Policy Trends in Environmental Due Diligence
Strengthening the integration of environmental - inaddition to human rights - supply chain due diligence
into various voluntary and mandatory regulations andpolicy initiatives is on the rise. These efforts also point
to a growing global recognition of Responsible
Business Conduct (RBC) standards and OECD
guidance on supply chain due diligence inaddressing environmental threats, dependencies
and adverse impacts.
The OECD Guidelines for Multinational Enterprises(OECD Guidelines) and related OECD Due Diligence
Guidance for Responsible Business Conduct lay outthe expectation that business contribute to sustainable development, while avoiding andaddressing adverse impacts of their activities, including throughout their supply chains. TheOECD Guidelines and due diligence guidance complement and underpin key international
policy initiatives in driving business action on the environment.
This briefing note outlines key examples of recent policy initiatives promoting RBC andenvironmental due diligence considerations: 1a) EU Mandatory Due Diligence rules: The EU Commission has announced plans to introduce
mandatory rules requiring companies to carry out environmental and human rights due
diligence. 2 The proposal was first announced by the EU Justice Commissioner in April 2020
and is being closely linked to the European Green Deal. 3 The European Commission,Parliament and Council have all noted that future rules will be rooted in the OECD
Guidelines and recommendations of OECD due diligence guidance. The EuropeanParliament adopted a legislative report on mandatory due diligence in March 2021, which

1 Briefing note prepared by the OECD Centre for RBC, May 2021. This list is not intended to be exhaustive.

2 Towards a mandatory EU system of due diligence for supply chains. European Parliamentary Research Service.

2020. See: https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/659299/EPRS_BRI(2020)659299_EN.pdf

3 A number of the objectives under the European Green Deal and the OECD instruments and standards on RBC aremutually reinforcing. Both encompass strategies that hinge on private sector and policy action across a number ofpublic policy portfolios and areas of business risk and responsibility. In addition, RBC instruments are alreadyintegrated into a number of EU Directives, as well as legislation and initiatives of EU member states. https://eurlex.europa.eu/legal-content/EN/TXT/?qid=1588580774040&uri=CELEX:52019DC0640

Policy Trends in Environmental Due Diligence1

includes strong alignment with and references to the OECD MNE Guidelines and OECD RBC
Due Diligence Guidance. 4b) The EU Non-Financial Reporting Directive (NFRD), together with the Sustainable Finance
Disclosure Regulation (SFDR) and the Taxonomy Regulation, are the central components ofthe sustainability reporting requirements underpinning the EU’s sustainable finance strategy.
Each of these are outlined below.
I.

EU Sustainable Finance Disclosure Regulation (SFDR): In April 2019, the EuropeanParliament adopted an EU Regulation for Sustainability-related Disclosures in theFinancial Services Sector. 5 The regulation entered into force on 29 December 2019and became applicable as of March 2021. In calling on financial institutions todisclose sustainability risks and impacts, the Regulation represents a milestone inefforts to encourage financial institutions to take into account impacts to bothsociety and the environment. 6 Specifically, the regulation introduces transparency
rules for financial institutions on the integration of sustainability risks and impacts intheir processes and financial products, including reporting on adherence tointernationally recognised standards for due diligence. It also notes that whenreporting on due diligence, practitioners “should consider the due diligenceguidance for responsible business conduct developed by the OECD.”II.

The European Supervisory Authorities (ESAs) have also developed draft Regulatory
Technical Standards (RTS) with regard to the content, methodologies andpresentation of sustainability-related disclosures under the Sustainable Finance
Disclosure Regulation (SFDR). 7 The draft RTS relates to several environmental andsocial disclosure obligations under the SFDR including: 8--In addition to disclosing how the financial market participant has taken into
account indicators for adverse impacts, ‘do not significantly harm’ reporting, as
set out in Article 2 of the SFDR, must also show whether investments are alignedwith the OECD Guidelines.
Pre-contractual information on how a product with environmental
characteristics meets those characteristics; and information describing theenvironmental characteristics of financial products or the sustainable
investment, and the methodologies used.

