mover advantage on sustainability actions.

Those who already take sustainability seriously will have a level playing field and won’t be punished for adopting responsible business practices. Consumers will know that the products they are buying are legal, sustainable and ethical, and EU institutions will be driving positive change on a global scale.

The importance of getting this right cannot be overstated. This is a watershed moment to create a globally defining regulation that will help deliver the EU Green Deal; help restore biodiversity and combat global heating; benefit companies and consumers alike; and protect rights in the EU and around the world.

It’s time to break the deadlock, fight environmental crimes more effectively and ensure a safer, more sustainable planet for ourselves and our children.