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Due diligence

Position paper on mandatory due diligence

The European Federation of Jewellery supports the idea of an EU-wide cross-sectorial legislative framework on due diligence provided that the future requirements are coherent with the ones already in place and that a level playing field is ensured for EU companies at European and international level.

Key points:

  • The European Federation of Jewellery (EFJ) welcomes the upcoming adoption by the European Commission of a legislative initiative on mandatory and cross-sectorial due diligence and urges the Commission to take into account the specificities of the sector.
  • The European jewellery and diamond sector, which is fragmented and consists mainly of SMEs, has been very proactive in ensuring responsible and sustainable mineral sourcing through the implementation of the EU Conflict Minerals Regulation and the Kimberley Process, as well as the setting up of industry-driven certification schemes.
  • Consequently, the Federation advocates for the adoption of an EU legislation that would:
    • rely on and be consistent with the existing requirements in place for the sector.
    • ensure legal certainty for companies with clear definitions of the risks and duties. 
    • set up an appropriate support mechanism to help companies and in particular SMEs comply with the rules.
    • support European companies’ competitiveness at EU and international level.
  • The Federation is committed to remaining fully involved and active in the ongoing decision-making process.

On the 29th of April, Didier Reynders, European Commissioner for Justice, announced to the European Parliament Responsible Business Conduct Working Group that the European Commission plans to propose a legislative initiative on mandatory due diligence in 2021. Commissioner Reynders further specified that the legislation will be cross-sectorial and will include enforcement mechanisms to ensure compliance and access to justice for the victims. The European Commission launched a public consultation to gather further inputs ahead of the release of its Directive proposal in the second quarter of 2021.

The European Federation of Jewellery (EFJ) supports the idea of an EU-wide cross-sectorial legislative framework on due diligence and is ready to take a proactive role in the decision-making process.

In this respect, the EFJ would like to point out that the European jewellery sector actively prepared to comply with EU Regulation 2017/821 laying down supply chain due diligence obligations for Union importers of minerals originating from conflict-affected and high-risk areas, that entered into force on the 1st of January 2021. The EFJ cooperated with the EU decision-makers all along the legislative process to make sure that the Regulation took into consideration the specificities of the European jewellery sector, a sector mainly composed of Small and Medium-Sized Enterprises (SMEs), with limited human and financial resources.

The EFJ had welcomed the adoption of the Regulation and had noted with satisfaction its alignment with the Organisation for Economic Co-operation and Development (OECD) framework as well as the provisions making it possible for industry / private sector schemes to be recognised as compliant with the European rules. The Federation was also an active contributor in the process that led to the creation of a set of tools aimed at supporting SMEs to comply with the regulation. The EFJ indeed thinks that all the actors in the jewellery sector should comply with the EU Regulation 2017/821 as a medium-term objective.

Furthermore, the EFJ would like to recall that the European diamond sector, which is an essential component of the jewellery sector, is committed to improving transparency and accountability in the global diamond value chain through the Kimberley Process (KP), an international certification scheme established in 2003 to prevent conflict diamonds from entering the mainstream rough diamond trade. Council Regulation 2368/2002[5] sets up a Union system of certification, as well as import and export controls for rough diamonds for the purposes of implementing the Kimberley Process Certification Scheme.  

In light of the considerations above, the EFJ would like to invite the European Commission to build the new due diligence framework on the basis of existing schemes such as the so-called Conflict Minerals Regulation and the Kimberley Process Certification Scheme in order to avoid any duplication of legal requirements which would lead to an increased administrative and financial burden on EU companies or even create incentives to companies to relocate their activities outside of the EU. The EFJ notes that it will be more difficult, or even virtually impossible, for EU companies to comply with the new legislative framework if coherence is not ensured between the new requirements and the ones already in place.

The EFJ welcomes the decision of the European Commission to carry out a thorough impact assessment as well as an analysis of the existing schemes to clearly identify potential compliance issues.

The EFJ would like to invite the Commission to also take into consideration existing third-party’s schemes such as the Responsible Jewellery Council’s (RJC) Code of Practices (CoP). The RJC is an industry-driven body and its CoP integrates the OECD guidelines into a special framework for jewellery companies to handle and trade gold, silver, platinum-group metals as well as diamonds in a way that is fully traceable and responsibly sourced. The CoP addresses human and labour rights, environmental impact and responsible mining practices. The RJC has already applied to have its certification schemes recognised as compliant with EU Regulation 2017/821 and thus represents a valuable example of due diligence for the jewellery sector. Moreover, the World Diamond Council’s (WDC) renewed System of Warranties (SoW) provides assurances relative to due diligence and the protection of human rights and labour rights, as well as to anti-money laundering and anti-corruption practices along the diamond supply chain.

