Supply chain compliance: CSDDD and EU Forced Labour Regulation coming soon

This week, MEPs voted to pass two important pieces of legislation in the field of supply chain compliance that many companies will have to focus on over the next few years: the Corporate Sustainability Due Diligence Regulation (“CSDDD”, also known as “CS3D”) and the Regulation on prohibiting products made with forced labour on the Union market (“EU Forced Labour Regulation”).

I. European Supply Chain Act

On 24 April 2024, representatives of the European Parliament adopted the final text of the CSDDD with 374 out of 628 votes.

The text has not been changed since the Committee of the Permanent Representatives (COREPER) were able to reach a compromise about a month before. We summarised the key contents of the CSDDD in a Noerr News article at the time.

The European Council now has to formally approve the CSDDD so the text can be published in the Official Journal of the EU. The EU Member States will then have two years to implement the CSDDD into national law. After much toing and froing, this means there will also be a supply chain act at European level.

II. Tighter rules for products on the Union market

Just one day before the CSDDD was adopted, a large majority of MEPs voted in favour of the final text of the EU Forced Labour Regulation.

Essentially, products manufactured using forced labour at any stage of the supply chain should not be allowed to be imported, made available or exported to the Union market.

All natural and legal persons or associations of persons who place, supply or export products on the Union market are covered. Unlike in the CSDDD, there is no employee or turnover threshold. Moreover, the term “product” is to be understood broadly and encompasses anything that can be valued in money and is capable of forming the subject of commercial transactions.

The competent supervisory authorities will be given far-reaching powers to carry out investigations and to ban products or groups of products from the European market where appropriate. A database is also to be established in which these bans will be published and to which whistleblowers will be able to submit tip-offs. The Regulation also provides for steep fines if companies infringe a ban that has been imposed or a related order.

The Member States have to apply the Regulation within three years of it coming into force.

III. Conclusion

In the future, companies will have to take an even closer look at the human rights, environmental and climate-related aspects of their supply chains and products. Both Regulations give the supervisory authorities responsible far-reaching powers to impose penalties and intervene. New litigation and reputational risks are emerging as the public and stakeholders are granted more rights. Civil liability under the CSDDD is a striking example of this.

From a compliance point of view, companies covered by the Regulations will have to examine how these new requirements will affect their processes and structures, especially their risk management systems. The fact that provisions in the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) may overlap with those of the EU Forced Labour Regulation and the CSDDD is also likely to pose challenges. It will make sense to take a holistic approach and consider other possible rules and legislation such as the rules on conflict minerals.

Looking at the EU Forced Labour Regulation, we can also see that above all projects with long planning phases already have to take into account the risks of using products made with forced labour and reduce those risks as far as possible at this stage.

Over the next few months, we will examine important aspects of the CSDDD and the EU Forced Labour Regulation and keep you up to date on any new developments.

Any questions?

You will find information on our advisory services on supply chain compliance, also covering the German Supply Chain Act and CSDDD, here (only available in German).