EU SUPPLY CHAIN ASSESSMENT DIRECTIVE

Green transformation and sustainable development are increasingly focused on in developed countries, typically the European Union (EU), which also poses many challenges for exporters in accessing this market. Additionally, the Carbon Border Adjustment Mechanism (CBAM) starting to pilot from October 2023, the Anti-Deforestation Products Law (EUDR) taking effect from June 29, 2023, the Supply Chain Due Diligence Directive (CSDDD) is one of the regulations that entrepreneurs need to pay attention to in the coming time. The draft directive has now been approved by the EP Parliamentarians on June 1, 2023 and is expected to come into effect from 2026.

• Objective of CSDDD: To promote sustainable and responsible business operations in the global value chain. The draft directive requires preventing, ending or minimizing the negative impact of the operations of enterprises including their subsidiaries and their entire supply chains on labor and environmental issues.
• Target scope: (i) Target groups and applicable CSDDD include all companies headquartered in the EU with more than 250 employees and global turnover of over 40 million euros. (ii) A company that does not meet these thresholds but is the parent company of a group of companies that employ 500 people or more and has a worldwide turnover of more than 150 million euros, (iii) Foreign enterprises in addition to operating in the EU with the same criteria for number of employees and revenue as the EU businesses mentioned above.
• Due diligence obligation: To closely monitor the social and environmental impacts of its entire supply chain, the due diligence obligation in CSDDD includes all direct and indirect business partners along value chain, taking into account both its own operations, as well as the goods and services it provides. CSDDD also applies to operations and manufacturing facilities involved in the sale, distribution, transportation, storage and waste management of the company’s products or the provision of services.

The CSDDD is a directive, each EU member state has the right to adapt the rules in accordance with their own laws.

Although business appraisal in the supply chain is not a new issue, this process creates the challenges for Vietnamese businesses due to insufficient information and resource limitations. CSDDD applies regulations to the entire supply chain, so regardless of any violation by a supplier, EU businesses are jointly responsible.

Note: The article is excerpted from VIETNAM – EU TRADE NEWS, Quarterly 3/2023 issue of the MINISTRY OF INDUSTRY AND TRADE