Beyond the First Tier: Implementing Due Diligence in Raw Material Supply Chains
Inga Carry & Svenja Schöneich
Mar 3, 2025
#Mining
#Environment and climate change
#EU / Western Europe
#Social and working conditions
#Sustainability standards
#Corporate responsibility and lead firms
Introduction
In May, 2024, the European Union adopted the Corporate Sustainability Due Diligence Directive (CSDDD), establishing the first common cross-sector framework for due diligence in the EU. The CSDDD requires companies above a certain number of employees and net turnover to implement robust due diligence measures, ensuring their operations and supply chains respect human rights, do not harm the environment, and are in line with the 2015 Paris Agreement. Companies are obligated to conduct due diligence across their entire supply chain using a risk-based approach. This means that businesses should prioritize the supply chain tiers most vulnerable to human rights abuses and environmental damage. Given the high-risk nature of raw material supply chains (see more on this below), the extractive sector would become one of the focal points of companies’ due diligence efforts.
However, on February 26, the EU Commission introduced a proposal for an omnibus package aimed at streamlining regulations on financial reporting, sustainability due diligence, and EU taxonomy. Among other changes, the proposal seeks to limit companies’ primary reporting obligations to tier 1 suppliers only. This shift would have far-reaching consequences for raw material supply chains. Today, only a few large European companies are involved in raw material extraction or processing. Instead, the world’s largest mining companies are based outside the European Union, in countries such as the UK, Switzerland, Canada, Australia, and China. As a result, most European companies do not source raw materials directly from mining companies but rather procure them further down the supply chain, often in the form of semi-finished products.
By narrowing due diligence requirements to direct suppliers, the new proposal would effectively prompt European companies to exclude the upstream part of raw material supply chains from scrutiny. This raises significant risks, as extractive industries are among the most susceptible to human rights violations, environmental degradation, and corruption.
However, on February 26, the EU Commission introduced a proposal for an omnibus package aimed at streamlining regulations on financial reporting, sustainability due diligence, and EU taxonomy. Among other changes, the proposal seeks to limit companies’ primary reporting obligations to tier 1 suppliers only. This shift would have far-reaching consequences for raw material supply chains. Today, only a few large European companies are involved in raw material extraction or processing. Instead, the world’s largest mining companies are based outside the European Union, in countries such as the UK, Switzerland, Canada, Australia, and China. As a result, most European companies do not source raw materials directly from mining companies but rather procure them further down the supply chain, often in the form of semi-finished products.
By narrowing due diligence requirements to direct suppliers, the new proposal would effectively prompt European companies to exclude the upstream part of raw material supply chains from scrutiny. This raises significant risks, as extractive industries are among the most susceptible to human rights violations, environmental degradation, and corruption.
Challenges for due diligence in mineral supply chains
The minerals sector in general and mineral supply chains in particular are characterized by a high level of risk, complexity and geographic dispersion. Mineral extraction and processing can result in significant environmental impacts, including deforestation, soil erosion, water pollution, and habitat degradation. It is also associated with occupational health risks for miners and potential adverse effects on surrounding communities, including water scarcity, displacement, and exposure to hazardous working conditions. Issues such as child labor, exploitation, and resource-related conflicts are also prevalent in certain regions. Mineral extraction frequently takes place in regions with fragile environmental and human rights conditions, often characterized by conflict, weak regulatory frameworks, and/or limited enforcement capacity. These challenges are particularly pronounced in the artisanal and small-scale mining sector, where regulatory oversight is minimal, and miners, as well as local communities, may be vulnerable to exploitation by criminal organizations (see Carry and Jall, 2024; Carry and Müller, 2023).
