Impact of the EU supply chain law on environmental sustainability

Supply chains affect you in many parts of your everyday life. The jumper you wear, the mobile phone you use, the avocado you might eat – they all come wholly or partly from other parts of the world and are brought to Europe through long and complicated supply chains. However, there is a fundamental problem with this cooperation: The European Union has laws to protect human rights and the environment inside of Europe, but they do not regulate what European companies do in other parts of the planet. Therfore a product from forced labour or one that has contributed to the destruction of an ecosystem in third countries may end up in the hands of a European consumer. At this point, the EU Supply Chain Act comes into play. In this blog post, I would like to explore what the law is about, why we need supply management and if the impact of the EU supply chain law on environmental sustainability is considerable.

What is the EU supply chain act?

The European Commission presented the law in February 2022. ¹ Currently the concrete execution is still under discussion. But some key points are largely clear. In a nutshell: The EU-supply chain law prescribes duties of diligence for companies. It is a directive to compel European companies to supervise their supply chains and to ensure human rights and environmental protection in preceding production processes. The act applies to European enterprises and companies from third countries operating in the EU with 250 or more employees and a global turnover of more than 40 million euros. With the EU Supply Chain Act, victims from other countries now have the possibility to hold European companies responsible for abuses of human rights along the supply chain. ²

Why do we need supply chain management?

About ten years ago, two events caused supply chain regulations to become more prominent on the public agenda: In 2013, the eight-story Rana Plaza textile factory in Dhaka, Bangladesh´s capital, collapsed, killing 1,134 people and injuring at least twice that many. ³ Only a couple of months before, the Ali Enterprises factory in Karachi, Pakistan, caught fire.The building didn´t have any emergency exits nor fire alarms, and the two existing exits were locked. As a consequence, 250 workers died, trapped inside the building. ⁴ These terrible incidents point to a story that goes much deeper than the collapse of a dilapidated building: Rana Plaza and Ali Enterprises produced textiles for European and US companies such as Primark and Kik. Consequently, the two disasters sparked an international debate on the responsibility of large corporations to consider working conditions in outsourced factories. 

What are the environmental impacts of supply chains?

There are many different ways in which supply chains can pollute the environment and impact various ecosystems. A famous example ⁵ is the resource cobalt, which is necessary for the production of lithium-ion batteries. Lithium-ion batteries are part of many electrical devices. Consequently, the consumption of cobalt has increased sharply with digitalization. The world’s largest cobalt supply is in the Democratic Republic of Congo. It “holds 60% of the planet’s coltan reserves” (Mitchell, 2022). ⁶ A significant amount of cobalt is mined there in illicit mines, and therefore not regulated by governmental laws. As a consequence, mine waste pollutes the surrounding water, air, and soil, and the mining process frequently emits radioactive uranium. ⁷ 

The result is environmental degradation, which causes diseases, crop failures, greenhouse gas emissions, and biodiversity loss. ⁸ China processes most of the cobalt into lithium batteries and smartphones. ⁹ The products end up at smartphone companies like Apple or Samsung, which sell their devices all over the globe, including the European market. Thus, there can be a clear connection between cell phones in European stores and the pollution of the environment in the Democratic Republic of Congo. ⁵

How Does the EU Supply Chain Law Impact Environmental Sustainability in Companies?

The EU Commission holds companies accountable in terms of environmental sustainability: “Companies play a key role in building a sustainable economy and society. They will be required to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss.” (European Commission, 2022) ¹

The proposed legislation suggests that consumers will face greater transparency with the Supply Chain Act about whether the products they buy contribute to environmental pollution and biodiversity loss. However, the statement “where necessary” sounds a bit vage. How can companies determine precisely at which points along the supply chain environmental pollution must be reduced? What threshold values can they use to define this? Luckily i had the possibility to talk to Anna Leitner, a campaigner for the Austrian Environmental organization Global 2000. She told me that the Supply Chain Act requires compliance with international standards, concerning environmental protection, conservation and biodiversity.

However, Anna has not seemed content with what the EU supply chain law offers for climate protection. Until now, it is not yet clear whether climate protection will also fall under the due diligence obligation of companies. The member states of the European Union would like to guard companies from this responsibility, while the Parliament wants companies to commit themselves to reducing greenhouse gases.

Conclusion

To sum it up, the EU supply chain law seems a promising start to protect people which are working in European supply chains on a global scale. Further, the law can create more transparency about the environmental impact of a company´s production process and thus reduce it. However, this requires, in my opinion, clear target values on how much pollution can be tolerated in an ecosystem or not. In addition, ambitious commitments to reduce greenhouse gasses along supply chains are necessary to mitigate climate change. Let’s stand up for supply chain legislation that implements strong environmental and climate protection and helps to protect the wonderful ecosystems on our Earth!

References:

1. European Commission, 2022. Corporate sustainability due diligence [WWW Document]. European Commission – European Commission. URL https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1145 (accessed 9.29.23).
2. Leisering, Kai, n.d. EU Supply Chain Law Obliges Companies to Operate in a Fair and Sustainable Manner [WWW Document]. EQS Group. URL https://www.eqs.com/compliance-blog/eu-supply-chain-law/ (accessed 9.29.23).
3. Franziska Korn and Maren Leifker, 2022. European Supply Chain Act: ‘No more Rana Plazas!’ [WWW Document]. URL https://www.ips-journal.eu/work-and-digitalisation/european-supply-chain-act-no-more-rana-plazas-5891/ (accessed 9.27.23).
4. Clean Clothes Campaign, n.d. Justice for the Ali Enterprises victims [WWW Document]. Clean Clothes Campaign. URL https://cleanclothes.org/campaigns/past/ali-enterprises (accessed 9.27.23).
5. GLOBAL 2000, n.d. Smartphone Lieferkette [WWW Document]. URL https://www.global2000.at/smartphone-lieferkette (accessed 9.27.23).
6. Mitchell, J., 2022. Kinshasa is already Africa’s biggest city – could cobalt make it the richest? Mining Technology. URL https://www.mining-technology.com/features/kinshasa-africa-democratic-republic-congo-cobalt/ (accessed 9.27.23).
7. Murray, A., 2022. Cobalt Mining: The Dark Side of the Renewable Energy Transition [WWW Document]. Earth.Org. URL https://earth.org/cobalt-mining/ (accessed 9.28.23).
8. Bamana, G., Miller, J.D., Young, S.L., Dunn, J.B., 2021. Addressing the social life cycle inventory analysis data gap: Insights from a case study of cobalt mining in the Democratic Republic of the Congo. One Earth 4, 1704–1714. https://doi.org/10.1016/j.oneear.2021.11.007
9. Sovacool, B.K., Hook, A., Martiskainen, M., Brock, A., Turnheim, B., 2020. The decarbonisation divide: Contextualizing landscapes of low-carbon exploitation and toxicity in Africa. Global Environmental Change 60, 102028. https://doi.org/10.1016/j.gloenvcha.2019.102028