Value chains in corporate sustainability due diligence directive

Subject: Value chains in corporate sustainability due diligence directive

In the context of the proposed directive on corporate sustainability due diligence:

1. In the view of the Commission, what is the difference between the concept of value chains and the concept of supply chains, and what material impact does the Commission think that references to value chains will lead to?

2. How does the Commission justify that companies responsible for value chains should be responsible for operations downstream, especially since the most ambitious current national due diligence laws consider such an approach too far-reaching?

Answer given by Mr Reynders on behalf of the European Commission

(5 July 2022)

The concept of ‘value chain’ as put forward in the Commission’s proposal on Corporate Sustainability Due Diligence (1) goes beyond the ‘supply chain’.

Upstream, it also includes activities that are not strictly an input for the production of goods or the provision of services. Downstream, it includes the use and disposal of products.

The ‘use’ phase covers impacts of the product itself that arise through regular use. The company has to address possible adverse impacts in the business relationship or related to the product.

The 2020 Study on due diligence (2) revealed that around 33% companies undertake human rights and environmental due diligence; 16.06% do so for the value chain.

The proposal’s ‘value chain’ concept allows to comprehensively cover human rights and environmental impacts and reflects the company’s leverage as regards the prevention of harm in the upstream and downstream within established business relationships to which the due diligence obligations under the proposal are limited.

The United Nations Guiding Principles on Business and Human rights (3) define ‘business relationships’ as including relationships with entities in the value chain.

The ‘full life cycle’ concept referred to in the Organisation for Economic Cooperation and Development guidelines on due diligence (4) reflects the same idea. In line with this, recent EU legislation (5) recognised the need for improved knowledge of company's operations and value chain.

Also, the European Parliament recommends in its legislative initiative report (6) to regulate ‘value chain due diligence obligations’, referring to ‘entities with which the undertaking has a direct or indirect business relationship, upstream and downstream’.

⋅1∙ Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Corporate Sustainability Due Diligence and amending Directive (EU)

2019/1937 COM/2022/71 final; https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0071 ⋅2∙ https://op.europa.eu/en/publication-detail/-/publication/8ba0a8fd-4c83-11ea-b8b7-01aa75ed71a1/language-en ⋅3∙ https://www.ohchr.org/sites/default/files/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf ⋅4∙ https://www.oecd.org/investment/due-diligence-guidance-for-responsible-business-conduct.htm ⋅5∙ Article 17 of the regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate

sustainable investment, and amending Regulation (EU) 2019/2088 (Text with EEA relevance) PE/20/2020/INIT OJ L 198, 22.6.2020, p. 13; https://eur- lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32020R0852; Article 19a of the proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting COM/2021/189 final; https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021PC0189 ⋅6∙ https://www.europarl.europa.eu/doceo/document/A-9-2021-0018_EN.pdf