Tracing mineral supply chains can be challenging since the extraction, processing, trade and transport of minerals often take place in different countries with varying regulations, and usually involve a number of different up- and downstream actors. While base metal such as copper are mainly extracted in countries of the Global South like Peru or Chile, the subsequent smelting and processing of the raw material predominantly takes place elsewhere. In fact, most of the world’s copper is processed and refined in China, which makes it a bottleneck for copper production. Consequently, once the copper enters the EU market, it is usually in the form of a semi-finished product such as wires or alloys that further include a number of other minerals. While existing national regulations such as the German Supply Chain Act (LkSG) (see Maihold, Müller, Saulich and Schöneich 2021) oblige affected companies to conduct due diligence mainly for their tier-1 suppliers (tier-n only becomes relevant upon substantiated knowledge of risks or damages), the CSDDD compels companies to establish at least a basic understanding of all tiers of the chain. Thus, it also includes both the extraction as well as the processing stage of the raw material supply chain.
The dominant role of China in global mineral supply chains makes identifying risks and relevant stakeholders along the supply chain especially challenging. Reliable information about working conditions in Chinese processing sites are often as difficult to obtain as knowledge of the origin and original suppliers of the commodity in question. While China has become more open to increasing supply chain transparency and sustainability in recent years, also in preparation for the CSDDD, initiatives mostly focus on aspects related to environmental and climate protection as well as anti-corruption mechanisms, while leaving social and workers’ rights largely excluded (Brancaccio, 2024).
Commodity traders and metal exchanges constitute an intermediate actor of the supply chain. Many metals are traded until they reach their final form and buyer. Even though traders are important mediators connecting actors along the supply chain and would be in a position to provide crucial information for risk assessments, due to weak regulations and a lack of transparency they often function as hinderers for a solid due diligence process instead (see Fischer, 2024).
Tracing mineral supply chains can be challenging since the extraction, processing, trade and transport of minerals often take place in different countries with varying regulations, and usually involve a number of different up- and downstream actors. While base metal such as copper are mainly extracted in countries of the Global South like Peru or Chile, the subsequent smelting and processing of the raw material predominantly takes place elsewhere. In fact, most of the world’s copper is processed and refined in China, which makes it a bottleneck for copper production. Consequently, once the copper enters the EU market, it is usually in the form of a semi-finished product such as wires or alloys that further include a number of other minerals. While existing national regulations such as the German Supply Chain Act (LkSG) (see Maihold, Müller, Saulich and Schöneich 2021) oblige affected companies to conduct due diligence mainly for their tier-1 suppliers (tier-n only becomes relevant upon substantiated knowledge of risks or damages), the CSDDD compels companies to establish at least a basic understanding of all tiers of the chain. Thus, it also includes both the extraction as well as the processing stage of the raw material supply chain.
The dominant role of China in global mineral supply chains makes identifying risks and relevant stakeholders along the supply chain especially challenging. Reliable information about working conditions in Chinese processing sites are often as difficult to obtain as knowledge of the origin and original suppliers of the commodity in question. While China has become more open to increasing supply chain transparency and sustainability in recent years, also in preparation for the CSDDD, initiatives mostly focus on aspects related to environmental and climate protection as well as anti-corruption mechanisms, while leaving social and workers’ rights largely excluded (Brancaccio, 2024).
Commodity traders and metal exchanges constitute an intermediate actor of the supply chain. Many metals are traded until they reach their final form and buyer. Even though traders are important mediators connecting actors along the supply chain and would be in a position to provide crucial information for risk assessments, due to weak regulations and a lack of transparency they often function as hinderers for a solid due diligence process instead (see Fischer, 2024).
Implementing Corporate Due Diligence in Raw Material Supply Chains in the realm of the CSDDD
Mapping Suppliers, Risks, and Blind Spots
To implement the CSDDD, companies must first gain a thorough understanding of all of these stages of the mineral supply chain. A big part of the due diligence process will be to map their own operations and those of their subsidies, identify blind spots in their supply chain, and develop strategies to close traceability gaps. Digital technology tools such as blockchain, supply chain tracing platforms, and DNA analysis are increasingly used to help track and trace material flows (see Dietrich & Melcher, 2022). For example, recent technological progress on the method of “fingerprinting” critical minerals has allowed scientists to use the unique chemical properties of the mineral to determine its geographical origin – down to the particular mine site (Blair, 2024). Yet, this mechanism is not (yet) feasible for many minerals due to the fact that mineralogical fingerprinting is only economically viable for high-value and high-risk minerals such as gold, but less so for minerals like copper, which has a significantly lower value per ton (Schöneich, Saulich and Müller 2023).
