Upcoming EU rules require cosmetic corporations to reveal impact on human rights and environment

10 Oct 2023 --- The Netherlands Centre for the Promotion of Imports from Developing Countries (CBI) has stated that new EU rules are raising the bar on sustainable cosmetic ingredients. It spotlights an upcoming legal framework for Corporate Sustainability Due Diligence, which affects the cosmetics sector and other industries.

The legislation will require corporations to report on human rights and environmental impacts across upstream and downstream activities.

“The EU cosmetic industry is leading in showing sustainability in its supply chains,” highlights CBI. “Companies in the industry use voluntary standards for their commitment to sustainability.”

However, the EU Commission (EC) has found that voluntary efforts are not sufficient to ensure widespread steps toward sustainability.

Legal framework underway
CBI draws attention to the Corporate Sustainability Due Diligence, which the EC proposed in February last year. EC has found that voluntary efforts are not sufficient to ensure widespread steps toward sustainability.

“This directive aims to foster sustainable and responsible corporate behavior and to anchor human rights and environmental considerations in companies’ operations and corporate governance,” outlines the EC.

“The new rules will ensure that businesses address adverse impacts of their actions, including in their value chains inside and outside Europe.”

In June this year, the EU Parliament published its position on the proposal. The EU is currently developing a legal framework for the Corporate Sustainability Due Diligence.

Who will be affected?
The new rules will apply to large EU limited liability companies to approximately 9,400 companies with at least 500 employees and a minimum net of €150 million (US$159 million) turnover worldwide.

Additionally, the rules will apply to around 3,400 companies in “high-impact sectors” two years later. These companies have about 250 employees and a net of more than €40 million (US$42 million) turnover worldwide. Examples of high impact sectors include textiles, agriculture and extraction of minerals, shares the EC

On the other hand, micro companies and SMEs are not concerned with rules, however, the proposal provides measures for SMEs that can indirectly affect them, flags the governing body.

Once the proposal is adopted, member states will have two years to bring it into national law and coordinate with the EC.

Stricter selection of import partners of natural ingredients
The directive can influence importers as they would be part of a value chain for an EU company, according to CBI. “To be able to supply EU companies, you will be assessed for your sustainability performance.”The directive can influence importers as part of a value chain for an EU company.

“The new sustainability rules are binding. So, using self-assessment questionnaires is useful but is unlikely to be enough. Third-party certified voluntary standards are expected to continue to play an important role,” adds CBI.

EU companies will ask suppliers to be transparent about sustainability and will be careful about selecting partners for natural sourcing.

The proposal will ensure better protection of human (labor) rights and the environment while creating a harmonized legal framework in the EU and gaining consumer trust. The directive will also avoid misleading climate neutrality claims and prevent greenwashing.

Enforcing a coordinated approach
To ensure compliance and consistency with the new rules, member states will choose an authority to see through “proportionate and dissuasive sanctions, including fines and compliance orders.”

The EC will establish a European Network of Supervisory Authorities where the authorities from notional bodies can be brought together.

Additionally, member states will be responsible for compensation to “victims” for damages caused due to failure to meet the obligations of the proposal.

“A broad range of stakeholder groups, including civil society representatives, EU citizens, businesses as well as business associations, have been calling for mandatory due diligence rules,” notes the EC.

It also finds that 70% of the businesses who responded to the public consultation had a central message: “EU action on corporate sustainability due diligence is needed.”The EC finds that “EU action on corporate sustainability due diligence is needed.”

Activities under the Green Deal agenda
In related regulatory developments, the EU Parliament adopted new rules to classify, label and package chemical substances and mixtures to bring “clearer” ways to improve hazardous information to consumers.

Further, the EC adopted measures restricting microplastics intentionally added to products under the EU chemical legislation Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Regulation.

Last month, the EU Parliament’s Committee on the Environment, Public Health and Food Safety members voted to update the 30-year-old directive, which outlines requirements for cosmetics and pharmaceutical producers to finance removal of micropollution in wastewater.

By Venya Patel

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