Directive on corporate sustainability due diligence and the ProTerra Standard: synergies and possibilities
Introduction
The European Union is working on a transition towards a climate-neutral and green economy. This involves implementing processes to address adverse human rights and environmental impacts in the value chains of EU-based companies. As part of this European effort, a set of new regulations are under discussion, including a Directive on corporate sustainability due diligence. Other related initiatives include the Commission’s proposal for a regulation on deforestation-free supply chains; the proposal for a Corporate Sustainability Reporting Directive (CSRD); and a Taxonomy Regulation to tackle greenwashing.
This article focuses on connecting the future Directive on corporate sustainability due diligence (herein referred to as the “Directive”), with the ProTerra Standard, to identify the synergies that exist and to understand how ProTerra certification can support organisations in meeting the future requirements of the Directive[1]. Paragraph 4 of Article 7 of the Directive indicates that for the purposes of verifying compliance, a company may refer to “suitable industry initiatives[2] or independent third-party verification”[3], thus space for integration with ProTerra exists.
The Directive “lays down rules on obligations for companies regarding actual and potential adverse impacts to human rights and to the environment, with respect to their own operations, the operations of their subsidiaries, and the value chain operations carried out by entities with whom the companies have an established business relationship”, among others. The central elements involve identifying, ending, preventing, mitigating, and accounting for negative human rights and environmental impacts associated with the company’s operations, including its supply chain. In addition, depending on specific characteristics, certain companies are required to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.
ProTerra Standard certification is a voluntary initiative based on independent third-party verification of compliance with a set of requirements related to environmental impacts, human rights and labour relations, good agricultural practices, traceability and chain of custody. The ProTerra requirements aim at minimising adverse impacts associated with food and feed production, especially agricultural production, transport, storage, trading and processing. As such, it is understood to be a potential tool to support organisations in meeting several of the future obligations to be set by the Directive.
The Directive versus ProTerra Standard v4.1
Compliance with regulations and international conventions
In the context of the Directive, adverse environmental or human rights impact means impacts in violation of international environmental and human rights conventions as listed in Annex[4], Part II and in Annex, Part I Section 2 of the Directive respectively (Article 3).
ProTerra Principle 1 relates to compliance with the law, international conventions and the ProTerra Standard. Such compliance is mandatory for a ProTerra Certification. Appendix B of the Standard lists the relevant international treaties and conventions that are considered within the ProTerra audit. It is noted that great emphasis is given to the ILO (International Labour Organisation) conventions in ProTerra Principle 2: Human Rights and responsible labour policies and practices.
ProTerra is committed to revising its Appendix B to ensure full alignment with all the conventions cited in the Directive´s Annex, nevertheless, as part of ProTerra´s implementation, certified organisations have a systematic approach to understanding, tracking and complying with the applicable regulations.
Complaints procedure
Article 5 of the Directive establishes details on the integration of due diligence into companies’ policies, among other relevant aspects associated with the due diligence obligations and establishes the need for the organisation to have and maintain a complaints procedure.
Article 9 also relates to complaints procedures. Under this Article, “companies shall provide the possibility for persons to submit complaints where they have legitimate concerns regarding actual or potential adverse human rights and adverse environmental impacts with respect to the companies’ operations, the operations of their subsidiaries, and their value chains”.
Under ProTerra Standard, Principle 3: Responsible relations with workers and community, certified organisations are required to have an effective and timely system of communication with all workers and with the local communities and to receive, investigate and respond to all complaints from these parties (indicator 3.1.1). This is a core ProTerra requirement and must be met for certification. Therefore, ProTerra-certified organisations benefit by already having implemented this Directive requirement (part of Article 4 and Article 9).
Contractual assurances and supporting SMEs
Article 7 of the Directive sets out the requirement “to ensure that companies take appropriate measures to prevent potential adverse impacts identified or to adequately mitigate those impacts where prevention is not possible or requires gradual implementation”. Actions to meet these requirements include:
- “companies seeking contractual assurances from a business partner with whom it has a direct business relationship that it will ensure compliance with the company’s code of conduct and, as necessary, a preventive action plan, including by seeking corresponding contractual assurances from its partners to the extent that their activities are part of the company’s value chain (contractual cascading)”;and
- “companies providing targeted and proportionate support for small and medium-sized enterprises (SME) with which the company has an established business relationship, where compliance with the code of conduct or the preventive action plan would jeopardise the viability of the SME”.
ProTerra requires that certified organisations ensure that suppliers of core inputs and services are compliant with the ProTerra Standard requirements (indicator 1.1.5) and that certified organisations obtain from suppliers outside the certification scope, a formal and signed commitment that they comply with legal requirements, including those regulations associated to human rights, labour laws and environmental regulations (indicator 1.1.6). ProTerra-certified organisations already have therefore implemented part of Article 7 related to contractual assurances and its effectiveness is audited as part of the ProTerra Certification process providing an independent assessment of the practice, including auditing core suppliers based on a sampling approach. These supplier verifications add an additional level of confidence to the due diligence process.
The ProTerra Certification can be applied to raw materials, ingredients, or multi-ingredient products. This may be accomplished using two basic approaches: (1) each actor in the food and feed supply chain can be certified in its own right against the relevant ProTerra Standard set of indicators or (2) certified organisations that use inputs from actors that are not ProTerra certified in their own right shall implement systems to control and monitor its supply chain(s) to ensure that the relevant ProTerra Standard indicators are met. A system to control and monitor the supply chain is essentially a supply chain management system that includes initiatives to support partners in developing and implementing the companies’ requirements, including support to help them reduce their adverse impacts.