Following the identification and mapping of the supply chains and its stakeholders, companies must conduct a risk assessment. For their risk analysis, companies should make use of existing databases, such as the CSR Risk Check, that provides individually tailored information on relevant risks for specific countries and goods, as well as country profiles that include details on human rights and environmental risks, prevention, and remedial measures in accordance with the German Supply Chain Due Diligence Act (LkSG). While the Directive states that the Commission may offer similar measures in accordance with the CSDDD, a unified platform of officially recognized guidelines and support instruments would not only increase resource efficiency. It would also contribute to the consistent implementation of the Directive across all Member States – something that has been criticized in evaluations of previous due diligence regulations, such as the EU Timber Regulation and the Conflict Minerals Regulation.
Shortening and Reshoring Supply Chains
To increase oversight of their supply chains, some lead firms have been taking steps to simplify their supplier network either by shortening and/or reshoring operations. Establishing raw material and downstream supply chains within the EU would likely ease a company's due diligence requirements, as suppliers from within the EU are generally expected to comply with high social and environmental standards and would therefore not be considered as high a risk as non-EU suppliers. Bringing production (closer to) home is further being incentivized by recent policy instruments, including the EU’s Critical Raw Materials Act, which sets concrete benchmarks for increased intra-European extraction, processing, and recycling of certain raw materials. Under this initiative, the Commission further foresees the establishment of a joint purchasing mechanism for critical raw materials. Pooling demand among EU importers could lead to increased market leverage vis-à-vis producers to promote sustainably sourced materials, while harmonizing sustainability and transparency criteria under one purchasing regime would reduce standard fragmentation.
Nonetheless, even if these benchmarks were to be reached in the mid- to long-term, European companies will continue to primarily rely on raw material imports from outside the EU. Raw material supply chains cannot easily be reshored to different locations, mainly for two reasons. Firstly, it is largely due to their spatial fixation, meaning the geological availability of raw materials that is tied to specific regions. Secondly, it is also due to their longevity: the average lead time for a mining project to progress from planning to production exceeds 16 years, and once operational, the life cycle of a mine spans several decades, sometimes even up to 100 years. This means, on the one hand, that the EU will never achieve complete autonomy over its raw material supply. On the other hand, the risk of a "cut and run” effect, meaning the (short-term) withdrawal of companies from certain producer countries, is significantly lower in raw material supply chains than in other sectors.
Another way to enhance oversight over geographically distant segments of the supply chain is to increase control over upstream suppliers, for example by acquiring critical raw materials directly through off-take agreements, direct investments in mining companies, or by purchasing entire mines and refineries (Home, 2023). Increased vertical integration can create more security for a company’s supply of critical minerals, but it can also allow it to exert greater control over production standards. For example, several automotive companies now require their raw material suppliers to operate under the IRMA standard, the most comprehensive and strict mining standard to date. However, establishing direct links between the OEM and particularly risk-prone activities such as extraction and processing also exposes the company to greater reputational risks once problems occur.
Developing and Implementing Robust Sector-Specific Sustainability Standards
While mining operations are increasingly monitored and certified against voluntary international standards, few of these standards extend to the subsequent stage of smelting and refining, even though this is the most elusive and opaque part of the supply chain. Moreover, as of now, many companies only perform self-assessments rather than undergoing independent third-party audits (IRMA, 2024), and in most cases, standard regimes do not encompass sanctioning mechanisms that hold companies accountable in case of violations. This poses a challenge to the validity and effectiveness of such standards particularly in countries like China, which controls nearly half of the world's refinery production through large (state-owned) enterprises with limited public transparency (Carry, Godehardt, Müller, 2022).
