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January 27, 2022
In February and March 2021, we revealed updates on world legislative developments in relation to obligatory human rights due diligence and provide chain reporting (see here and here).
At the moment, it was anticipated that the European Fee (“EC”) would publish draft laws on the pan-European degree within the type of a Sustainable Company Governance proposal (“SCG”) in Summer season 2021. The anticipated draft directive was hailed as a possible game-changer: directing how corporations ought to handle issues in their very own operations and worth chains as regards human rights, local weather change and the setting, and associated governance.
By comparability, fewer materials developments have arisen in the US, with probably the most notable change to the regulation on this subject lately being the California Transparency in Provide Chains Act 2010. However the panorama could also be altering, each with the not too long ago handed federal Uyghur Pressured Labor Prevention Act and a brand new proposed regulation pending in New York State (the draft “Trend Sustainability and Social Accountability Act”) that will impose important reporting necessities on the style trade.
Pan-European Developments – EC draft laws considerably delayed
Because it stands, the EC draft directive has not but been handed down and updates on its standing haven’t been forthcoming from the EC. Nonetheless, it’s reported that the delay is a results of a (second) rejection by the EC’s inner Regulatory Scrutiny Board (an unbiased physique charged with high quality management and affect evaluation of laws). The newest indications by the EC are that the draft directive is now anticipated in February 2022.
Unsurprisingly, this delay has been met with widespread condemnation and concern from civil society. For instance, on 8 December 2021, in an open letter signed by 47 civil society and commerce union organizations to EC President Ursula von der Leyen (see here), complaints have been made about delays to a “essential new regulation that may assist tens of millions of individuals to demand justice in opposition to human rights violations…” and expressing “dee[p] concer[n]” concerning the “full lack of transparency on the explanations for this new delay”. The letter referred to as on the President to “publicly reiterate [the] dedication … to creating provide chains of corporations energetic on the EU market sustainable by way of formidable, binding human rights and environmental due diligence laws”.
US Developments – Groundbreaking draft laws proposed
In the meantime, within the US, human rights due diligence laws has superior with two significant developments.
On the federal degree, on 23 December 2021, President Biden signed the Uyghur Pressured Labor Prevention Act (the “UFLPA”) into regulation. The UFLPA creates a rebuttable presumption that every one items manufactured – even partially – in China’s Xinjiang Uyghur Autonomous Area are the product of compelled labor and due to this fact not entitled to entry at US ports. The UFLPA additionally builds on prior laws, such because the Uyghur Human Rights Coverage Act of 2020, by increasing that Act’s authorization of sanctions to cowl overseas people answerable for human rights abuses associated to compelled labor within the Xinjiang area. We discover the UFLPA intimately in our consumer alert, here.
On the state degree, earlier this month, two New York State Senators launched historic laws to set broad sustainability mandates for the style trade – an trade which is (based on some estimates) answerable for roughly 4-8.6% of world greenhouse gasoline emissions. The Trend Sustainability and Social Accountability Act (the “FSSAA”), sponsored by Senator Alessandra Biaggi and meeting member Dr. Anna Kelles, is a proposal that, if enacted, would require vogue retailers and producers doing enterprise in New York State with annual world gross revenues that exceed $100 million to publish in depth disclosures on their web sites about their “environmental and social due diligence insurance policies, processes and outcomes, together with important actual or potential adversarial environmental and social impacts” (see here). The FSSAA would due to this fact place obligations on many family vogue names and types primarily based around the globe.
The disclosures beneath the draft FSSAA embody, amongst different issues: (i) provide chain mapping of at the least 50% of suppliers by quantity throughout all tiers of manufacturing; (ii) a “sustainability report” figuring out every enterprise’s dangers, as knowledgeable by United Nations and Worldwide Labor Group ideas; (iii) independently verified greenhouse gasoline reporting; and (iv) quantitative measures, similar to publishing the median wages of employees of suppliers in contrast with the native minimal wage. The FSSAA requires that every one disclosures be made on the retail or producer’s web site inside a 12 months of the laws’s enactment into regulation.
By way of enforcement, the FSSAA, if handed, would require New York’s Lawyer Normal (“AG”) to publish an annual report relating to corporations’ compliance with the regulation. And, if enacted, failure to fulfill the laws’s necessities would end result within the AG having the facility to wonderful sellers and producers as much as 2% of annual revenues of $450 million or extra. Such cash will then be deposited right into a group profit fund, which will probably be used for environmental tasks that immediately and verifiably profit environmental justice communities.
Whereas laws can take years, advocates are hoping that the invoice is handed by Spring 2022 and positively no later than the tip of the 2022 New York State legislative session in June. The laws has 4 cosponsors and is at present pending earlier than the New York Home Shopper Affairs and Safety and Senate Shopper Safety Committees and, if it advances out of committee, will probably be voted on by the total legislative physique.
Conclusion
These initiatives within the US are an extra indication of the overall route of evolving due diligence expectations. If enacted, the FSSAA wouldn’t solely make waves within the vogue world, however might additionally foreshadow laws requiring ESG disclosures for different industries within the US.
With this in thoughts, along with the anticipated EC laws and particular person nation developments, corporations ought to proceed to replicate on their information of their very own provide chains, human rights and environmental dangers inside their enterprise, and inner due diligence processes/compliance methodologies. The expectations of corporations by way of their substantive administration of environmental and human rights dangers, in addition to their reporting obligations, appears set solely to extend.
This alert has been ready by Susy Bullock, Stephanie Collins, and Ryan Butcher* in London; and Roscoe Jones, Jr., Howard S. Hogan, Perlette Michèle Jura, and Jessica C. Benvenisty in the US.
Gibson Dunn’s attorneys can be found to help in addressing any questions you could have relating to these developments. Please contact the Gibson Dunn lawyer with whom you often work, any member of the agency’s Environmental, Social and Governance (ESG) apply, or the next authors in London and the US:
Susy Bullock – London (+44 (0) 20 7071 4283, sbullock@gibsondunn.com)
Stephanie Collins – London (+44 (0) 20 7071 4216, SCollins@gibsondunn.com)
Roscoe Jones, Jr. – Washington, D.C. (+1 202-887-3530, rjones@gibsondunn.com)
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com)
Perlette M. Jura – Los Angeles (+1 213-229-7121, pjura@gibsondunn.com)
Jessica C. Benvenisty – New York (+1 212-351-2415, jbenvenisty@gibsondunn.com)
Please additionally be happy to contact the next ESG apply leaders:
Susy Bullock – London (+44 (0) 20 7071 4283, sbullock@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)
Perlette M. Jura – Los Angeles (+1 213-229-7121, pjura@gibsondunn.com)
Ronald Kirk – Dallas (+1 214-698-3295, rkirk@gibsondunn.com)
Michael K. Murphy – Washington, D.C. (+1 202-955-8238, mmurphy@gibsondunn.com)
Selina S. Sagayam – London (+44 (0) 20 7071 4263, ssagayam@gibsondunn.com)
* Ryan Butcher is a trainee solicitor working within the agency’s London workplace who shouldn’t be but admitted to apply regulation.
© 2022 Gibson, Dunn & Crutcher LLP
Lawyer Promoting: The enclosed supplies have been ready for normal informational functions solely and usually are not meant as authorized recommendation.
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