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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 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.

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