Sustainable Business Practice

REGULATIONS ON SUSTAINABLE BUSINESS PRACTICES AND OBLIGATIONS IN GLOBAL SUPPLY CHAIN

LABOR IMPLICATIONS AND RELATIONSHIP TO MANUFACTURING ENTERPRISES IN VIETNAM

Dinh Ha An

an.dinhha@cdivietnam.org

0915219323

Center for Development and Integration (CDI)

MAIN CONTENT

1. What is the EU Directive on Sustainable Business Due Diligence?
2. Specific contents of the Sustainable Business Assessment Directive
3. Effectively conduct sustainable business due diligence and the roles of stakeholders.

Standards & Assessment Methods on Ethics & Corporate Social Responsibility (CSR)

• ETI (Ethical Trading Initiative): 1998
• WRAP: 2000
• SEDEX SMETA: 2001 (Sedex Members Ethical Trade Audit)
• SA8000 (SAI – Social AccountabilityInternational): 2001
• BSCI: 2003
• Fair Wear (FW): 2003
• WCA (Workplace Condition Assessment): 2010
• ISO 45001:2018
• CoC (Code of Conduct) of brands and customers:NIKE, ADIDAS…..

1. EU Directive on Due Diligence of Sustainable Business in Supply Chains

Duty of appraisal 

There are 3 levels required:

1. Binding Treaty, UN Guiding Principles on Business and Human Rights ;
2. European Sustainable Business Due Diligence Directive ;
3. National law

United Nations Guiding Principles on Business & Human Rights (UNGPs)

The “Protect, Respect and Remedy” framework includes:

– The State has the obligation to PROTECT human rights.

– Businesses have the responsibility to RESPECT human rights.

– Victims have the right to access REMEDIES.

(i) EU Coprorate Sustainability Due Diligence Directive (CSDDD)

What is due diligence?

• Due diligence is an ongoing process that businesses need to carry out to identify, prevent, mitigate negative impacts and explain the methods applied to address actual and potential adverse impacts (risks) in their business operations , supply chains and business relationships .
• Effective appraisal should be accompanied by efforts to integrate RBC into policy and management systems , with the aim of enabling businesses to remedy the adverse impacts they cause or contribute to.

General provisions

CONCEPT & OBJECTIVE of the directive

1. The Directive shall be formally adopted by the European Council on 24 May 2024. Member States shall adopt and publish, by 26 July 2026, the laws, regulations and administrative provisions necessary to comply with this Directive. (Article 37 Transposition)
2. The Due Diligence Directive (Law) places (a) an obligation on large companies to carry out due diligence to identify and address actual and potential adverse impacts on human rights and the environment, relating to their own activities, those of their subsidiaries and those of their business partners in their supply chains;
3. The due diligence process prescribed in the CSDDD includes 06 (six) steps defined by the OECD Due Diligence Guidelines for Responsible Business Conduct.

OECD KDBV appraisal process

1. Integrate appraisal into the business’s management system and policies.
2. Identify & Assess negative impacts in operations, supply chains and business partnerships.
3. Stop, prevent or minimize negative impacts.
4. Monitor and supervise implementation progress and results.
5. Dialogue/Information on how to address impacts.
6. Provide remedial measures for negative impacts where necessary.

Companies are also required to:

4. The law requires MEANINGFUL PARTICIPATION OF STAKEHOLDERS in the implementation process, especially WORKERS (Policy -> Risk assessment -> cessation, prevention, mitigation -> Monitoring & supervision -> Public notification of solutions -> Cooperation to overcome).
5. Establish and maintain kitchen procedures for receiving and handling employee inquiries and complaints .
6. Monitor the effectiveness of appraisal measures.
7. Public disclosure of due diligence in accordance with the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards (with some exceptions).

SCOPE

The Directive will apply to EU and non-EU companies with the same EU turnover threshold, depending on the size of the companies according to the submission.

2. Main content of the Appraisal Directive

Actual and potential adverse impacts on human rights and the environment

1. The right to life.
2. Acts of torture, mistreatment, and degradation.
3. Freedom and security.
4. Privacy, home, family, correspondence.
5. The right to just and favourable conditions of work, including fair and living wages, safe and healthy working conditions, and reasonable limitation of working hours.
6. Prohibit child labor.
7. Forced and compulsory labor, modern slavery, human trafficking.
8. Dialogue and Collective Bargaining at Workplace.
9. Discrimination, unfairness based on origin, race, gender, religion, etc.
10. Actions that cause environmental degradation and affect the ecosystem (soil, water, air pollution, impact on natural resources such as overexploitation, deforestation, etc.).
11. The right of individuals, groups and communities to land and resources and the right not to be deprived of their means of livelihood, including the prohibition of illegal occupation or seizure of land, forests and water when acquiring, developing or using land, forests and water, including deforestation, the use of which ensures a person’s livelihood.

Identify and assess negative impacts

• Related rights:

– Child labor.

– Forced labor.

– Working time.

– No discrimination.

– Wage.

– Gender-based violence/sexual harassment in the workplace.

– Freedom of association and collective bargaining.

– Occupational health and safety.

Obligations of enterprises within the scope of regulation according to the CSDD appraisal directive

Article 7: Integrate appraisal into the company’s risk management policies and systems

(a) a description of the company’s approach, including its long-term approach, to achieving the valuation objective;

(b) a code of conduct describing the rules and principles to be followed throughout the course of business by the company itself and its subsidiaries, and the direct or indirect business operations of its partner companies; and

(c) describe the procedures implemented to integrate due diligence into relevant policies and procedures, including measures taken to verify compliance with the code of conduct and extend its application to business partners.