Furthermore, the EFJ urges the Commission to ensure a level playing field for EU companies at EU and international level in order to support European competitiveness. To this end, third-country companies which are not established in the EU but carry out activities in the EU should also be covered by the future Directive. The EU trade policy plays also a crucial role in this area and the Commission should promote the future EU legal framework in international fora, through bilateral and multilateral trade agreements and political high-level contacts.

Commissioner Reynders stressed that the new EU rules would be mandatory and that enforcement mechanisms will also be put in place. In this respect, the EFJ would like to underline that emphasis should be put on rewarding companies as opposed to sanctioning them at first stage. This will positively trigger and motivate companies to implement due diligence practices into their business structure. In addition, any framework on due diligence should be based on an obligation of means rather than an obligation of results. Furthermore, the future Directive should incorporate a supporting mechanism to promote compliance and tools to support EU companies during the implementation phase. EU member states should also be encouraged to develop additional national support measures to help companies fulfilling their due diligence requirements.

To take into account the specificities of the European jewellery and diamond sector, the new legislative framework should apply to all companies with proportionate requirements for SMEs and with the exemption of micro-enterprises (less than 10 employees). In this respect, it is crucial that an agile framework is envisaged for SMEs so that they can incorporate due diligence into their business model without increasing the administrative and financial burden.

The EFJ would like to emphasise that the European jewellery and diamond sector has been very proactive in ensuring responsible and sustainable mineral sourcing through the implementation of EU legislation (EU Conflict Minerals Regulation & EU Council Regulation implementing the Kimberley Process Certification Scheme) and industry-driven certification schemes (such as the RJC Code of Practices and the WDC’s renewed System of Warranties). Since the European jewellery and diamond sector is highly regulated through national and European legislation, as well as industry initiatives, it therefore cannot be considered as a high-risk sector.   

With regard to the value chain, the EFJ believes that due diligence should encompass only the direct suppliers in the company’s value chain, and if possible, all parts of the value chain that companies can reasonably control. Indeed, not all companies within the European jewellery and diamond sector, mainly composed of SMEs with limited human and financial resources, can have control over the whole supply chain. Risks related to human rights, environment, climate change and governance should be covered, but they must be very precise and clearly defined to ensure legal certainty for companies. For example, there could be an exhaustive list of all the different legislations, such as treaties and conventions, that companies have to consider in an Annex of the Directive.    

Finally, the cross-sectorial EU legal framework on mandatory due diligence should include a transition period of at least 3 years before entering into full force to allow national governments and companies to adapt to the new regulation.

The EFJ believes that an EU-wide cross-sectorial legal framework on due diligence has the potential to significantly influence the way EU businesses will conduct their operations in the future and will define an ambitious threshold for countries and companies globally. However, it is essential that the new rules are pragmatic and implementable, and this can be achieved only by fully involving all stakeholders in the discussion and by taking into consideration the challenges and needs of the different sectors as well as their specificities.


Download:

EFJ position paper – Mandatory due diligence – March 2021

EFJ Infographic – Towards mandatory due diligence considering the jewellery and diamond sector specificities

Due diligence

Position paper on sustainable sourcing of minerals

The EFJ calls for the concerted and coherent implementation of the European regulation establishing a due diligence system for minerals supply. The Federation reiterates the need to build a support system for SMEs to help them adapt to the new EU framework.

Key points:

  • The European Federation of Jewellery welcomes the adoption of the European regulation on a due diligence system for responsible sourcing of minerals as well as the Delegated Act setting the methodology and criteria for the assessment and recognition of voluntary due diligence schemes.
  • The alignment of the European legislation with the OECD framework is of paramount importance for a simple and workable implementation as of the 1st of January 2021.
  • SMEs, which are the backbone of the jewellery sector, should be proactive and show their willingness to adapt to the new framework. However, an appropriate support mechanism needs to be put in place to help them comply with the rules.
  • The Federation is committed to remaining fully involved in the ongoing process designed to create the tools to support SMEs in the implementation.

The European Federation of Jewellery (EFJ) has always advocated ethical and responsible business conduct in the supply chain of the jewellery sector. The EFJ therefore considers the adoption of the European regulation on a due diligence system for a responsible sourcing of minerals as a step forward and advocates broad implementation by all actors provided they are duly supported.

The jewellery sector is fragmented, and consists mainly of Small and Medium Sized Enterprises (SMEs). It is therefore important to draw inspiration from existing private and public certification schemes and to adopt a streamlined approach for appropriate enforcement of the regulation on all levels and branches.