4 European Parliament resolution of 10 March 2021 with recommendations to the Commission on corporate due

diligence and corporate accountability. See: https://www.europarl.europa.eu/doceo/document/TA-9-20210073_EN.html
5Regulation of the European Parliament and of the Council on sustainability-related disclosures in the financial
services sector, https://data.consilium.europa.eu/doc/document/ST-7571-2019-ADD-1/en/pdf)
6 See also Session Note on Enhancing Disclosure and Due diligence for Climate-related Risks:
http://www.oecd.org/cgfi/forum/Disclosure-and-Due-diligence-for-Climate-related-Risks-background-session-noteCGFI-Forum-2019.pdf
7 11(4) of Regulation (EU) 2019/2088 (Sustainable Finance Disclosure Regulation).
8 The examples cited are examples and do not serve as an exhaustive list of standards included. See Final Report ondraft Regulatory Technical Standards with regard to the content, methodologies and presentation of disclosures
pursuant to Article 2a(3), Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation (EU)2019/2088. Available here: https://www.eiopa.europa.eu/content/final-report-draft-regulatory-technicalstandards_en

Policy Trends in Environmental Due Diligence

2-A statement on an entity’s website describing its due diligence policy in respectof the adverse impact of investment decisions on sustainability factors in relation
to climate and other environment-related impacts.

III.

In December 2019, a political agreement was also reached on the EU Regulationon the Establishment of a Framework to Facilitate Sustainable Investment, also
known as the ‘Taxonomy regulation’. The Taxonomy regulation articulates
environmental objectives and standards that should be met when evaluating how
sustainable an economic activity is. Additionally, it notes that “economic activities
should only qualify as environmentally sustainable where they are carried out inalignment with the OECD Guidelines [...]” 9IV.

Revised EU Non-Financial Reporting Directive: The European Commissioncommitted itself to proposing a revision of the Non-Financial Reporting Directive in
the European Green Deal and its 2020 Work Programme. 10 Proposals published bythe European Commission in April 2021 seek to revise sustainability reporting
requirements set out in the NFRD, in order to make sustainability reporting
requirements more consistent with the broader sustainable finance legal
framework, including the SFDR and the Taxonomy Regulation, and to tie in with theobjectives of the European Green Deal. 11 The proposals aim to ensure that there isadequate publicly available information about the risks that sustainability issues
present for companies, and the impacts of companies themselves on people andthe environment.

The proposals set out that sustainability reporting standards should take account ofinternationally recognised principles and frameworks on responsible businessconduct including the OECD Guidelines, the OECD Due Diligence Guidance forResponsible Business Conduct and related sectoral guidance. The proposals
recommend that to ensure consistency with international instruments such as theOECD Due Diligence Guidance for Responsible Business Conduct, due diligence
disclosure requirements should be specified in greater detail than is currently thecase under Directive 2013/34/EU (“the Accounting Directive”).
c) EU initiative on deforestation: The European Commission has indicated that it will 'takemeasures, both regulatory and otherwise, to promote imported products and value chainsthat do not involve deforestation and forest degradation'. 12 A legislative-initiative report

See Article 13, Regulation of the European Parliament and of the Council on the establishment of aframework to facilitate sustainable investment https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX:32020R0852
10 See Communication from the Commission on the European Green Deal, COM (2019) 640 final. Adjusted
Commission Work Programme 2020 COM (2020) 440 final.
11 Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU, Directive
2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting.
See: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021PC0189
12 An EU Legal Framework To Halt And Reverse EU-Driven Global Deforestation. February 2021. See:
https://www.europarl.europa.eu/legislative-train/theme-environment-public-health-and-food-safety-envi/file-eudriven-global-deforestation. In its work programme for 2021, the European Commission stated that a legislative
proposal aimed at minimising the risk of deforestation and forest degradation associated with products placed on
the EU market is foreseen for the second quarter of 2021.
9Policy Trends in Environmental Due Diligence3adopted by the EU Committee on Environment, Public Health and Food Safety (ENVI) andthe European Parliament, calls on the Commission to propose an EU legal framework basedon mandatory requirements for due diligence, reporting, disclosure and third-party
involvement for companies placing forest and ecosystem-risk commodities and derived
products on the EU market. 13d) French “Duty of Vigilance Law”: France’s 2017 law on the duty of vigilance requires large
companies to develop and publish a due diligence plan. The plan must outline measuresthe company is taking related to both human rights and environmental risks and adverse
impacts. 14e) French Anti-Wastage & Circular Economy Law: Law no. 2020-105 on combating wastage
and on the circular economy ("Anti-Wastage & Circular Economy Law" 2020) aims totransform certain production and consumption habits. The law includes new obligations oncompanies to inform consumers about the environmental characteristics of products andrecyclability, and new measures on producer responsibilities, prohibitions on single-use
plastics and food waste, and tools to support companies in eco-design initiatives. 15f)

