4.8 Supply chain tiers/intermediaries

Article 10, Preventing potential adverse impacts.

10.2. Companies shall be required to take the following appropriate measures, where relevant:

(a) where necessary due to the nature or complexity of the measures required for prevention, without undue delay develop and implement a prevention action plan, with reasonable and clearly defined timelines for the implementation of appropriate measures and qualitative and quantitative indicators for measuring improvement; companies may develop their action plans in cooperation with industry or multi-stakeholder initiatives; the prevention action plan shall be adapted to companies’ operations and chains of activities; (b) seek contractual assurances from a direct business partner that it will ensure compliance with the company’s code of conduct and, as necessary, a prevention action plan, including by establishing corresponding contractual assurances from its partners, to the extent that their activities are part of the company’s chain of activities; when such contractual assurances are obtained, paragraph 5 shall apply; (c) make necessary financial or non-financial investments in, adjustments or upgrades of, for example, facilities, production or other operational processes and infrastructures; (d) make necessary modifications of, or improvements to, the company’s own business plan, overall strategies and operations, including purchasing practices, design and distribution practices; (e) provide targeted and proportionate support to 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, and, where compliance with the code of conduct or the prevention action plan would jeopardise the viability of the SME, by providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing; (f) in compliance with Union law, including competition law, collaborate with other entities, including, where relevant, in order to increase the company’s ability to prevent or mitigate the adverse impact, in particular where no other measure is suitable or effective.

10.4. As regards potential adverse impacts that could not be prevented or adequately mitigated by the appropriate measures listed in paragraph 2, the company may seek contractual assurances from an indirect business partner, with a view to achieving compliance with the company’s code of conduct or a prevention action plan. When such contractual assurances are obtained, paragraph 5 shall apply.

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.

13.2. Without prejudice to Directive (EU) 2016/943, when consulting with stakeholders, companies shall, as appropriate, provide them with relevant and comprehensive information, in order to carry out effective and transparent consultations. Without prejudice to Directive (EU) 2016/943, consulted stakeholders shall be allowed to make a reasoned request for relevant additional information, which shall be provided by the company within a reasonable period of time and in an appropriate and comprehensible format. If the company refuses a request for additional information, the consulted stakeholders shall be entitled to a written justification for that refusal.

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.

13.6. Member States shall ensure that companies are allowed to fulfil the obligations laid down in this Article through industry or multi-stakeholder initiatives, as appropriate, provided that the consultation procedures meet the requirements set out in this Article. The use of industry and multi-stakeholder initiatives shall not be sufficient to fulfil the obligation to consult the company’s own employees and their representatives.

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

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