In this regard, the fact that the European Union (EU) opens up the possibility for private systems to be recognised as compliant with the European regulation is key. This is notably the case of the Responsible Jewellery Council’s (RJC) Code of Practices and Chain of Custody Standard, which integrate the OECD guidelines into a special framework for companies to handle and trade gold and platinum-group metals in a way that is fully traceable and responsibly sourced. It should be stressed that the RJC has recently reinforced its activities by launching its renewed Code of Practices, where the OECD’s five-step framework on due diligence has been aligned with the diamond supply chain. Other systems, such as the London Bullion Market’s (LBMA) responsible Gold Guidance, also implement the OECD gold delivery due diligence guidance to the “Good delivery refiners.”

These existing due diligence schemes are largely inspired by the OECD framework, and the EFJ considers as positive the fact that the European regulation and the Delegated Act 2019/429 align with the OECD system. The Federation is particularly satisfied with the uniform approach adopted regarding the criteria and methodology to assess voluntary supply chain due diligence schemes which pursue the same objectives as the European regulation. The equivalence criteria put in place by the EU will allow companies which comply with another due diligence model to obtain a certificate of equivalence. The EFJ also welcomes the future collaboration between the European Commission and the OECD services regarding reports that will seek to assess whether the private scheme fulfils the conditions for public recognition. The alignment between the EU and the OECD system will strengthen the coherence and will ease the steps of the private operators. However, the EFJ will remain vigilant that the implementation of the EU regulation is smooth, understandable, practicable and will not lead to administrative burden for companies. Furthermore, it is essential to protect an equal level playing field.

Moreover, the EFJ hereby reaffirms its commitment to continue to be fully involved in the ongoing process regarding the creation of tools to help SMEs reach the objectives set in the regulation. As the jewellery sector is mainly comprised of SMEs, the current 100kg threshold set by the EU legislation on gold imports, above which the mineral must be traced, means that most companies fall outside of the scope of the current regulation. However, the EFJ thinks that all the actors in the jewellery sector should be proactive and should have compliance with the rules as a medium-term objective. To accompany the sector in this venture, it is essential to put in place solid support measures. The EFJ is therefore happy to be a member of the Advisory Board set up by the European Commission to provide input to the project aiming at creating an online tool to help SMEs implement the due diligence system. This tool will be launched in November 2019.

The EFJ is also convinced that the EU should rely on the numerous actors of the sector, and especially the professional associations in each country. They can play a key role in disseminating the information and answering questions. In turn, it would also allow the European Commission to have active and productive feedback from the jewellery sector, which will eventually lead to adequate and carefully-studied measures being taken. A proactive and collaborative approach between governments and industry has already proven to be very constructive, efficient and successful in the process of the renewal of the RJC Code of Practices and its subsequent implementation, and could serve as a blueprint for future similar undertakings in this respect.

Finally, the EFJ would like to urge the European Commission to refrain from extending the scope of the European regulation on due diligence systems for minerals supply to diamonds as the international trade in rough diamonds is already certified by the Kimberley Process Certification Scheme (KPCS). Although the EFJ recognises that more can be done to make the Kimberley Process stronger and more efficient, we believe that the system has also many strengths that cannot be underestimated. In addition to this regulatory framework, the worldwide diamond industry is proactive in ensuring responsible mineral sourcing through the implementation of several voluntary tools:

  • The RJC’s renewed Code of Practices where the OECD due diligence framework has been aligned with the diamond supply chain;
  • The reinforced System of Warranties (SoW) of the World Diamond Council (WDC), a tool that supports the actors of the diamond industry in complying with the Kimberley Process Certification Scheme[7] and requiring adhering parties to conduct a self-assessment to ascertain whether they meet universally-accepted principles on human and labour rights, anti-money laundering and anti-corruption.

Moreover, the EFJ would like to underline that the diamond trade is highly competitive and internationally organised. Hence, a unilateral application of the European regulation will put the EU diamond industry at a competitive disadvantage vis-à-vis its competitors, which are all located in third countries outside the EU. Furthermore, it should be considered that the diamond supply chain fundamentally differs from other mineral supply chains due to the non-uniform nature of the product. As Europe’s strongest presence in the supply chain is to be found in the midstream, which characterises the uniqueness of the diamond supply chain, a unilateral application of EU Regulation 2017/821 on the diamond supply chain would be detrimental to Europe’s economic interests, but also to the sustainability standards the EU would aim to pursue in case industry players would decide to shift operations away from the EU. Since the EU, both at governmental level and industry level, has always been the forerunner of diamond transparency and sustainability initiatives, the extension of the scope of EU Regulation 2017/821 to diamonds would likely have the opposite effect of the desired policy objective with regard to the global diamond value chain.

Download: EFJ position paper – Sustainable sourcing of minerals