Big companies start cleaning up their supply chains - Press Release

Tuesday, June 27, 2023

The European Parliament has adopted its opinion on the directive regulating supply chains. It will require companies to know their suppliers and verify that their business conduct complies with the European taxonomy and other rules. Although the text of the Directive is still subject to final negotiations between the Commission, Member States and Parliament and may therefore be subject to change, many businesses are already starting to comply.

"Although it may still take two or three years to integrate the Directive into Czech legislation, large companies are starting to act. It can take up to five years to build a functional supply chain, so they need to start earlier. In practice, this means asking suppliers for information on, for example, their carbon footprint and how they plan to reduce it - for example, by switching to green energy. It is necessary to take into account that if a supplier does not meet the requirements, the company will uncompromisingly remove him from its chain," says Kamil Blažek, chairman of the Association for Foreign Investment (AFI).

The directive, known as CS3D (corporate sustainability due-diligence directive), will go through a trialogue between the Commission, Parliament and the EU Council in the third quarter of this year and should be finalised by the end of this year. Once it enters into force, individual countries will have two years to translate it into national legislation.

Some European countries, such as Germany and France, already have similar national legislation in place. "Given the interconnectedness of our economy with the German economy, Czech companies are therefore starting to encounter supply chain requirements in their daily lives. This also applies to small or medium-sized companies - precisely because they are part of the supply chain of a German customer," explains Kamil Blažek.

The German Supply Chain Act requires companies to identify and prevent risks and impacts on human rights and the environment early on. This is both in their own business activities and in their supply chains. The law applies since January 2023 for companies with more than 3,000 employees. From next year, it will also be binding for companies with more than 1,000 employees.

"The good news is that if a company is "left out" of a supply chain, it opens up space for another to take its place. This is an opportunity for Czech companies that will be ready and will be "green". There will be more opportunities for them all over Europe, and they will be able to reflect this quality in the price of their products," says Kamil Blažek.

Enforcement of this new legislation remains controversial at European level. "It is being considered that the statutory bodies would be personally liable for compliance with the legislation. If this were to pass, it would make the regulation even more revolutionary and at the same time more risky for companies than it may seem today," Blažek points out.

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