On 15 March 2024, the Council of the European Union (comprising member states of the EU) voted to adopt a new law on sustainable supply chains, whose scope includes human rights abuses and the environment. Named the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D), the law introduces requirements for companies to identify and prevent, bring to an end, or mitigate the actual and potential impacts of their activities on the environment and on human rights abuses. Measures should include the establishment of monitoring systems and access to justice mechanisms.
It would oblige companies to conduct due diligence not just on their own operations, but also on the activities of their subsidiaries and other entities in their value chains with which they have direct and indirect established business relationships. They would need to develop and implement ‘prevention action plans’, obtain contractual assurances from their direct business partners that they will comply with the plans, and subsequently verify compliance.
The law will now go to the European Parliament for approval. It is not clear when this will be.
“The new due diligence requirements apply not only to the direct actions of the company, but also to their subsidiaries and supply chain. EU based companies, as well as non-EU companies that conduct a set level of business in the EU, could become liable for the actions of their suppliers,” reported Forbes.com
The deal that was approved was significantly watered down from the original proposal. It now covers companies with more than 1,000 employees and a turnover of €450 million. The original proposal said 500 employees and €150 million.
Nonetheless, the largest companies also tend to have the largest supply chains, and the impact of the DDD will likely reach into the same small business partners.
The implemention will be phased in over the next few years. Companies with 5,000 employees and €1,500 million turnover will have to comply in three years. Companies with 3,000 employees and €900 million turnover will come within scope in four years. Companies with 1,000 employees and €450 million turnover will be affected in five years.
The original draft also brought within scope companies that are registered outside of the EU, but which do business in the EU, subject to turnover thresholds (business conducted within the EU). As at time of publication, it is not clear what the thresholds now are, though the original draft used the same turnover thresholds applicable to EU companies.
Companies are liable for damages if they fail to prevent potential and/or actual adverse impacts. Affected persons can bring forward action and claim compensation. Whilst TWC2 is not able to give a definitive assessment, we believe that a migrant worker in Singapore who has suffered forced labour abuses while working for a local company which is a supply chain partner of an EU (or even non-EU company) that comes within the scope of the Directive, can sue for damages and compensation.
The affected EU (or non-EU) company would therefore need to monitor the labour practices of its supply chain partners in Singapore as part of its DDD responsibility, and demand improvements.
TWC2 welcomes this move by the EU and hopes Singapore companies step up their game before they find their direct and indirect business relationships with the EU at risk.
*Companies based outside of the EU but with turnover within the EU above the threshold are also within the scope of the Directive. ** Whether the company is operating directly in Singapore, or has a contractual relationship with another company to build or operate in Singapore.
What would constitute forced labour? The standards laid out by the International Labour Organisation would be a good starting point. Indebtedness resulting from recruitment fees (common among migrant workers in Singapore) is one of several indicators.