The rise of corporate accountability in Europe is pushing companies to adopt more stringent practices, particularly concerning human rights. Central to this shift are the Norwegian Transparency Act, the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz), and the proposed European Corporate Sustainability Due Diligence Directive (CS3D). Each regulation demands that businesses operating in these jurisdictions implement rigorous measures to ensure human rights are respected throughout their supply chains.

Norwegian Transparency Act

Norway’s Transparency Act, effective from July 2022, sets a high bar for corporate responsibility. The legislation mandates that larger companies, including those with a presence in Norway, conduct due diligence to identify, prevent, and mitigate potential human rights abuses within their supply chains. This goes beyond mere compliance; companies are required to actively engage with their suppliers to uncover risks and implement corrective actions where necessary.

One of the critical tasks under this law is the publication of an annual report detailing the company’s due diligence efforts. This report must include findings from risk assessments and outline measures taken to address any identified issues. Companies are also required to provide stakeholders, including consumers and investors, with clear and accessible information about their human rights practices. This transparency is designed to empower stakeholders to hold companies accountable.

Moreover, the law requires companies to respond to inquiries from the public concerning their handling of human rights risks. This aspect of the legislation effectively crowdsources oversight, making it not just a top-down regulation but also a bottom-up scrutiny mechanism.

German Supply Chain Due Diligence Act

Germany’s Supply Chain Due Diligence Act, which came into force in January 2023, represents a significant shift towards mandatory human rights due diligence in one of Europe’s largest economies. The law applies to companies with at least 3,000 employees initially, expanding to those with 1,000 employees by 2024.

Under this legislation, companies must take steps to identify and mitigate human rights risks within their entire supply chain—from direct suppliers to indirect suppliers further down the chain. This includes establishing a risk management system, appointing a responsible person or department, and integrating due diligence into the company’s overall corporate strategy.

A core requirement is for companies to conduct regular risk assessments, documenting potential human rights violations and environmental issues. Companies must then implement measures to prevent or minimize these risks, such as supplier audits, training programs, and contractual obligations on suppliers to adhere to human rights standards.

Reporting is also a key element, with companies required to submit an annual report to the German Federal Office for Economic Affairs and Export Control (BAFA). This report must outline due diligence processes and any actions taken to address identified risks. Non-compliance can result in hefty fines and exclusion from public contracts, making adherence a significant business imperative.

European Corporate Sustainability Due Diligence Directive (CS3D)

The European Commission’s proposed Corporate Sustainability Due Diligence Directive (CS3D) aims to standardize human rights and environmental due diligence across the EU. Although still under negotiation, the directive is expected to impose broad responsibilities on large companies, particularly those operating in sectors with a high risk of human rights abuses.

The CS3D requires companies to identify, prevent, mitigate, and account for human rights and environmental impacts across their operations, including those of their subsidiaries and supply chains. The directive mandates a proactive approach, where companies must engage with stakeholders, including workers and local communities, to uncover potential risks and address them.

Another significant task under the CS3D is the requirement for companies to establish grievance mechanisms. These mechanisms would allow affected parties to raise concerns directly with the company, promoting a more dynamic and responsive approach to human rights issues.

If adopted, the CS3D will also introduce legal liability for companies that fail to meet their due diligence obligations. This means that victims of corporate human rights abuses could potentially seek redress in EU courts, raising the stakes for non-compliant businesses.

In sum, these legislative frameworks are reshaping the landscape of corporate responsibility in Europe. Companies are now compelled to go beyond voluntary commitments, embedding human rights due diligence into the core of their business practices. The challenge for businesses will be to navigate these regulations effectively while maintaining competitive advantage in an increasingly transparent market.