The Vigilance Directive: between challenge and opportunity for large companies and their suppliers

The imminent adoption of the European Directive on the Duty of Vigilance represents a revolution for the social and environmental responsibility of companies operating in the European Union (EU). This legislative initiative, driven by the urgent need to combat inhumane working conditions and environmental degradation on a global scale, imposes unprecedented obligations on companies, holding them accountable not only for their own activities but also for those of their entire supply chains.

Improving business practices

The imperatives of this directive are anchored in a context where human rights violations and environmental damage are commonplace in the global operations of companies. Millions of people work in forced and child labor, often for wages that do not allow them to live in dignity, and in conditions that threaten their health and safety. At the same time, excessive exploitation of natural resources and pollution are exacerbating environmental crises, with disastrous consequences for biodiversity, air and water quality, and the climate. These problems are not isolated to specific regions, but are endemic features of international supply chains, including those of European companies.

New obligations

The European Duty of Vigilance Directive, proposed by the European Commission on February 23, 2022, aims to address these issues by requiring companies to set up vigilance systems to identify, prevent, mitigate, and report on the risks and negative impacts on human rights and the environment associated with their activities. This regulation goes beyond existing legal frameworks, such as France's 2017 duty of care law, by extending the scope of obligations to global supply chains and strengthening transparency and accountability requirements.

A measure that has a direct impact on large companies

Companies covered by this directive include large European and foreign companies operating in the EU, with specific criteria based on company size and sales. [1] This concerns around 9,400 companies directly, and thousands more indirectly, notably in high-risk sectors such as textiles, agriculture and mining. The detailed obligations require companies to integrate the duty of care into their internal policies, establish whistleblowing mechanisms, and publicly report their efforts to prevent human rights and environmental abuses.

Preparing for compliance

To comply with this directive, companies need to undertake a thorough review of their supply chains, identify potential risks, and implement effective mitigation strategies. This requires a substantial commitment of resources and know-how, particularly to ensure traceability and compliance of products and services across complex and extensive supply chains. The implications of this directive are significant, not only in terms of regulatory compliance, but also in terms of reputation and competitiveness in the global marketplace.

Controls and risks

The proposed directive provides for the creation of national authorities with investigative and sanctioning powers to ensure that companies comply with due diligence obligations. Companies could be held liable for any damage resulting from a breach of these obligations, particularly if avoidable harm has not been properly managed.

Specific liability for directors

In addition, corporate directors will have specific responsibility for ensuring that these due diligence measures are applied and integrated into the company's corporate culture.

company's overall strategy. Finally, the directive also aims to improve access to justice for those affected by breaches of these obligations, thereby strengthening the protection of human and environmental rights.

A foreseeable impact on the suppliers of large companies: an opportunity for the first players to become compliant

Small and medium-sized enterprises (SMEs), although not directly affected by the directive, will be impacted as part of the supply chains of larger companies. This represents both a challenge and an opportunity for SMEs to strengthen their due diligence practices and position themselves advantageously in markets that are increasingly attentive to social and environmental responsibility. The compromise text adopted on December 14, 2023 still has to be formally adopted by the Parliament and the Council before being definitively adopted. It will enter into force twenty days after its publication in the Official Journal of the EU, and Member States will then have two years to transpose it into national law.

The subject has already had a concrete impact on companies:

On January 10, 2024, Starbucks was sued by a consumer association in the USA for using coffee and tea from plantations violating human and labor rights (in Guatemala, Kenya and Brazil), while boasting of its "100% ethical" sourcing.

On November 30, 2023, Goûters magiques, producer of Whaou! crêpes, announced that it would no longer be sourcing from a Breton dairy farmer. The animal rights organization L214 accused the breeder of animal mistreatment.

‍

Revision of the Corporate Sustainability Due Diligence Directive (CSDDD) :

In a plenary session, European legislators approved the proposed Corporate Sustainability Due Diligence Directive (CSDD). The text, considered a qualified success, is about to be finalized, with the last Council validation scheduled for May 15, before member states begin the transposition process, with effective application envisaged for 2028. This adoption is characterized by a gradual ramp-up.

• The companies concerned are those with over 1,000 employees and sales in excess of 450 million euros, an increase on the 250-employee threshold initially proposed.
• The original list of high-risk sectors, which included lower thresholds, has been removed, in response to concerns expressed by SMEs.
• The duty of care will apply mainly upstream of value chains and only to a small part downstream, targeting only those business partners directly involved for or on behalf of the company.
• The financial sector is largely exempt from due diligence.
• Penalties: the authorities can impose fines of up to 5% of sales for the most serious infringements. They also have the power to request corrective measures. Aggrieved parties can take legal action against non-compliant companies. Civil liability remains in force despite opposition from certain member states, such as Germany.
• Complainants do not have to wait for an administrative decision before taking legal action, as Member States determine the capacity to bring legal action on the basis of civil liability.

There are a number of ambiguities:

• The interaction between the administrative authority and the civil liability regime is unclear.
• Although the Paris Agreement is mentioned in the directive, it does not appear in the annexes detailing the international texts and conventions that can be invoked in complaints.
• The authorities will not have the power to require companies to take measures in line with their climate transition plans.

At the same time, the European Parliament adopted a regulation on April 23 banning the marketing of products made with forced labor, both inside and outside the EU. A database will be set up to list products and geographical areas at risk. In the case of suspect products from third countries, an investigation can be launched and the products destroyed, donated or recycled. The regulation will apply immediately after formal approval by the Council, but companies will have three years to comply.

These measures highlight a similar responsibility for companies in terms of due diligence and the prohibition of forced labor, although controls are carried out by different authorities. Risk maps will need to be drawn up to enable companies to manage these obligations effectively.   

‍

Conclusion

The European Duty of Vigilance Directive represents a crucial step towards more ethical and sustainable business practices. To anticipate these changes and ensure compliance, working with independent talent such as that available on WEEM can offer invaluable expertise. Acting now ensures a smooth transition to a new era of business responsibility.

To find out more about how WEEM can help you anticipate and comply with the Vigilance Directive, discover our independent experts today.

[1] The text will apply to European companies with more than 500 employees and worldwide sales of over €150 million, and to those with more than 250 employees and sales of over €40 million, operating in high-impact sectors (textiles, agriculture, foodstuffs, mining, construction). Third-country companies with EU sales of over €300 million are also concerned.

The financial sector is excluded.

‍

‍