It is therefore of particular importance for EU companies to work together with all stakeholders along the supply chain to set common sustainability standards and cooperate with their suppliers to implement them. To identify risks at the local and regional level, the implementation of a comprehensive operational-level grievance mechanism is key. Such mechanisms must offer clear communication channels for all relevant stakeholders and become integrated into the corporate culture and social management of the company (MinSus, 2024). Multi-Stakeholder Initiatives (MSI) and cross-company grievance mechanisms offer a way to pool resources and expertise, harmonize standards and processes, and enable companies to develop due diligence mechanisms that are tailored specifically to their industry. Such initiatives include the “Branchendialog” for the automotive and energy sectors in Germany, as well as the Mecanismo de Reclamación de Derechos Humanos (MRDH) established by the German automotive industry in Mexico.
Additionally, companies implementing the CSDDD must focus not only on identifying risks in their supply chain, but also on supporting suppliers in fulfilling their due diligence obligations and minimizing those risks. Often, the biggest challenge is not a lack of legislation — many resource-rich countries already have laws encompassing strong environmental and human rights regulations in the minerals sector. Peru, for example, has developed a relatively strong environmental legislation, but often lacks local capacities to properly monitor and implement them. Therefore, both government-led development programs and private companies should support partner countries in building the necessary capacity to mitigate risks and help suppliers meet the increasing demands for sustainability standards.
As the EU takes on a more prominent role in shaping raw material supply chains, most notably through its strategic partnerships on raw materials, it too must engage in dialogues and multilogues on appropriate standards for the raw materials sector. In doing so, the EU must strike a balance between its intention to promote sustainability standards in other countries – for example by investing in building the necessary local capacity to implement and monitor said standards – and not being perceived solely as a normative actor that preaches sustainability and human rights overseas. While this is certainly easier to do with “like-minded” countries that such as Canada or Australia, the argument often put forward that countries like China represent an insurmountable obstacle to the implementation of due diligence in supply chains is not entirely true. China, too, is increasingly confronted with demands by producing countries to incorporate environmental, social and economic sustainability standards when operating on their territory. Moreover, the increased geopolitical competition vying for critical raw materials means that China also has to make an effort in order to be perceived as an attractive investor. A study by Morris (2023) further shows that a growing number of Chinese lead firms operating in the Global South view ESG standards as “a fundamental risk mitigation tool assisting them to ensure that they are able to maintain continuous, consistent, and predictable economic operations.” Nonetheless, while China has been signaling more openness towards the integration of ESG standards in its operations – most recently through the announcement of a sustainability disclosure system developed by 2027 – there continue to be large gaps in transparency and sustainability disclosure in Chinese supply chains, particularly at the stages of refining and smelting. Given that China will remain one of the most powerful and influential actors in global raw material supply chains in the coming years, the EU should keep communication and cooperation channels open and actively use them for collaboration on sustainability standards in raw material supply chains, despite – or indeed because of – growing geopolitical tensions with China.
To implement the CSDDD, companies must first gain a thorough understanding of all of these stages of the mineral supply chain. A big part of the due diligence process will be to map their own operations and those of their subsidies, identify blind spots in their supply chain, and develop strategies to close traceability gaps. Digital technology tools such as blockchain, supply chain tracing platforms, and DNA analysis are increasingly used to help track and trace material flows (see Dietrich & Melcher, 2022). For example, recent technological progress on the method of “fingerprinting” critical minerals has allowed scientists to use the unique chemical properties of the mineral to determine its geographical origin – down to the particular mine site (Blair, 2024). Yet, this mechanism is not (yet) feasible for many minerals due to the fact that mineralogical fingerprinting is only economically viable for high-value and high-risk minerals such as gold, but less so for minerals like copper, which has a significantly lower value per ton (Schöneich, Saulich and Müller 2023).
Following the identification and mapping of the supply chains and its stakeholders, companies must conduct a risk assessment. For their risk analysis, companies should make use of existing databases, such as the CSR Risk Check, that provides individually tailored information on relevant risks for specific countries and goods, as well as country profiles that include details on human rights and environmental risks, prevention, and remedial measures in accordance with the German Supply Chain Due Diligence Act (LkSG). While the Directive states that the Commission may offer similar measures in accordance with the CSDDD, a unified platform of officially recognized guidelines and support instruments would not only increase resource efficiency. It would also contribute to the consistent implementation of the Directive across all Member States – something that has been criticized in evaluations of previous due diligence regulations, such as the EU Timber Regulation and the Conflict Minerals Regulation.
