Bringing in the new year also means bringing in new supply chain laws with start dates as early as January for the SCIP database and EU Conflict Minerals. And with a newly declared president-elect, we can expect some initiatives will gain momentum, especially in terms of ESG.
According to a recently released watchlist by Ropes and Grey, there are quite a few legislative developments coming for public companies in 2021. Let’s take a look at which supply chain compliance requirements are developing and where we could anticipate movement and activity in the new year.
After two years in development as part of the Revised Waste Framework Directive and numerous updates throughout the year, ECHA (the European Chemical Agency) launched the SCIP Database in October 2020.
No longer a training version to help train companies on data uploading and the submission system, the program is now fully operational. Companies are expected to submit the list of Substances of Very High Concern (SVHCs) present in articles imported or placed on the European market starting January 5th, 2021.
This European regulation is directly inspired by the US Dodd-Frank Act but expands its reach beyond the DRC and adjoining countries. Companies in scope are those importing metals or minerals (specifically the 3TG – tin, tungsten, tantalum and gold) from regions or countries:
Verifying smelters and refiners and to ensure due diligence will be especially important. Companies need to have a due diligence program in place throughout their supply chain starting January 1, 2021, along with risk assessment processes and third-party audit procedures.
As of May 26, 2021, the new European regulation on medical devices becomes legally binding. From then on, all companies manufacturing devices destined to the EU or distributing to this market must meet a number of requirements to be eligible for CE marking for new products and/or to obtain new certificates after the expiry date.
With the goal of ensuring safety and efficiency for the whole lifecycle of medical devices, companies in scope must:
There is a lot to accomplish to reach EU MDR compliance, especially since the classification criteria for devices set forth by the previous directives have been modified, in some cases significantly.
With mounting pressure from NGOs and the public, U.S. lawmakers are going to be focusing their efforts on two major subjects in 2021 and beyond: modern-day slavery and climate change.
While these proposed compliance programs will mostly impact publicly traded companies, the frameworks of the laws – when passed – will likely serve as a reference for entities contemplating to include ESG initiatives in their supply chain and strategic operations.
The disclosure-only Act requires that companies disclose the measures they take to identify modern-day slavery (including human trafficking) in their supply chain and how they address it.
To date, California, the UK, and Australia have adopted such legislation. Other states are expected to follow, but chances are the Act will also make it to the Federal level.
The bill proposes that large entities - having annual gross receipts of more than $500 million globally - perform supply chain audits specifically on forced labor and disclose their findings.
An annual audit would open investigations at various tiers of the supply chain. A conclusion report would also include remediation efforts to eradicate slavery from its business model.
Per the Uyghur Forced Labor Prevention Act, all goods produced in the Xinjiang Uyghur Autonomous Region (XUAR) in China are assumed to be tainted with human rights abuses, forced labor, and practices violating International Human Rights Laws. As such, the government would refuse entry of those goods (manufactured products, parts, or raw materials) on American soil, unless a company can prove beyond doubt that its importations are free and clear.
Despite big American names lobbying against the bill, it unanimously passed the House in September and is likely to move forward to the next step, possibly with amendments to smooth out the debate.
Investors are more often factoring in ESG issues in their valuations and decisions to buy into companies. The variety of ESG reporting frameworks makes it difficult to benchmark metrics across different industries, and the disparities it creates may distort reality.
To that effect, the Investor-as-Owner Subcommittee of the SEC’s Investor Advisory Committee recommended that the SEC become more active on the matter and work toward a more unified and simpler reporting framework.
This Senate bill replaces a bill that was introduced in 2018. In essence, public companies would be required to disclose information on climate change related risks and report on their efforts to mitigate such risks.
The SEC would play a major role in establishing industry-specific guidance and work closely with the EPA, the Secretary of Energy, and other institutions to finalize the regulation.
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