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.
- The European Federation of Jewellery (EFJ) welcomes the European Commission’s proposal for a Directive on Corporate Sustainability Due Diligence.
- 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 23rd of February, the European Commission released a proposal for a Directive on
Corporate Sustainability Due Diligence (CSDD), which is aligned with the European Commission’s political priorities of ‘An economy that works for people’ and of the European Green Deal. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains, by establishing a corporate sustainability due diligence duty for companies to address negative human rights and environmental impacts.
The European Federation of Jewellery (EFJ) supports the idea of an EU-wide cross-sectorial legislative framework on due diligence provided that it takes into account the specificities of the sector.
In this respect, the EFJ would like to point out that the European jewellery sector actively prepared to comply with EU Regulation 2017/821 on Conflict Minerals 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 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. That is why the EFJ helped to develop EU tools to assist SMEs in the proper implementation
of the legislation.
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 2368/20023 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 noted with satisfaction that the Directive proposal on CSDD aims to align with the existing EU legislation such as the Conflict Minerals Regulation and the Kimberley Process Certification Scheme. This is critical in order to avoid any duplication of legal requirements which would lead to an increased administrative and financial burden on EU companies, legal uncertainty for EU companies or even create incentives to companies to relocate their activities outside of the EU. In other words, if coherence is not ensured between the new requirements and the ones already in place, it will be more difficult, or even virtually impossible for EU companies to comply with the new legislative framework.
The EFJ supports the European Commission’s approach to allow companies to rely on industry-driven certification schemes to support the implementation of their due diligence obligations. The Responsible Jewellery Council (RJC) is an industry-driven body and its Code of Practices (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 impacts and responsible mining practices. The RJC represents a valuable and successful example of due diligence for the jewellery sector and has already applied to have its certification schemes recognised as compliant with EU Regulation 2017/821. 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. Consequently, the European Commission should ensure and facilitate the use of both certification schemes while implementing the future legislation.
Regarding the scope of the proposed Directive, the Federation agrees with the European Commission’s proportional approach, which adapts the burden on companies stemming from compliance costs to the size and resources available. Although the new rules will only apply to approximatively 13,000 EU companies, they alone account for 50% of the total EU turnover, according to the European Commission. This means that the targeted companies are the ones with the most influence on the behaviour of other actors in the supply chains and have the largest impact on the Union economy.
However, while SMEs, including micro-enterprises, do not fall under the scope of the proposed Directive, they will be exposed to some of the costs and burden through business relationships with companies in scope, as a result of the effect of large companies’ actions across their value chains. Therefore, we urge the European Commission and Member States to effectively set up supporting measures to help SMEs build operational and financial capacity. This can include practical guidance and supporting tools such as dedicated websites, portals, hotlines, databases, platforms or trainings. It is also important that all EU Member States financially support SMEs, and not only a few, to avoid unfair competition in the internal market. Moreover, it is essential to avoid the passing on of the burden from those large companies to the smaller suppliers in the value chain. The Federation also supports the fact that companies whose business partner is an SME, are also encouraged to support them to comply with due diligence measures, in case such requirements would jeopardize the viability of the SME.
Furthermore, the EFJ fully agrees that third-country companies, which are not established in the EU but carry out activities on the European territory, are also covered by the Directive proposal. This is important to ensure a level playing field for EU companies at EU and international level in order to support European competitiveness. The EU trade policy plays also a crucial role in this area and the European Commission should promote the future EU legal framework in international fora, through bilateral and multilateral trade agreements and high-level political contacts.
Additionally, we are satisfied with the fact that the proposed framework on due diligence is based on an obligation of means rather than an obligation of results. Having a list, in an Annex of the Directive, of all the different legislations that companies have to consider in order to identify, bring to an end, prevent, mitigate and account for adverse human rights and environmental impacts is a step in the right direction, as it provides for further legal certainty. However, because the norms included in the Annex are targeted to governments, it is uncertain and unclear how these rules are applicable to companies, and they should be redrafted to make it so. In addition, the Federation believes that the European Commission should come forward as soon as possible with contractual clause examples that will help companies comply with the Directive.
Nevertheless, while effective enforcement of the due diligence duty is key to fostering sustainable and responsible corporate behaviour, the Federation regrets that the current proposal focuses, at first stage, on sanctioning companies in case of non-compliance with the Directive. On the contrary, we believe that positively triggering and motivating companies to implement due diligence practices into their business structure as a first step, will prevent European companies from de-risking and ceasing their activities in high(er)-risk countries for fear of prosecution. The Federation also considers that the scope of the legal obligations should not be extended to the whole value chain but limited to a supply chain approach focused on first-tier direct suppliers and on a risk-based model. Indeed, the companies in scope cannot have control over the whole value chain and in particular on the downstream part (e.g. clients).
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 keeping fully involved all stakeholders in the discussion and by taking into consideration the challenges and needs of the different sectors as well as their specificities.
The EFJ was founded in 2013 by recognised national associations from Belgium, France, Italy and Portugal, which together represent 89% of all jewellery items manufactured and distributed in Europe. The Federation aims notably at exchanging best practices, promoting the unique European know-how of the sector as well as developing a high level of education and research.