Shortening and Reshoring Supply Chains
To increase oversight of their supply chains, some lead firms have been taking steps to simplify their supplier network either by shortening and/or reshoring operations. Establishing raw material and downstream supply chains within the EU would likely ease a company's due diligence requirements, as suppliers from within the EU are generally expected to comply with high social and environmental standards and would therefore not be considered as high a risk as non-EU suppliers. Bringing production (closer to) home is further being incentivized by recent policy instruments, including the EU’s Critical Raw Materials Act, which sets concrete benchmarks for increased intra-European extraction, processing, and recycling of certain raw materials. Under this initiative, the Commission further foresees the establishment of a joint purchasing mechanism for critical raw materials. Pooling demand among EU importers could lead to increased market leverage vis-à-vis producers to promote sustainably sourced materials, while harmonizing sustainability and transparency criteria under one purchasing regime would reduce standard fragmentation.
Nonetheless, even if these benchmarks were to be reached in the mid- to long-term, European companies will continue to primarily rely on raw material imports from outside the EU. Raw material supply chains cannot easily be reshored to different locations, mainly for two reasons. Firstly, it is largely due to their spatial fixation, meaning the geological availability of raw materials that is tied to specific regions. Secondly, it is also due to their longevity: the average lead time for a mining project to progress from planning to production exceeds 16 years, and once operational, the life cycle of a mine spans several decades, sometimes even up to 100 years. This means, on the one hand, that the EU will never achieve complete autonomy over its raw material supply. On the other hand, the risk of a "cut and run” effect, meaning the (short-term) withdrawal of companies from certain producer countries, is significantly lower in raw material supply chains than in other sectors.
Another way to enhance oversight over geographically distant segments of the supply chain is to increase control over upstream suppliers, for example by acquiring critical raw materials directly through off-take agreements, direct investments in mining companies, or by purchasing entire mines and refineries (Home, 2023). Increased vertical integration can create more security for a company’s supply of critical minerals, but it can also allow it to exert greater control over production standards. For example, several automotive companies now require their raw material suppliers to operate under the IRMA standard, the most comprehensive and strict mining standard to date. However, establishing direct links between the OEM and particularly risk-prone activities such as extraction and processing also exposes the company to greater reputational risks once problems occur.
Developing and Implementing Robust Sector-Specific Sustainability Standards
While mining operations are increasingly monitored and certified against voluntary international standards, few of these standards extend to the subsequent stage of smelting and refining, even though this is the most elusive and opaque part of the supply chain. Moreover, as of now, many companies only perform self-assessments rather than undergoing independent third-party audits (IRMA, 2024), and in most cases, standard regimes do not encompass sanctioning mechanisms that hold companies accountable in case of violations. This poses a challenge to the validity and effectiveness of such standards particularly in countries like China, which controls nearly half of the world's refinery production through large (state-owned) enterprises with limited public transparency (Carry, Godehardt, Müller, 2022).
It is therefore of particular importance for EU companies to work together with all stakeholders along the supply chain to set common sustainability standards and cooperate with their suppliers to implement them. To identify risks at the local and regional level, the implementation of a comprehensive operational-level grievance mechanism is key. Such mechanisms must offer clear communication channels for all relevant stakeholders and become integrated into the corporate culture and social management of the company (MinSus, 2024). Multi-Stakeholder Initiatives (MSI) and cross-company grievance mechanisms offer a way to pool resources and expertise, harmonize standards and processes, and enable companies to develop due diligence mechanisms that are tailored specifically to their industry. Such initiatives include the “Branchendialog” for the automotive and energy sectors in Germany, as well as the Mecanismo de Reclamación de Derechos Humanos (MRDH) established by the German automotive industry in Mexico.
Additionally, companies implementing the CSDDD must focus not only on identifying risks in their supply chain, but also on supporting suppliers in fulfilling their due diligence obligations and minimizing those risks. Often, the biggest challenge is not a lack of legislation — many resource-rich countries already have laws encompassing strong environmental and human rights regulations in the minerals sector. Peru, for example, has developed a relatively strong environmental legislation, but often lacks local capacities to properly monitor and implement them. Therefore, both government-led development programs and private companies should support partner countries in building the necessary capacity to mitigate risks and help suppliers meet the increasing demands for sustainability standards.
