Understanding the European Supply Chain Act: A New Era of Corporate Responsibility
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Key Take-aways
1. The European Supply Chain Act (ESCA) represents a significant shift in corporate responsibility, holding companies accountable for social and environmental impacts across their value chains.
2. It focuses on risk management, emphasising fundamental human rights and environmental protection in line with international standards.
3. Main target might be EU companies with over 250 employees and a €40 million turnover.
4. Fines for not being compliant can be up to € 8 million or 2% of the yearly turnover.
5. High-risk industries, including textiles and leather, agriculture and water supply, mining, and financial services face stricter due diligence requirements and fines.
6. Affected companies are estimated to have about 2–3 years from now till they need to be compliant
Introduction
In June 2023, a significant milestone was reached in the realm of corporate responsibility when a majority of Members of the European Parliament (MEPs) voted in favour of the ESCA and further tightening it. The ESCA is part of the proposed Corporate Sustainability Due Diligence Directive(CS3D): Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937.
This draft legislation signals a profound shift in the way European companies manage their social and environmental impacts across their entire value chain, and it carries implications for businesses far beyond the European Union. In this article, we will delve into the key aspects of the ESCA, its scope, and the obligations it imposes on companies, while drawing comparisons to Germany’s “Lieferkettensorgfaltspflichtengesetz” (LkSG) and examining its potential impact on various industries.
The Core Purpose of the European Supply Chain Act
The ESCA aims to hold European companies accountable for their social and environmental impacts, both direct and indirect. This extends not only to their own operations but also to their suppliers, products and services.
