Europe’s risk managers face further focus on supply chains

The European Union’s Competitiveness Council is to meet on 7 December to hold a policy debate on the proposal for a regulation that prohibits products made with forced labour from the EU market. This proposal, presented by the European Commission in September 2022, aims to prohibit products made with forced labour in the internal market, as well as their export from the EU market. Ministers will be invited to provide their views based on a document prepared by the presidency. This proposed regulation comes on top of the Corporate Sustainability Due Diligence Directive (CSDDD), which is currently under discussion in Brussels and Strasbourg, and also aims to prevent European companies from, inadvertently or otherwise, sponsoring forced labour within their supply chains. When it announced plans for the new regulation, the Commission said that the international community had committed to eradicating forced labour by 2030 through the United Nations Sustainable Development Goal 8.7, but said that its use remains “widespread”. It pointed out that the International Labour Organisation (ILO) has estimated the global number of people in forced labour at 27.6 million. “In line with the EU Treaties, the EU promotes respect for human rights worldwide, including related labour rights, for example, as part of its commitment to promoting decent work. In this context, combating forced labour and promoting corporate sustainability due diligence standards are priorities of the EU’s agenda on human rights,” said the EC. “The objective of this proposal is to effectively prohibit the placing and making available on the EU market and the export from the EU of products made with forced labour, including forced child labour. The prohibition covers domestically produced and imported products. Building on international standards and complementing existing horizontal and sectoral EU initiatives, in particular the corporate sustainability due diligence and reporting obligations, the proposal lays down a prohibition supported by a robust, risk-based enforcement framework,” it added. Europe’s risk managers are already struggling to work out how to comply with the CSDDD, as was discussed in depth during Commercial Risk’s recent annual Benelux conference – held in Antwerp in partnership with Belgian risk management association Belrim and its Dutch counterpart Narim. They can be forgiven for wondering why another set of rules is needed on forced labour on top of the CSDDD. The Commission explained that its proposed CSDDD addresses corporate behaviour and due diligence processes for the companies falling in its scope, but does not provide for measures specifically intended to prevent the placing and making available on the EU market of products made with forced labour. “The proposal focuses on establishing a system within company law and corporate governance to address human rights and environmental abuses in companies’ own operations, their subsidiaries’ operations and their value chains. Companies are required to engage with business partners in their value chains to remedy the violations. Disengagement remains the last resort where adverse impacts cannot be mitigated. While it includes sanctions in case of non-compliance with the due diligence obligations, it does not require member states or companies to prohibit the placing and making available of any product on the market,” said the Commission. The forced labour regulation has further clear implications for the liability of directors and officers of European organisations and also potential criminal sanctions that risk and insurance mangers will need to look into. “Forced labour is a form of labour exploitation, which is punishable under Directive 2011/36/EU on preventing and combating trafficking in human beings and protecting its victims. Moreover, the Directive establishes the liability of legal persons, accompanied by administrative and criminal sanctions, for the exploitations referred to in that Directive, where they were committed for their benefit by any person who has a leading position within the legal person or where the offence was possible due to lack of supervision or control. This proposal will complement that Directive and will not impede the competent authorities, including law enforcement, from taking actions within their competence, with regard to the alleged or confirmed human trafficking offence related to forced labour and labour exploitation,” said the Commission. “The Employers’ Sanctions Directive prohibits the employment of irregularly staying non-EU nationals, including victims of trafficking in human beings. This proposal will also complement that Directive. The continued existence of forced labour illustrates the need for additional measures, also aimed at products, to prevent the placing and making available of products made with use of forced labour,” it continued. The EC said that the regulation is not designed to restrict trade within the EU, but rather promote it by providing a more level playing field. “The aim of the regulation is to avoid the obstacles to the free movement of goods and to remove the distortions of competition in the internal market that would result from divergences in national laws, regulations or administrative provisions regarding the placing and making available on the Union market of products made with forced labour,” it said. “There is an increasing attention for the persistence of the problem of forced labour and for the need to avoid [the availability] of products made with forced labour. Several parliaments and governments of member states have announced the need to adopt legislation to ensure that products made with forced labour do not end up in their markets. Against that background, there is a concrete risk that member states will adopt national laws that are prohibiting the placing and making available of goods made with forced labour on their territory. Those laws are likely to diverge. Such divergence is likely to lead to circumvention,” added the Commission.

Europe’s risk managers face further focus on supply chains

Competitiveness Council holds policy debate on forced labour regulation

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