ProTerra sectorial dialogues and projects support its stakeholders to show their efforts and to differentiate from non-sustainable producers, besides working on increasing market uptake and seeking feasible solutions.
In this sense, it has issued its Smallholders Interpretation version of the ProTerra Standard aiming at supporting the improvement over time of the agricultural activity of smallholders. In this case, larger companies provide technical support and training to smallholders and small local-owned companies (their core suppliers) to help them minimise their negative impacts. Examples can be found in India and Brazil (MRV projects).
The MRV system aims to reduce and mitigate the risk of importing commodities that could be linked to deforestation or slave and child labour. Brazilian SPC (soy protein concentrate) and soy meal exporters are committed to establishing an economically, environmentally sustainable, and socially responsible supply chain. This means that the areas with native vegetation (including the HCV approach) must not have been cleared or converted to agricultural areas, or used for industrial or other commercial purposes, after August 2020, including producers who have not been certified and verified before 2020. Suppliers’ management and control systems are audited annually. MRV is currently under review to become a ProTerra Standard, providing a more structured approach with the need for a third-party audit.
Corrective action plan
Article 8 indicates that companies shall take “appropriate measures to bring actual adverse impacts that have been, or should have been, identified to an end. Where the adverse impact cannot be brought to an end, companies shall minimise the extent of such impact” and are required to take several measures as listed in the Directive. ProTerra Standard finds alignment with the following course of action indicated in the Directive:
- “Where necessary due to the fact that the adverse impact cannot be immediately brought to an end, develop and implement a corrective action plan with reasonable and clearly defined timelines for action and qualitative and quantitative indicators for measuring improvement. Where relevant, the corrective action plan shall be developed in consultation with stakeholders”.
In the ProTerra certification scheme, should non-conformities with the standard requirements (that are the ProTerra indicators), be identified during the audit (point Item 6.5 of the ProTerra certification Protocol), a corrective action plan should be submitted by the organisation to the Certification Body (CB). The plan should have detailed actions and a timeline to end the non-compliance. Only organisations that are able to solve the non-compliances with the ProTerra core indicators[5] can be certified.
ProTerra-certified organisations benefit by already having systematically practised the implementation and follow-up on corrective action plans, including those associated with suppliers. This is expected to make it easier to implement this requirement of the Directive.
Periodic assessments of operations
Article 10 introduces, amongst others, the “obligation for companies to carry out periodic assessments of their own operations and measures, those of their subsidiaries and, where related to the value chains of the company, those of their established business relationships, to monitor the effectiveness of the identification, prevention, mitigation, and minimisation of human rights and environmental adverse impacts. Such assessments shall be based, where appropriate, on qualitative and quantitative indicators and be carried out at least every 12 months and whenever there are reasonable grounds to believe that significant new risks of the occurrence of those adverse impacts may arise”.
ProTerra is based on a set of indicators that aim at minimising the adverse human rights and environmental impacts associated with food and feed production especially agricultural production, transport, storage, trading and processing[6]. Organisations wishing to be certified must be subjected to an independent third-party certification audit (assessments), that will assess compliance with the ProTerra indicators. ProTerra assessments involve the operations of the company and of its core suppliers[7]. In cases where there are many core suppliers, sampling may be used. The sample must be representative of the diversity of production methods and cover risk areas (ProTerra Audit Protocol item 6.4.2).
The frequency of ProTerra Assessments is once a year, except if any relevant fact is made public in the meantime deeming that a new audit is necessary. A relevant fact includes but is not limited to: fines, sanctions and investigations from/by public authorities that become publicly known associated with child labour, slavery, breaches of human rights, conflicts with traditional communities or indigenous populations, illegal deforestation, use of GMO material and major pollution events (ProTerra Audit Protocol).
Limiting global warming
Article 15 indicated that companies[8] “shall adopt a plan to ensure that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement. This plan shall identify, based on information reasonably available to the company, the extent to which climate change is a risk for, or an impact of, the company’s operations and in case climate change is or should have been identified as a principal risk for, or a principal impact of, the company’s operations, the company includes emission reduction objectives in its plan”.
ProTerra has a more rigorous approach as it requires that all certified companies[9] develop an inventory of their greenhouse gas emissions and a programme to reduce or compensate its emissions independently of a specific climate change risk. The ProTerra Foundation recognises that climate change is the key challenge we face as a society and emission reduction measures are urgently needed. Under ProTerra, certified organisations are stimulated to voluntarily make their GHG information public.
Additionally, certified organisations shall adopt practices to minimise the use of energy from non-renewable sources and to derive an increasing proportion of their energy from renewable sources such as solar and wind, or from local, recycled materials.
Conclusion
Synergies do exist between the Directive on Corporate Sustainability Due Diligence and the ProTerra Standard. ProTerra certification can support organisations in meeting the future requirements of the Directive special in relation to:
- Complying with regulations and international conventions;
- Implementing and maintaining a complaints procedure;
- Establishing contractual assurances and supporting SMEs;
- Establishing and completing a corrective action plan (including core suppliers);
- Yearly assessing operations (including the supply chain), and
- Limiting global warming.
References
- ProTerra Standard V4.1
- ProTerra Certification Protocol
- DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937