Blog of Martijn Ridderbos: Supply chain responsibility and well-functioning markets
In January, the Netherlands Authority for Consumers and Markets (ACM) announced that it was preparing to take on a new task: enforcement of compliance with the European rules on international supply chain responsibility (CSDDD). The Dutch Ministry of Foreign Affairs is preparing to implement the CSDDD, for which ACM is the designated regulator. In March, the European Commission presented the Omnibus package. The proposal postpones the application of the CSDDD, restricts its scope, and limits obligations to direct suppliers. The Council largely supports these amendments, and has called for even further postponements and restrictions. The European Parliament is expected to adopt its position very soon, after which negotiations will begin.
The debate over the CSDDD is taking place against the backdrop of geopolitical tensions and concerns about competitiveness. According to the recent Draghi report, administrative burdens act as a brake on the European economy. The Omnibus package ties in with this argument. The European legislature now faces choices that will determine the EU’s sustainability course. While it is not for ACM to make those choices, we can assess how the rules and their enforcement will work in practice. ACM wishes to ensure that markets function well for all people and businesses, now and in the future. This is not a goal in itself, but a means for creating social value and broad welfare.
The CSDDD complements the existing regulatory framework on human rights and environmental violations. While national regulators and inspectorates primarily respond to direct violations (for example, growers who exploit workers), the CSDDD looks across the entire chain and emphasizes prevention. It also supplements co- and self-regulation: businesses, together with stakeholders, must identify and address supply-chain risks.
The limits of voluntariness
Over the past few years, efforts have been made to organize supply chain due diligence on a voluntary basis. Businesses established policies for socially responsible conduct. In the Netherlands, we have IRBC agreements (in Dutch: IMVO-convenanten), a type of co-regulation. However, the evaluation of these initiatives revealed that voluntary participation had limited impact. Participation was largely confined to pioneers and “eager learners,” creating a collective-action problem: businesses that invest in IRBC face higher costs, while competitors that do not participate serve the same markets. To address this, binding obligations are necessary to bring laggards on board. This is one of the reasons why the European legislature has opted to make supply-chain due diligence legally binding.
The enforcement role of ACM
Public enforcement is essential for promoting supply chain due diligence. Without monitoring and enforcement, standards risk remaining on paper, and the directive would fail to achieve its objective.
In fulfilling this enforcement role, we aim to be responsive and committed to dialogue, offering clarity through guidelines, prioritizing the greatest societal harm, rewarding good practices, and collaborating with other regulators. In this way, enforcement can help create predictability, legal certainty, and reduce disproportionate burdens. Businesses are not expected to do everything perfectly at once, but must take steps and build systems to prevent adverse impacts. At the same time, it remains essential to act against businesses that remain passive, so that front runners are not put at a mardisadvantage.
The playing field with an amended directive
Preventing unnecessary administrative burdens and aligning due-diligence regulations is an important responsibility of the legislature. At the same time, attention must remain on the effectiveness of the CSDDD. If obligations are watered down too much, the intended societal goals may not be achieved.
In the Council’s proposal, the scope of the directive is further restricted, reducing the number of in-scope companies. This may distort the level playing field and reduce the directive’s impact. If many companies fall outside the obligations, inequality arises between those that invest in due diligence and those that do not, even though they often have similar chains. In addition, broad transparency becomes more difficult since many market participants remain off the radar. A broad scope enhances the umbrella function of the directive: the more companies that comply, the greater the ripple effect and the effectiveness of enforcement.
Additionally, there is a proposal to limit due diligence to direct business partners, unless there are objective and verifiable indications of adverse effects beyond them. This entails a risk that the preventive role of supply-chain responsibility will be eroded, and the emphasis will shift to incidents. Businesses would then focus on tier one, while serious problems often arise deeper in the chain. The focus would thus move from preventing harm to responding after it occurs.
Towards a future-ready framework
A system of supply-chain due diligence can only be effective if it creates a level playing field. If standards are weakened too much, some businesses will make serious efforts while others remain passive. That harms the pioneers and undermines the functioning of the market. Moreover, a significantly watered-down CSDDD risks becoming a paper tiger: a checklist without real improvements in supply chains. The proposed restrictions to its scope and due-diligence obligations increase that risk. Therefore, ACM calls for a balance between administrative simplicity and effectiveness, so the directive achieves its goal of sustainable and fair markets.
Martijn Ridderbos
Member of the Board of ACM
