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EU’s Groundbreaking Law Mandates Human Rights Due Diligence in Global Supply Chains

Due DiligenceEU's Groundbreaking Law Mandates Human Rights Due Diligence in Global Supply Chains

The European Union (EU) is set to enact a law that mandates thousands of large companies, including foreign entities operating within the EU such as American businesses, to actively identify and mitigate human rights abuses and environmental harm in their supply chains. While historically, governments have encouraged voluntary compliance with human rights efforts, this new EU law signifies a major step towards legally enforcing compliance, with far-reaching implications for global human rights and businesses.

The legislation, approved by the European Parliament in June 2023, is now undergoing negotiations among EU member states and the European Commission for finalization. The law is expected to be rolled out in phases over the next few years.

This shift is reflective of an increasing trend where human rights considerations are influencing business regulations. Major companies have a history of involvement in human rights abuses, such as historic complicity in the slave trade and more contemporary cases involving child labor and forced labor. To address these issues, the EU’s law focuses on human rights due diligence, a process that involves mapping out, understanding, and addressing potential human rights abuses within a company’s operations.

The law mandates that large companies operating in the EU, or those with significant EU revenues, conduct human rights due diligence across their supply chains and product usage. The goal is to prevent or rectify any harmful impacts. Penalties for non-compliance are outlined, with provisions for enforcement and the ability for abuse victims to seek damages.

While some companies endorse these mandatory due diligence rules, concerns about complexity and liability arise. The U.S., for instance, has preferred voluntary regulations but has also implemented some targeted laws around supply chain transparency and human rights.

The EU’s proactive approach to enforcing human rights due diligence has implications for companies, especially foreign entities. The U.S. could potentially explore broader human rights due diligence laws to align with this global trend and ensure its companies remain competitive in a changing regulatory landscape.

By FCCT Editorial Team

Disclaimer: The views expressed in this article are independent views solely of the author(s) expressed in their private capacity.

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