Indian businesses must be prepared to advance EU stability

The European Union is going a step further by introducing its Corporate Sustainability Due Diligence Directive. Once passed by the European Union Council and Parliament (most likely by early 2023) and codified as national laws by EU member states, large European firms will have to deal with human rights and environmental violations across their global value chains. will be held liable. It is important that Indian companies evaluate the impact of these measures on their own operations and the future of their business.

The European Union is India’s second largest export destination. This means that Indian companies will have to adapt their operations to meet the legal requirements under the new EU laws on corporate sustainability. EU majors will face financial, reputational and legal costs if their Indian value-chain partners falter on human rights or environment-based compliances. In short, our suppliers, contractors, buyers and exporters of large EU companies risk losing confidence and business if they do not develop EU sustainability standards.

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For example, if child or forced labor is found within the operations of an Indian company exporting garments to a company covered under this proposed directive, the EU company would be liable to pay a fine, and be subject to legal action by the victims. will also be open. such violations.

How EU companies are affected: EU companies that are covered under the current form of the proposed Directive (that is, limited-liability companies with more than 250 employees and operating companies with more than €150 million in net global turnover or €40 million in the case of “high-impact areas”) going above and beyond to protect themselves. They are putting in place robust mechanisms to mitigate any potential risks. This means clear contractual clauses, establishment of grievance procedures, increased third party assessments, and capacity building, among others. Other moves include non-EU companies that are active in the EU and meet the above criteria.

How Indian trade will be affected: The EU will undoubtedly play a central role in India’s vision of achieving $1 trillion in exports by 2027-28. In 2021-22, India’s bilateral trade with the EU stood at €88 billion with an annual growth of 43.5%. The EU mainly buys textiles (17.8%), chemicals (15%), machinery and electrical equipment (13%) and agricultural products (7.9%). Importantly, around 6,000 European companies are present in India, providing over 1.7 million direct jobs and 5 million indirect jobs.

Along with the UK, India has also resumed its free trade talks with the European Union after almost a decade. While India’s current geopolitical advantage provides opportunities, it needs to strengthen its stability efforts to stand on an equal footing with the European Union and other developed countries with which it has free trade negotiations, such as Canada and Switzerland. Used to be.

Child labor and trafficking in India: According to the 2011 census, there were over 11 million child laborers in India. These numbers spiked due to COVID and its impact on economic security and education. A large number of these children fall somewhere in the corporate supply chains.

While gaps remain in prosecution for violations and rehabilitation of victims, the good news is that Indian laws and institutional capacity regarding child labor have improved significantly over the past decade. The Indian Parliament is also set to pass a comprehensive anti-trafficking law. This gives India a unique position in the Asian ecosystem to capture a huge opportunity in the EU market and expand its competitive edge globally.

How Indian companies can prepare: The time is right for government and corporations to transparently and objectively evaluate and improve our sustainability systems.

First, companies should establish clear and transparent contractual clauses with all levels of suppliers, contractors and subcontractors for risk assessment and mitigation, disclosure and remediation for human rights violations. Second, internal audit and training exercises should reach down to the lower levels of the supply chain, where the maximum risk lies. Third, companies can introduce greater technology and automation to help reduce levels, informality and fragmentation in supply chains. And finally, partnerships with third-party experts and government can help integrate existing best practices into their operations. These measures will also be welcomed among investors committed to environmental, social and governance (ESG) principles.

With buy-in from EU governments and large corporations based in Europe (for example, H&M Group, Unilever, Adidas and Nestlé among many others), there is a push within the European Parliament and Council to adopt the proposal. There is urgency. On 14 September, the EU Commission also presented a proposal to ban all products made with forced labor on the EU market.

With stronger international laws and greater priority for human rights and environmental impacts in their foreign trade relations, Indian companies must gear up and prepare for a rapidly growing global market towards greater stability.

Niharika Chopra is the founder of FairCorp and former director of the office of Nobel laureate Kailash Satyarthi.

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