It has never been allowed, and soon it really won’t be allowed: working with “wrong” suppliers. On Nov. 1, 2022, GroenLinks, PVDA, Volt and two of the four governing parties (CU and D66), submitted an initiative law on International Socially Responsible Business (IMVO). The cabinet itself is also working on an IMVO law, which would require companies to start eliminating issues such as slavery, exploitation corruption and environmental damage from their supply chain. This law is again based on a bill from the EU (CSDDD). With this, the voluntary aspect disappears, and companies are forced by lawmakers to take responsibility. In this article, we provide an overview of the broader developments and concrete legislative proposals, along with their implications for companies.
Broader move toward mandatory CSR
We have seen for years that governments, key stakeholders and society at large expect companies to look beyond profit maximization. This does not only apply to listed companies: medium-sized and smaller companies are also expected to take responsibility. Until recently, however, CSR was almost entirely voluntary in nature, but in recent years we have seen more and more laws and AMvBs passed in the field of CSR.
This began in the areas of energy and climate. For years, for example, there has been an obligation for companies to actually implement all energy-saving measures with a payback period (ROI) of less than five years. Meanwhile, more laws have emerged in the social field as well. For example, since 2020, there has been a Child Labor (Duty of Care) Act that requires companies to eliminate child labor in their supply chain as well. And in the area of good governance (Goverance), the “voluntary Corporate Governance Code” is currently being revised in terms of content, but is still considered voluntary self-regulation. It is to be expected that here too some of the voluntariness will disappear, as new European laws like the CSRD require companies to report annually on their CSR strategy, plans and results.
New IMVO law in the Netherlands
Various studies, by the SER, the Ministry of Foreign Trade and Development Cooperation and the Ministry of Foreign Affairs, among others, have shown that the current IMVO policy is insufficiently effective and that mandatory measures will be needed to achieve the objectives of the policy. Therefore, a new IMVO law is needed, which will mandate a lower limit for international business. Countries such as France, Germany, Britain already have such legislation.
A new IMVO law is expected to be passed in 2023. Exactly what that new law will look like is still partly to be seen. As mentioned, an initiative bill was submitted on Nov. 1 of this year by the Green Left, PVDA, Volt, CU and D66. There is also now a draft version of an IMVO law prepared by the Ministry of Foreign Affairs for consultation with other stakeholders.
IMVO puts OECD guidelines and due diligence front and center
Whatever effect it will eventually make law, it is likely that the Dutch IMVO law will broadly follow the proposed Corporate Sustainable Due Diligence Directive (CSDDD). This EU law was sent as a draft to member states in early 2022 and will give large companies in particular decent obligations in the area of IMVO and climate change mitigation. Read more about it in this Empact article.
The basis for the CSDDD is the OECD Guidelines for Multinational Enterprises. Central to these is the concept of due diligence, or due care. Due diligence implies that companies identify, prevent, mitigate and account for the (potential) negative consequences of their actions. In particular, this includes the impact on employees and local communities, including those in the company’s supply chain.
Implications of new CSR legislation for companies
This means that from the moment the new IMVO law takes effect, every large company will be obliged to follow the OECD guidelines on due diligence. In other words, based on a fixed six-step process, a supplier will have to be prevented from slavery, exploitation, corruption or environmental degradation.
About 35 percent of large companies in the Netherlands currently subscribe to these guidelines, meaning that 65 percent have yet to take steps in this regard. However, the implications of this law will extend beyond large companies, as the law covers the entire supply chain. So even all SMEs that supply large companies will have to ensure that their own supply chain is free of human rights violations, corruption and environmental crime in order to continue supplying their customers.
Do you work for a large or small company and does your supply chain start abroad? And do you not yet apply the principle of due diligence regarding IMVO? Then we recommend starting now to put your suppliers under the microscope and make preparations to comply with the laws to come.