As the EU takes on a more prominent role in shaping raw material supply chains, most notably through its strategic partnerships on raw materials, it too must engage in dialogues and multilogues on appropriate standards for the raw materials sector. In doing so, the EU must strike a balance between its intention to promote sustainability standards in other countries – for example by investing in building the necessary local capacity to implement and monitor said standards – and not being perceived solely as a normative actor that preaches sustainability and human rights overseas. While this is certainly easier to do with “like-minded” countries that such as Canada or Australia, the argument often put forward that countries like China represent an insurmountable obstacle to the implementation of due diligence in supply chains is not entirely true. China, too, is increasingly confronted with demands by producing countries to incorporate environmental, social and economic sustainability standards when operating on their territory. Moreover, the increased geopolitical competition vying for critical raw materials means that China also has to make an effort in order to be perceived as an attractive investor. A study by Morris (2023) further shows that a growing number of Chinese lead firms operating in the Global South view ESG standards as “a fundamental risk mitigation tool assisting them to ensure that they are able to maintain continuous, consistent, and predictable economic operations.” Nonetheless, while China has been signaling more openness towards the integration of ESG standards in its operations – most recently through the announcement of a sustainability disclosure system developed by 2027 – there continue to be large gaps in transparency and sustainability disclosure in Chinese supply chains, particularly at the stages of refining and smelting. Given that China will remain one of the most powerful and influential actors in global raw material supply chains in the coming years, the EU should keep communication and cooperation channels open and actively use them for collaboration on sustainability standards in raw material supply chains, despite – or indeed because of – growing geopolitical tensions with China.
Conclusion
Implementing the CSDDD along raw material supply chains must take into account the sector’s high-risk nature and lack of transparency and traceability. These challenges are compounded when operations take place in contexts of weak regulations and low levels of governance and oversight. Companies will have to be particularly mindful of their stakeholder mapping and risk analysis when sourcing from less formalized supplier networks, often associated with artisanal and small-scale mining operations.
The development of sector-specific best practices and technological tools can help increase transparency, while direct involvement with stakeholder groups at the local and regional level can minimize risks associated with the extractive sector. While third-party certification schemes can function as an additional tool to support compliance, they do not replace proper due diligence executed by individual companies, as regulated by the Directive. Companies should, however, make use of knowledge platforms and support mechanisms provided by Member States or, in the future, by responsible agencies on the EU level. An evaluation of the EU’s Conflict Minerals Regulation has shown that “companies, thanks to the contacts with MSCAs [Member States Competent Authorities], have been gradually improving the implementation of their due diligence obligations under the Regulation” (European Commission, 2024: 9). Similar learnings from other existing due diligence regulations should feed into the evaluation and continued improvement of the CSDDD.
The Commission’s proposal to reduce primary due diligence obligations to direct suppliers would undermine the effectiveness of the CSDDD’s in addressing the roots of sustainability risks in raw material supply chains. Firstly, it is questionable whether the proposed changes will genuinely reduce the bureaucratic burden for companies; instead, it is more likely that it will merely create an imbalance between effort and effectiveness. The risk-based approach of the CSDDD is designed to help businesses focus on the most vulnerable parts of their supply chain—those with the highest human rights and environmental risks, such as raw material extraction and processing. Under the proposed amendments, companies would still be required to assess their direct suppliers for compliance with human rights and environmental standards, even if these suppliers present relatively low risks. Meanwhile, the most high-risk stages of the supply chain would only be scrutinized if concrete violations become known. As a result, the bureaucratic burden remains, but is no longer directed at points in the supply chain where risks are most acute and where companies could have the greatest leverage to drive improvements in working conditions and environmental standards.
Secondly, the proposed provision that companies only need to address sustainability issues at their tier-n suppliers after obtaining “plausible information” on human rights or environmental risks undermines the proactive character of the Directive. After all, the CSDDD’s objective is to not only identify and address sustainability issues after they have occurred, but to prevent them as best as possible in the first place. This is only feasible through continued proactive engagement and diligent monitoring of the supply chain.
