Europe: New European Due Diligence Guidance Published to Address Forced Labor in Supply Chains

On 12 July the European Commission and the European External Actions Service (EEAS) published guidance on “due diligence for EU businesses to address the risk of forced labour in their operations and supply chains”. The non-binding guidance seeks to provide European companies with practical advice on the implementation of effective human rights due diligence practices to address forced labour risks in their supply chains. It also provides an overview of international standards and principles on responsible business conduct and due diligence relevant to combatting forced labour, including the OECD Due Diligence Guidance For Responsible Business Conduct (the OECD Guidelines), the UN Guiding Principles on Business and Human Rights (UNGPs) and the International Labour Organisation (ILO) fundamental conventions.

The guidance aims to deliver on one of the pillars of the recent EU trade strategy to “promote responsible and sustainable value chains”. It encourages EU businesses to take appropriate measures to address forced labour risk in their supply chains, ahead of the Commission’s upcoming legislative proposal on Sustainable Corporate Governance. The proposed new legislation, announced as part of the Commission’s 2021 Work Programme, will impose mandatory and enforceable human rights and environmental due diligence obligations on companies operating across all sectors in the EU, including requirements to address child and forced labour issues in supply chains. Please see here and here for our previous alerts on the Sustainable Corporate Governance initiative and the development of the proposed legislation.

The guidance provides specific recommendations regarding the due diligence process and remediation measures, summarised as follows:

• Due diligence should be proportionate to the individual company’s circumstances and context, including its size, risk profile and the specificities of its upstream supply chain.
• Policies and management systems should be tailored and stipulate a “zero-tolerance policy” for forced labour. These systems should clarify that suppliers and staff will not face reprisals for reporting risks or instances of forced labour. Awareness should also be built amongst key company staff on what constitutes forced labour (e.g. types of vulnerable workers and supply chains).
• Businesses should consider the following ‘red flags’ when analysing their operations and supply chains for instances of forced labour, including:
  1. country risk factors (e.g. legal regimes outlawing peaceful strike action, countries with prison labour policies and programmes, and countries that have not ratified International Labour Organisation (ILO) fundamental conventions);
  2. migration and informality risk factors (e.g. absence of written employment contracts, presence of informally employed workers and employment of migrant workers);
  3. debt risk factors (e.g. existence of credit-arrangements and debt schemes for workers and incidences of physical or psychological abuse, violence or harassment).
• The guidance also provides further detail on cross-cutting considerations which should be taken into account by companies when conducting responsible due diligence, including: applying gender-responsive due diligence where appropriate; acknowledging considerations relating to the discrimination of ethnic or religious minorities; and credibly obtaining and verifying information on the origin of raw materials.
• Companies taking action to address risks of forced labour may either (i) disengage with suppliers or business partners or (ii) continue the business relationship while staying engaged to “prevent or mitigate the adverse impact of forced labour practices in terms of influencing government policy and factory hiring practices.” The guidance provides practical recommendations regarding responsible disengagement and recommends that appropriate financial support is given to suppliers and business partners to implement agreed corrective action plans, where the business relationship is continued.

This guidance reflects the increased scrutiny around forced labour concerns globally and a wider trend related to mandatory due diligence and transparency surrounding human rights issues. Companies across all sectors should continue to ensure the proper implementation of robust and effective due diligence practices, including through human rights due diligence, in order to mitigate potential forced labour risks in their supply chains and business operations. This includes adopting adequate compliance systems, controls and training in line with relevant government guidance, international due diligence standards and regulator expectations.