Comprehensive supply chain due diligence legislation
Alongside the global trend of promoting green transition and sustainable business, supply chain due diligence has emerged as a new legal framework in several countries, particularly in developed nations with high concern for environmental and human rights issues.
Below is a brief summary of key national regulations on supply chain due diligence, particularly in European markets, which are important destinations for many Vietnamese products.
1. France Corporate Duty of Vigilance Law
In 2017, France adopted the Corporate Duty of Vigilance Law, becoming the first country to codify corporate supply chain due diligence in a standalone legal instrument. The law establishes a comprehensive due diligence standard covering core aspects (including human rights and environmental issues) and fully reflects the characteristics of this legal regime.
Scope of application: The law applies to any enterprise established in France that meets one of the following criteria in two consecutive financial years:
- Employs at least 5,000 employees in France (including employees at headquarters and subsidiaries headquartered in France); or
- Employs at least 10,000 employees worldwide (including employees at headquarters and subsidiaries headquartered in France or abroad).
Content: The law obliges covered enterprises to identify and prevent adverse impacts on human rights and the environment in the operations of the enterprise itself, directly or indirectly controlled subsidiaries, and contractors and suppliers with business relationships with the enterprise.
To implement this, each covered enterprise must establish and implement a Supply Chain Due Diligence Plan (Vigilance Plan) including at least:
- A map outlining the mechanisms for identifying, analyzing, and ranking risks;
- Regular assessment procedures for subsidiaries, contractors, and suppliers with stable relationships, based on the risk map;
- Appropriate actions to mitigate risks and prevent serious violations;
- Alert mechanisms enabling reporting on potential or actual risks, established with the participation of employee unions;
- Monitoring systems to track implemented measures and evaluate their effectiveness.
The Due Diligence Plan and its Implementation Report must be publicly disclosed and included in the enterprise’s annual report.
Stakeholders (including organizations, individuals, and communities affected/adversely affected in terms of human rights and the environment) may:
- Request authorities to require the enterprise to establish, publish, and implement a due diligence plan or explain why it has not done so;
- File civil lawsuits seeking compensation if violations cause harm.
If an enterprise violates the due diligence obligation and causes harm, it may be held legally liable and required to pay damages. However, if it has implemented the plan appropriately and in full compliance with the law, it will not be held liable even if damage occurs.
2. Germany Supply Chain Due Diligence Act
In June 2021, the German Parliament passed the Supply Chain Due Diligence Act (LkSG, or SCDDA in English). This is the most recent domestic legislation in Europe regarding corporate supply chain due diligence.
As Germany is a leading export market for Vietnamese goods in Europe, the provisions of this Act are expected to have, or are already having, significant impact on a considerable number of Vietnamese enterprises involved in production and export of goods and services to Germany or providing supporting services related to these activities.
Source: Compiled by the TTWTO-VCCI Research Group