German Due Diligence Act: On March 3, 2021, a new draft "Act on Corporate Due
Diligence in Supply Chains" was adopted by the German cabinet and submitted to theGerman Federal Parliament. 16 The draft law introduces requirements for German
companies to conduct due diligence to address human rights issues in global supply chains
and requires preventive measures in business operations and in relation to direct suppliers.
These expectations extend to related environmental impacts where they intersect withhuman right issues, as well as implementing environment-related obligations under theStockholm Convention on Persistent Organic Pollutants 17 and the Minamata Convention
on Mercury. 18g) Dutch Bill on Responsible and Sustainable International Business Conduct: On 11 March
2021, four political parties submitted a bill on Responsible and Sustainable International
Business Conduct to the Dutch Parliament. The bill proposes a duty of care including to13 Binding legislation needed to stop EU-driven global deforestation, say MEPs. European Parliament. 2020. See:

https://www.europarl.europa.eu/news/en/press-room/20201001IPR88302/binding-legislation-needed-to-stop-eudriven-global-deforestation-say-meps
14 France, Duty of Vigilance Law. See: https://www.legifrance.gouv.fr/eli/loi/2017/3/27/2017-399/jo/texte. The French
Government also introduced the 2019 French PACTE Act no. 2019-486 (the Action Plan for Business Growth andTransformation): The PACTE Act includes the addition of provisions tthe French Civil Code that allow for theintegration of social and environmental objectives in corporate by-laws. The PACTE Act creates “mission businesses”(entreprises à mission) which are required to pursue social and environmental objectives. It also introduces newmeasures that support employee participation in corporate decision-making through labour representation andsocial dialogue; https://www.gouvernement.fr/en/pacte-the-action-plan-for-business-growth-and-transformation.
15 LOI n° 2020-105 du 10 Février 2020 relative à la lutte contre le gaspillage et à l'économie circulaire. See:
https://www.legifrance.gouv.fr/jorf/id/JORFTEXT000041553759?r=er7iciZI1M
16 German Federal Ministry of Labor and Social Affairs. Due Diligence Act 2021:
https://www.bmas.de/DE/Service/Gesetze-und-Gesetzesvorhaben/gesetz-unternehmerische-sorgfaltspflichtenlieferketten.html;jsessionid=878067A82BD1DBE8E31E9E46425B4EE1.delivery2-replication
17 The Stockholm Convention on Persistent Organic Pollutants (2001). See:
http://www.pops.int/TheConvention/Overview/tabid/3351/Default.aspx
18 The Minamata Convention on Mercury. 2013:https://www.mercuryconvention.org/Convention/Text/tabid/3426/language/en-US/Default.aspx

Policy Trends in Environmental Due Diligence4

prevent negative impacts on the environment – including climate change - in all economic
sectors and with all companies registered in the Netherlands or who sell products or serviceson the Dutch market, 19 and proposes an obligation to conduct due diligence inaccordance with the OECD Guidelines for all enterprises with more than 250 employees.
h) Japan guide for environmental due diligence: In August 2020, the Japan Ministry of theEnvironment published an ‘Introductory Guide on Environmental Due Diligence along theValue Chain – Referring to the OECD Due Diligence Guidance for Responsible BusinessConduct’, which seeks to align with the OECD Due Diligence Guidance for Responsible
Business Conduct. The Guide builds on the Ministry’s commitment to promoting
environmentally-conscious activities by Japanese businesses across value chains. 20i)

UK Proposal on due diligence on forest risk commodities (currently under consultation): The
UK government is introducing legislation through the Environment Bill to tackle illegal
deforestation in UK supply chains. 21 The proposed approach looks to prohibit larger
businesses from using “forest risk” commodities or commodities that cause wide-scale
deforestation. It would mandate supply chain due diligence and public reporting on risksof illegal deforestation in supply chains. The UK Government is fast-tracking legislation
through amendments to the Environment Bill 2019-21, which is expected to pass in mid2021. 22 The necessary secondary legislation is due to be adopted in early 2022 after theNovember COP26 Climate conference.

j)

Dutch National Plan on Socially Responsible Procurement: In January 2021, the Dutch
Government published the National Plan on Socially Responsible Procurement 2021-2025:“Commissioning with ambition, purchasing with impact”. The Plan aims to stimulate all
Dutch authorities to use their purchasing power to achieve an inclusive labour market andto tackle abuses for people and the environment in international supply chains.

