There is appetite among EU lawmakers to make sustainability the norm, as seen by the recent proposed legislation that will set mandatory legal standards for due diligence – and wide support for the proposed new rules among the European food industry, according to a recent Fi Global Insights survey.
The draft EU Directive on Corporate Sustainability Due Diligence will require companies to identify and (where necessary) prevent, end, or mitigate the adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss.
Aimed at advancing the green transition and protecting human rights in Europe and beyond, the EU says the new rules will give businesses legal certainty and create a level playing field while providing more transparency for consumers and investors.
The legislation has not yet entered into force. The Commission’s proposal will now go to the European Parliament and the Council for approval and, if adopted, member states will have two years to transpose it into national law.
The rules will apply to EU-companies that have more than 500 employees and a net worldwide turnover of more than €150 million, or EU companies with more than 250 employees and a net worldwide turnover of more than €40m – provided that at least 50% of this net turnover was generated in a ‘high-risk’ sector. High-risk sectors include food manufacturing, agriculture, forestry, and fisheries, as well as textiles and clothing. According to David Pineda Ereño, legal expert and managing director of Brussels-based DPE International Consulting, the nutraceutical and functional food industries, as well as ingredient multinational companies, would be largely impacted by the Directive.
The rules also apply to non-EU companies that have a net turnover of more than €150m generated within the EU; or between €40m and €15m, provided that at least 50% of its net worldwide turnover was generated in one of the high-risk sectors. Businesses must bear the cost of establishing and operating the due diligence procedures to ensure compliance with the new rules.
The EU Directorate-General for Agriculture and Rural Development could not confirm how many food and drink companies and producers would be affected but, according to an article co-authored by partners and associates at Chicago-headquartered law firm Mayer Brown and published on the Harvard Law School Forum on Corporate Governance, around 13,000 EU companies and 4,000 non-EU companies appear to fall within the criteria.
The legal experts say that the extraterritorial scope of the draft directive is of particular note and could have “significant implications” for multinational groups based in the US, UK and Asia. Non-EU companies that meet the requirements will be required to appoint an EU-based representative to liaise with EU supervisory authorities.
EU policymakers have hailed the directive as a real game-changer that will allow the EU to stand up for human rights and lead the green transition. But how much support is there within the European food industry for such legislation?
Fi Global Insights questioned over 34,000 European companies in our database and received hundreds of responses, ranging from multinational groups that generate billions in annual turnover to small and medium enterprises (SMEs), and from non-profit organisations to governmental food and trade departments.
The survey revealed overwhelming support among respondents for government intervention to ensure sustainable targets are met whilst creating a level playing field for businesses. A massive 90% agreed governments should establish a minimum legal standard for corporate sustainability and due diligence. Only 10% said they opposed such mandatory action.
A strong majority of our food industry respondents were also in favour of such regulations having teeth. Eighty-one percent (81%) said businesses should be penalised if they did not adhere to the minimum legal standard for corporate sustainability and due diligence, with 19% saying they should not be penalised.
However, risk advisory consultants at Deloitte recommend that companies start to put in place solid actions to move towards compliance.
“The time to get started is now. A good idea is to kick off with a baseline assessment of your current due diligence activities to identify potential gaps or areas for improvement,” they write. “A risk and impact assessment could then shed light on the environmental and human rights topics that should be prioritised. After this a roadmap can be established to implement an effective due diligence framework targeting environmental and human rights risks.”
To read the directive in full, click here.
