In response to the recent article by Reuters titled “EU Parliament Backs Company Checks on Suppliers for Human Rights Abuses,” published on June 1, 2023, this report aims to provide an in-depth analysis of the European Parliament’s expectations regarding sustainability requirements for companies operating within or registered in the European Union (EU). This report aims to inform the Board about the evolving legislative landscape and recommend appropriate actions to align our company with the EU’s sustainability expectations.
Summary of the EU Parliament’s Position
The EU Parliament’s recent decision signifies a significant shift towards enhancing corporate responsibility and sustainability. The legislation outlined in the article underscores the need for companies operating within the EU or registered in the EU to conduct thorough checks on their suppliers to ensure compliance with human rights and environmental standards (Dumayet al., 2019, p.1. 5). The focus is on preventing human rights abuses, environmental degradation, and unethical practices within supply chains. The goal is to create a sustainable and ethical business environment, promoting a more responsible and accountable approach to corporate operations.
Key Requirements and Implications
Supply Chain Due Diligence: The EU Parliament expects companies to conduct comprehensive due diligence on their supply chains. This entails identifying potential risks of human rights abuses, environmental harm, and other unethical practices within the supply chain. Companies are required to assess and mitigate these risks through proactive measures. Methodically identifying and managing any risks and repercussions inside a company’s supply chain is known as supply chain due diligence (Sharma et al., 2019, p.998). This involves detecting and comprehending possible concerns such as human rights violations, labor practices, environmental damage, and other unethical or destructive actions. The purpose is to ensure that a company’s products and services are created and supplied responsibly, ethically, and sustainably.
Human Rights and Labor Standards: Businesses must ensure that their suppliers uphold fundamental human rights and labor standards. This includes preventing child labor, forced labor, and discrimination, and promoting fair wages and safe working conditions for all employees within the supply chain. Businesses have a moral and ethical responsibility to uphold human rights and labor standards within their supply chains (Hofmann et al., 2018, p.121). This involves creating an environment that respects the dignity and rights of workers, regardless of their location in the world. Meeting these expectations benefits workers and contributes to the reputation, sustainability, and long-term success of the businesses involved.
Environmental Sustainability: Companies are now required to assess and manage the environmental impact of their supply chain operations (Zaid et al., 2018, p.970). This involves reducing carbon emissions, minimizing waste, and adopting sustainable sourcing practices to limit ecological harm. EU Green Deal and Climate Targets: The European Green Deal is a comprehensive policy framework to make the EU’s economy sustainable and address climate change (Wolf et al., 2020, p.102). Companies are expected to align their supply chain operations with the EU’s climate goals, including achieving carbon neutrality by 2050 and implementing emission reduction targets. Circular Economy Action Plan: The EU’s Circular Economy Action Plan emphasizes the importance of reducing waste and promoting resource efficiency (Domenech and Bahn, 2019, p.11).
Transparency and Reporting: The new legislation emphasizes transparency. Companies must declare their supply chain sustainability activities, policies, and actions. Transparency allows stakeholders, such as customers and investors, to make informed decisions and hold businesses responsible (Flammer et al., 2021, p.1862). The European Parliament’s expectations regarding transparency and reporting from companies operating in the EU emphasize the importance of clear, accurate, and comprehensive communication about supply chain sustainability practices (Antonini et al., 2020, p.1540). Transparent reporting helps companies build trust with stakeholders and facilitates informed decision-making and accountability for their environmental and social impacts. It’s essential to stay updated with the latest developments in EU regulations and guidelines to ensure compliance with current expectations.
Supplier Chain examination: Begin a complete examination of the supplier chain to identify possible hazards connected to human rights violations, labor standards, and environmental impact (Venkatesh et al., 2020). This evaluation should include all suppliers, even those beyond the immediate tier. By undertaking a thorough analysis of the supply chain and resolving any dangers related to human rights, labor standards, and environmental impact, the firm demonstrates its commitment to ethical business practices. It contributes to a more sustainable global supply chain ecosystem.
Implementation of Due Diligence: Develop a robust due diligence process that evaluates suppliers’ adherence to human rights and environmental standards (Nolan, 2018, p.65). Engage suppliers in dialogue to address any identified issues and collaboratively find solutions. Implementing a thorough due diligence process necessitates effort, teamwork, and a continuing commitment to promoting good business practices (Salenger et al., 2020, p.190). This can create a more ethical and sustainable global supply chain ecosystem by engaging in discourse, supporting suppliers, and promoting positive change.
Develop and convey a clear sustainability policy outlining the commitment to ethical behaviors, human rights, and environmental stewardship (Quiles et al., 2023, p.189). This policy should be incorporated into the business principles and disseminated at all organizational levels.
Transparency and Reporting: Establish a system for transparent reporting on our sustainability efforts and progress (Gunawan et al., 2020). This can include annual sustainability reports, accessible on our website, detailing our actions, achievements, and areas for improvement. Companies show their dedication to having a positive influence and holding themselves accountable for their activities by implementing a reliable system for transparent reporting on sustainability initiatives (Berger & Scott, 2018, p.180)). Such openness drives ongoing development, builds trust, and works toward a more sustainable future.
Capacity Building: Invest in capacity-building initiatives for internal teams and suppliers to enhance their understanding of sustainability expectations, compliance, and best practices. The European Parliament has emphasized the importance of capacity building and sustainability awareness within supply chains. However, there might need to be specific directives or regulations that outline these expectations in detail (Smit, 2020). However, the concepts align with broader efforts to promote responsible business practices and sustainability within the European Union (EU).
The EU Parliament’s recent legislation underscores a shift towards greater corporate accountability and sustainability. As a company operating within or registered in the EU, it is imperative that the company proactively align its practices with these expectations. By conducting thorough supply chain assessments, implementing due diligence measures, and promoting transparency, the companies can meet regulatory requirements and contribute to a more ethical and sustainable business ecosystem. Taking these steps will enhance our reputation and position us as a responsible and forward-thinking corporate entity.
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