k) Swiss Supply Chain Studies: The Swiss Federal Office for the Environment, working closelywith the private sector, has carried out a series of studies to identify environmental hotspots
in the supply chains of eight key Swiss industries. An Environmental Atlas of Swiss SupplyChains (Umweltatlas Lieferketten Schweiz) was published in 2019 setting out the study's
findings and proposing steps that could be taken to design and optimise more sustainablesupply chains. 23l)

German Raw Materials Strategy: Under the new Federal Government’s 2020 Raw Materials
Strategy, the German Federal Ministry for Environment, Nature Conservation and Nuclear

19 Responsible and Sustainable International Business Act 2021. House of Representatives of The
Netherlands.https://www.tweedekamer.nl/kamerstukken/wetsvoorstellen/detail?id=2021Z04465&dossier=35761
20 “Introductory Guide on Environmental Due Diligence along the Value Chain – Referring to the OECD Due
Diligence Guidance for Responsible Business Conduct. Japan Ministry of the Environment. 2020. See:
https://www.env.go.jp/press/108293.html; https://www.env.go.jp/press/files/jp/114470.pdf:
https://www.env.go.jp/press/files/jp/114470.pdf
21 Due diligence on forest risk commodities. UK Department for Environment, Food and Rural Affairs. 2020. See:
https://consult.defra.gov.uk/eu/due-diligence-on-forest-risk-commodities/
22 UK Environment Bill. 2021. See: https://bills.parliament.uk/bills/2593
23 Environmental hotspots in the supply chain of Swiss companies. Swiss Federal Office for the Environment. 2019.
https://www.bafu.admin.ch/bafu/en/home/topics/economy-consumption/info-specialists/resourceconsumption.html#-2099368005

Policy Trends in Environmental Due Diligence5Safety committed to initiate an international process to develop international guidance onenvironmental due diligence in mineral supply chains. 24 The German Environment Agency(UBA) and the Federal Institute for Geosciences and Natural Resources (BGR) aresupporting the Ministry of Environment in initiating this global process to develop an OECD
Practical Tool on Environmental Due Diligence in Mineral Supply Chains. 25
The OECD Centre for RBC continues to support policy-makers and businesses in strengthening
the integration of the OECD Guidelines and related OECD due diligence guidance in thecontext of environmental policy objectives as well as supporting business in implementation. In
particular, the Centre for Responsible Business Conduct is developing practical tools
demonstrating the application of the OECD Guidelines and OECD due diligence guidance toaddressing environment-related threats, dependencies, risks and adverse impacts throughcompanies’ supply chains. 26

Promoting responsible supply chains in Asia
This publication is supported by the Responsible Supply Chains in Asia (RSCA) programme 27 which is implemented by theInternational Labour Organization (ILO) and the Organisation for Economic Co-operation and Development (OECD) withfunding from the European Union. The RSCA programme aims to promote respect for human rights, including labour rights,and responsible business standards in global supply chains.
This programme is carried out in partnership with Japan (an OECD member) and five partner economies, namely China,Thailand, Viet Nam, Philippines, and Myanmar.

24 Rohstoffstrategie der Bundesregierung. Raw Materials Strategy. The German Federal Ministry for Environment,

Nature Conservation and Nuclear Safety. 2020.
https://www.bmwi.de/Redaktion/DE/Publikationen/Industrie/rohstoffstrategie-der-bundesregierung.html
25 German Resource Efficiency Programme (ProgRess). See https://www.bmu.de/en/topics/economy-productsresources-tourism/resource-efficiency/overview-of-german-resource-efficiency-programme-progress/
26 The OECD RBC Centre is developing a number of tools to support the implementation of OECD due diligence
recommendations in the context of environmental considerations with a focus on climate change. This includes a
dedicated tool for investors, in addition to the textile and garments sector, the minerals sector and a tool on
deforestation in the agriculture sector (forthcoming, 2021). The OECD is also developing new case studies onenvironmental due diligence which will provide examples of salient environmental risks and how they are being
mitigated through supply chain due diligence.
27
The Responsible Supply Chains in Asia programme. OECD. http://mneguidelines.oecd.org/globalpartnerships/responsible-supply-chainsasia

Policy Trends in Environmental Due Diligence6