Although few may doubt the reduction of solar emissions; Forced and child labor in clean electricity supply chains is becoming a hot topic, which is why the EU is considering banning goods with proven traces of such labor practices. Diana Zadorozhnapartner of renewable energy consultancy Everoze, explores what businesses can do to prepare for forced labor laws.
The ban on forced labor proposed by the European Commission would apply to the EU’s internal market and introduce import and export controls. Under the plan presented by the commission in September 2022, products with traces of forced labor at any stage of the supply chain would be withdrawn from the market and destroyed. However, the recall of products that have already arrived to end users in the EU would not fall within the scope of the proposed regulation.
A thorough due diligence assessment of the content of forced labor would be a mandatory and central tool in the investigation of a potential supply chain of forced labor. The EU plans to issue instructions within 18 months of the proposal coming into force. Although the ban would be a powerful incentive to solve the problem of forced and child labor, human rights organizations see flaws in the Commission’s draft proposal.
Unlike the corresponding US legislation, the proposed EU ban would not come into effect as soon as forced labor is suspected, but from the moment it is proven.
In addition, the proposed EU legislation does not prioritize victims of forced labor. It should include remedies for affected people. It also does not include a procedure for withdrawal and disposal of forced labor products, and may lead to the re-routing of forced labor products to countries without sound policies.
From the industry’s point of view, developers and investors of renewable energy sources have raised concerns about the rise in raw material prices, which increases production costs and creates pressure on margins. However, the compliance costs associated with carrying out the due diligence required to comply with the proposed EU legislation are likely to be a small burden compared to the expected overall pricing pressure.
Companies can take six steps to be ready for EU forced labor rules.
- Conduct due diligence based on existing EU and OECD guidelines to address the risk of forced labor in their operations and supply chains.
- Collect traceability data on all acquired technology to identify and assess the risk of traces of forced labour. Such information may include bills of materials, third-party audits or certificates. However, for Chinese suppliers, a verifiable third-party assessment of their supply chains is challenging due to the country’s anti-foreign sanctions law introduced in June 2021. In this case, before contacting the technology supplier, a risk assessment must be carried out in accordance with the following section, and modified contract models can act as risk mitigation.
- Start mapping possible sources of risk and develop a remediation plan. Identify the area where the technology is manufactured, where the materials are sourced from, and whether those areas are known for human rights violations.
- Adopt a mitigation plan and a corrective procedure that focuses on victims of forced labor. Companies that unknowingly engage in forced labor should be part of the solution, and the remedy needed to address the unique circumstances of victims may include financial compensation, rehabilitation, etc.
- Change contract models to reduce risk. Contractual obligations must be considered to protect companies from any form of human rights violations at any stage of the supply chain, as well as include remedial measures if such risks are identified. Corrective measures must take into account the risks for both the company and the victims of human rights violations. It should be noted that the legislation in the regions of origin may vary, a promise to comply with the law of the country of origin does not guarantee the absence of human rights violations.
- Start switching suppliers or increase the amount of recycled materials to minimize the use of primary resources. Purchasing materials directly from suppliers also minimizes the complexity of the supply chain and increases traceability. With the help of direct procurement, companies can get to know their suppliers, visit their production facilities and monitor the well-being of nearby communities.
A call to action
The amount of research focusing on human rights violations in renewable energy supply chains and manufacturing processes is increasing. Awareness of how serious this problem is is growing. Forced and child labor exists in many industries, such as food, electronics, textiles, and automobiles, just to name a few.
There is a risk that everyday consumers are complicit in human rights abuses and injustice. The real cost of the products consumers buy is often paid by someone else, someone the end users have never met. Improving moral standards sometimes comes at a financial cost, but it must be done anyway because it is the right thing to do.
The renewable energy sector has another opportunity to show leadership, as it is based on an incredible contribution to solving the climate crisis. This time there will be a discussion about the environmental, social and corporate governance system by working to eliminate forced labor from supply chains.
About the author: Diana Zadorozhna is a climate change and sustainability consultant at Everoz, which started working on climate change mitigation in 2009. Since 2017, he has been working on clean energy transition and energy sector reform in Ukraine. He is educated in environmental sciences and politics.