It should have never been possible and soon it will no longer be allowed: working with the “wrong” suppliers. On November 1, 2022, five Dutch political parties submitted an initiative law in the field of International Corporate Social Responsibility (in Dutch IMVO). The cabinet itself is also working on a CSR law, which obliges companies to eliminate issues such as slavery, exploitation, corruption and environmental damage from their supply chain. This law is again based on a proposed directive from the EU (CSDDD). It means that the voluntary aspect disappears, and the legislator forces companies to take responsibility. In this article, we provide an overview of the broader developments and concrete legislative proposals, together with their implications for companies.
Broader development towards compulsory CSR
We have seen for years that governments, key stakeholders and society at large expect companies to look beyond profit maximisation. This does not only apply to listed companies: medium-sized and smaller companies are also expected to assume responsibility. Until recently, however, CSR was almost entirely voluntary, but in the last years, we have seen that more and more laws and Orders in Council have been adopted in the field of CSR (in this case, CSR is also referred to as Responsible Business Conduct or in short RBC).
From voluntary to mandatory started years ago in the field of energy and climate. For example, companies have for years been obliged to actually implement all energy-saving measures with a payback period (ROI) of less than five years. In the meantime, more laws have also been introduced in the social field. For instance, since 2020, there has been a Dutch Child Labour Due Diligence Act that obliges companies to eliminate child labour in their supply chain. And in the field of good governance, the ‘voluntary Corporate Governance Code’ is currently being revised substantially but is still regarded as a voluntary self-regulation. This voluntariness will partly disappear , too, as new European laws such as the CSRD oblige companies to report annually on their CSR strategy, plans and results with a strong focus on governance.
New CSR law in the Netherlands
Various studies, including those carried out by the SER, the Ministry of Foreign Trade and Development Cooperation and the Ministry of Foreign Affairs, have shown that the current CSR policy on international business is insufficiently effective. Mandatory measures are needed to achieve the objectives of the policy. That is why a new CSR law is required to make a CSR baseline for international business mandatory. Countries such as France, Germany, and Great Britain already have such legislation.
It is expected that a new CSR law will be adopted in 2023. What exactly this new law will look like is still partly the question. As mentioned, an initiative law was submitted on November 1 of this year by five Dutch political parties: GroenLinks, PVDA, Volt, CU and D66. There is also a draft version of another CSR law drawn up by the Ministry of Foreign Affairs available for consultation with other stakeholders.
CSR focuses on OECD guidelines and due diligence
Which final demands eventually make into legislation are still under discussion, but it seems a realistic expectation that the Dutch CSR law will broadly follow the proposed Corporate Sustainable Due Diligence Directive (CSDDD). This EU law was sent as a draft to the member states at the beginning of 2022 and will give large companies in particular considerable obligations in the field of CSR and combating climate change. Read more about the CSDDD in this Empact blog.
The basis for the CSDDD is the OECD Due Diligence Guidance for Responsible Business Conduct and the OECD Guidelines for Multinational Enterprises. The concept of due diligence is central to this. Due diligence means that companies identify, prevent and limit the (possible) negative consequences of their actions and are also accountable for these. This particularly concerns the consequences for employees and local communities, including companies that are in the company’s supply chain.
Implications of new CSR legislation for companies
This means that from the moment the new CSR law comes into effect, every large company will likely be obliged to follow the OECD due diligence guidelines. In other words: on the basis of a fixed six-step process, slavery, exploitation, corruption or environmental damage must be prevented at own operations and at all suppliers in the supply chain of a company.
About 35 per cent of the large companies in the Netherlands currently endorse these guidelines, which means that 65 per cent still have to take steps in this direction. However, the implications of this law will extend beyond large companies as the law covers the entire supply chain. All SMEs that supply large companies will therefore have to ensure that their own supply chain is free of human rights violations, corruption and environmental damage in order to continue to supply their customers.
Do you work for a large or small company and does your supply chain starts abroad? And are you not yet applying the principle of due diligence regarding CSR? Then we advise you to start now by taking a closer look at your suppliers and making preparations in advance to comply with the laws that are coming.