4.6 Mutually agreed reasonable penalties

Contents

If the purchasing company has penalties for suppliers, they are: 

  • Only applied on terms mutually agreed in advance. 

  • Reasonable, proportionate and clearly stated. 

  • Monitored by the purchasing company for fairness and legality. 

  • Penalties for the supplier also apply to the purchasing company, such as for late payments or irresponsible practices, as part of the contractual obligations.

The purchasing company is able to give supporting evidence for claims of supplier fault (e.g. quality penalties are only applied when commercial value is affected, late delivery penalties are proportionate to damage caused by the delay).

CSDDD relevant articles

Article 13

Article 13, Meaningful engagement with stakeholders

Article 13, Meaningful engagement with stakeholders

13.1. Member States shall ensure that companies take appropriate measures to carry out effective engagement with stakeholders, in accordance with this Article.

13.3 (a) when gathering the necessary information on actual or potential adverse impacts, in order to identify, assess and prioritise adverse impacts pursuant to Articles 8 and 9; (b) when developing prevention and corrective action plans pursuant to Article 10(2) and Article 11(3), and developing enhanced prevention and corrective action plans pursuant to Article 10(6) and Article 11(7); (d) when adopting appropriate measures to remediate adverse impacts pursuant to Article 12;

13.5. In consulting stakeholders, companies shall identify and address barriers to engagement and shall ensure that participants are not the subject of retaliation or retribution, including by maintaining confidentiality or anonymity.

13.7 Engagement with employees and their representatives shall be without prejudice to relevant Union and national law in the field of employment and social rights as well as to the applicable collective agreements.

CSDDD relevant recitals

Recitals 42, 46 & 54

When identifying, and assessing adverse impacts...

Recital 41

 

When identifying, and assessing adverse impacts, the company should take into account, based on an overall assessment, possible relevant risk factors, including company-level risk factors, such as whether the business partner is not a company covered by this Directive; business operation risk factors; geographic and contextual risk factors, such as the level of law enforcement with respect to the type of adverse impacts; product and service risk factors; and sectoral risk factors. When identifying and assessing adverse impacts, companies should also identify and assess the impact of a business partner’s business model and strategies, including trading, procurement and pricing practices.

 

Recital 46

Companies should also provide targeted and proportionate support for a small and medium-sized enterprise (SME) which is a business partner of the company, where necessary in light of the resources, knowledge and constraints of the SME, including by providing or enabling access to capacity-building, training or upgrading management systems, and, where compliance with the code of conduct or the prevention action plan would jeopardise the viability of the SME, providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing. The notion of ‘jeopardising the viability of an SME’ should be interpreted as possibly causing a bankruptcy of the SME or putting the SME in a situation where bankruptcy is imminent.

 

Recital 54

Companies should also make financial or non-financial investments, adjustments, or upgrades aiming at ceasing or minimising the extent of adverse impacts, and collaborate with other companies, in compliance with Union law. Where relevant, companies should adapt business plans, overall strategies, and operations, including purchasing practices, and develop and use purchasing policies that contribute to living wages and incomes for their suppliers, and that do not encourage actual adverse impacts on human rights or the environment.

To conduct their due diligence in an effective and efficient manner, companies should also make necessary modifications or improvements to their design and distribution practices, to address adverse impacts arising both in the upstream part and the downstream part of their chains of activities, before and after the product has been made.

Adopting and adapting such practices, as necessary, could be particularly relevant for the company to avoid an adverse impact in the first instance. Such measures could also be relevant to address adverse impacts that are jointly caused by the company and its business partners, for instance due to the deadlines or specifications imposed on them by the company. In addition, by better sharing the value along the chain of activities, responsible purchasing or distribution practices contribute to fighting against child labour, which often arises in countries or territories with high poverty levels.

 Companies should also provide targeted and proportionate support for an SME which is a business partner of the company, where necessary in light of the resources, knowledge, and constraints of the SME, including by providing or enabling access to capacity-building, training, or upgrading management systems.

Where compliance with the code of conduct or the corrective action plan would jeopardise the viability of the SME, companies should provide targeted and proportionate financial support, such as:

  • Direct financing,
  • Low-interest loans,
  • Guarantees of continued sourcing, or
  • Assistance in securing financing.

The notion of ‘Jeopardising the viability of an SME’ should be interpreted as possibly causing a bankruptcy of the SME or putting the SME in a situation where bankruptcy is imminent.