Article 13: Meaningful engagement with stakeholders

Companies must take appropriate measures to ensure effective engagement with stakeholders:

– When consulting with stakeholders, companies must, where appropriate, provide them with comprehensive and relevant information to enable effective and transparent consultation.

– Interested parties consulted shall be allowed to make reasonable requests for additional relevant information. This information shall be provided by the company within a reasonable time and in a form that is relevant and understandable. If the company refuses to provide additional information, interested parties consulted shall be entitled to receive a written explanation for such refusal.

NATIONAL LAWS

Laws that require businesses to publicly disclose information about their human rights practices in their operations and throughout their supply chains:

1. Transparencyin Supply Chains Act (2010) – oag.ca.gov/SB657.
2. UK – Modern Slavery Act (2015) – legislanon.gov.uk/ukpga/2015/30/contents/enacted.
3. Australia – Modern Slavery Act (2018) – legislanon.gov.au/Details/C2018A00153.
4. Switzerland: Code of Obligations (CO), 1/1/2022.
5. Norwegian Transparency Act , 1 July 2022.
6. Law – Duty of Care Law (2017).
7. Germany – (Responsible Supply Chain Verification Act) (2021).
8. Netherlands – ininanefwet IDVO (IDVO Initiative) (2022).

(ii) GERMAN SUPPLY CHAIN AUDIT LAW

WHAT IS THE LAW ON DUE DUE DUTIES IN THE SUPPLY CHAIN?

The Corporate Due Diligence in Supply Chains Act requires companies to fully implement human rights and environmental practices within their own businesses and supply chains.

The German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG) requires companies to conduct appropriate human rights and certain environmental due diligence in their own business area as well as their supply chains.

TO WHOM DOES THE LAW APPLY?

German Supply Chain Due Diligence Law

RISK MANAGEMENT SYSTEM

HOW DOES THE LAW APPLY?

MAIN TOPICS OF THE ACT

The law requires the review of 11+1 human rights risks and 3 environmental risks.

MAIN TOPICS OF THE ACT

The law requires the review of 11+1 human rights risks and 3 environmental risks.

s.Oliver brand risk management system

Risk management and due diligence procedures in accordance with the German Due Diligence Law (LkSG)

SOME RECORDED CASES

• The first lawsuit under this Act was filed by NGWF against three companies: In April 2023, in Bangladesh, NGWF represented workers in three companies covered by the Supply Chain Act for failing to provide adequate oversight of working conditions in factories in the supply chain that “caused unsafe conditions for workers.”
• In June 2023, three automotive companies were also accused of failing to take appropriate measures to identify, prevent or remedy alleged violations of working conditions in their supply chains.
• 26/10/2023: complaint by workers and trade unions of the Orljava-Croatia garment company that Olymp failed to act in accordance with the OECD Guidelines for Multinational Enterprises by (i) failing to conduct a proper risk assessment of adverse impacts prior to the termination of each business relationship; (ii) failing to participate meaningfully in this process.

German Supply Chain Audit Law

What’s next?

German law is currently the strictest compared to other countries’ regulations.

X voluntary corporate social responsibility

✓ mandatory human rights and environmental due diligence regulations for businesses

The European Union has adopted a mandatory human rights and environmental due diligence law for businesses in global supply chains!

That means: businesses in the 27 member states will have to comply with mandatory regulations. model transformation 

FROM COMPLIANCE-ORIENTED (PASSIVE) TO PROACTIVE MONITORING OF RESPONSIBLE BUSINESS RISKS

3. For suppliers and business partners

Why conduct an appraisal?

• Production, business and service activities themselves have risks that adversely impact responsible business practices, including human rights.
• Assessment helps businesses anticipate – prevent – minimize these adverse impacts.
• Help businesses decide whether to continue or stop business operations.
• Preventing and minimizing negative impacts helps businesses maximize their positive contributions to society, improve relationships with stakeholders, and improve and protect their reputation and prestige.
• Reduce costs, reduce the risk of systemic risk.

WHAT DOES IT MEAN FOR FACTORIES IN THE SUPPLY CHAIN WHEN AUDITS BECOME MANDATORY?

For suppliers: 3-5 years to prepare

1. Find information, participate in online seminars, sign up for newsletters, attend events of local Chambers of Commerce (VCCI, Business Associations…).
2. Follow developments at EU level.
3. Collaborate with each other , at regional or national level, become a member of IAF, Transformers Foundation, STTI, etc.
4. Talk to your buyers: are they in scope, what are their expectations, what are their plans, are they members of Fair Wear, ETI, amfori, Partnership for Sustainable Textiles, Cascale, RBA…
5. Start implementing your own company/factory Human Rights and Environmental Sustainability Due Diligence (HREDD): reviewing and refining internal systems and processes with UNGP and OECD guidelines and standards can be a good start to meet various requirements.
6. Collect information required for HREDD through non-governmental organizations (NGOs) and trade unions (TUs) in your region or at the national level, and then share/publicize that information on your company website or available communication channels.
7. Learn and use tools developed by parties to conduct HREDD more conveniently (Fair Price app, RBA, …)

ROLES OF PARTIES

“TRANSPARENCY – COOPERATION”

• Brand;
• Factory;
• Union;
• Social organization;
• Government (producing and importing countries);
• Research institute;
• . . .

ROLES OF PARTIES IN SUSTAINABLE BUSINESS PRACTICES

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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

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