Thirdly, from the perspective of resilience and supply security, the CSDDD’s focus on the entire supply chain would encourage European companies to deepen their understanding of their entire supply chain. This, in turn, would enhance their resilience and ability to respond effectively to supply chain disruptions and sustainability risks. Given the growing geopolitical tensions affecting the stability and reliability of raw material supply chains, European companies would greatly benefit from increased supply chain transparency, particularly regarding their indirect, upstream suppliers.
Lastly, effective due diligence in raw material supply chains will become even more important as the EU sets out to intensify mining activities within the European Union and critical raw materials partnerships with non-EU countries. The Critical Raw Materials Act designates the sustainability of raw material supply chains as one of the key components of the EU’s raw material policy. Since many raw material projects are located in non-European third countries, where the EU has no jurisdiction and limited oversight capabilities, it will have to rely on the CSDDD to ensure that European supply chains comply with the sustainability standards set by the EU itself.
The development of sector-specific best practices and technological tools can help increase transparency, while direct involvement with stakeholder groups at the local and regional level can minimize risks associated with the extractive sector. While third-party certification schemes can function as an additional tool to support compliance, they do not replace proper due diligence executed by individual companies, as regulated by the Directive. Companies should, however, make use of knowledge platforms and support mechanisms provided by Member States or, in the future, by responsible agencies on the EU level. An evaluation of the EU’s Conflict Minerals Regulation has shown that “companies, thanks to the contacts with MSCAs [Member States Competent Authorities], have been gradually improving the implementation of their due diligence obligations under the Regulation” (European Commission, 2024: 9). Similar learnings from other existing due diligence regulations should feed into the evaluation and continued improvement of the CSDDD.
The Commission’s proposal to reduce primary due diligence obligations to direct suppliers would undermine the effectiveness of the CSDDD’s in addressing the roots of sustainability risks in raw material supply chains. Firstly, it is questionable whether the proposed changes will genuinely reduce the bureaucratic burden for companies; instead, it is more likely that it will merely create an imbalance between effort and effectiveness. The risk-based approach of the CSDDD is designed to help businesses focus on the most vulnerable parts of their supply chain—those with the highest human rights and environmental risks, such as raw material extraction and processing. Under the proposed amendments, companies would still be required to assess their direct suppliers for compliance with human rights and environmental standards, even if these suppliers present relatively low risks. Meanwhile, the most high-risk stages of the supply chain would only be scrutinized if concrete violations become known. As a result, the bureaucratic burden remains, but is no longer directed at points in the supply chain where risks are most acute and where companies could have the greatest leverage to drive improvements in working conditions and environmental standards.
Secondly, the proposed provision that companies only need to address sustainability issues at their tier-n suppliers after obtaining “plausible information” on human rights or environmental risks undermines the proactive character of the Directive. After all, the CSDDD’s objective is to not only identify and address sustainability issues after they have occurred, but to prevent them as best as possible in the first place. This is only feasible through continued proactive engagement and diligent monitoring of the supply chain.
Thirdly, from the perspective of resilience and supply security, the CSDDD’s focus on the entire supply chain would encourage European companies to deepen their understanding of their entire supply chain. This, in turn, would enhance their resilience and ability to respond effectively to supply chain disruptions and sustainability risks. Given the growing geopolitical tensions affecting the stability and reliability of raw material supply chains, European companies would greatly benefit from increased supply chain transparency, particularly regarding their indirect, upstream suppliers.
Lastly, effective due diligence in raw material supply chains will become even more important as the EU sets out to intensify mining activities within the European Union and critical raw materials partnerships with non-EU countries. The Critical Raw Materials Act designates the sustainability of raw material supply chains as one of the key components of the EU’s raw material policy. Since many raw material projects are located in non-European third countries, where the EU has no jurisdiction and limited oversight capabilities, it will have to rely on the CSDDD to ensure that European supply chains comply with the sustainability standards set by the EU itself.
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