EURATEX welcomes EP initiative on due diligence but warns about difficulties ahead

Brussels 11 March 2021 – On the 10 March, the European Parliament adopted its own-initiative legislative report on due diligence. EURATEX welcomes the general aim of the report but points out that implementation is yet to be debated and it will penalize the European industry with unintended consequences and excessive burden on SMEs. EURATEX also warns about the impact of new legislation on an industry severely hit by Covid-19.

EURATEX welcomes the goals set in the own-initiative report on due diligence voted yesterday in the European Parliament with 504 in favour, 79 against and 112 abstention.

EURATEX welcomes the broad consensus registered around several important points, such as harmonization of legislation at European level instead of pursuing national approaches, and the principle of proportionality. However, the seriousness of unintended consequences especially in difficult economic times appears still not thoroughly understood. 

European harmonization would avoid chaos across Europe on necessary requirements, it would minimize the confusion over the interpretation of “responsible business conduct” and it may support level playing field. However, fair enforcement and the related operational challenges are not sufficiently considered. 

Proportionality is a very crucial principle in the debate on due diligence. The Small and Medium Size Enterprises (SMEs) do not own the capacities of larger companies and they are very much exposed to unintended consequences of legislation, even if its purpose is good. EURATEX appreciates the acknowledgement in the report that SMEs need to have “less extensive and formalized due diligence processes” and further support and information. However, the scope shall be further clarified and spare all SMEs from un-appropriate legal requirements. 

The implementation of due diligence requirements will also bring negative impacts on the European value chain that, in EURATEX’s experience, on-line support tools can hardly avoid. Policymakers should properly assess the operational aspects in the elaboration of requirements in the upcoming proposals. It is essential to avoid new threats and additional costs, including those from administrative burdens for the industry and, specifically, for SMEs. 

Recent years’ experience shows how due diligence is a process that needs to be adapted to individual companies. It should be proportionate to size, sourcing model and the capacity of a company in the supply chain. It needs to be balanced with risk and potential adverse impact.

The adoption of the report in the Parliament reaffirms the importance of the topic and puts it at the top of the European agenda. Last year the European Commission through Commissioner for Justice, Didier Reynders, committed to elaborate a legislative proposal on Sustainable Corporate Governance. At this stage, the Commission consultation process is quite advanced, as the roadmap and public consultation were concluded by early February. The Parliament report timely arrives, just ahead of the Commission proposal, expected before summer.

EURATEX thus insists that policy proposals – to be effective – should be based on a “smart mix of measures”, combining incentives and support to responsible practices. The established industry-specific schemes, also referred as “safe harbour approach”, should be accepted as a tool to recognise compliance with regulation. The EU may support businesses in adopting traceability solutions. These actions may be instrumental to remove barriers on actual data-exchange, hence facilitate due diligence. “After many years, a milestone on due diligence has been reached, but the difficult debate on implementation is yet to start” comments Mr Mauro Scalia, EURATEX Director of Sustainable Businesses.