Restructuring your supply chain to achieve sustainability targets
There is a growing need for integrating sustainable choices into supply-chain management. Before the COVID-19 pandemic, many companies organized their supply chain in such a way that they included long and complex supply chains cross-continent (often in Asia and in particular China) and were highly dependent on deliveries from international suppliers. Companies usually had low stock to reduce their (storage) costs. The COVID-19 pandemic has shown how fragile these supply chains are when the world locks down and borders close. Companies struggled with the problem of shortages of supply. The trend to produce ‘closer to home’ and shorten supply chains is now accelerating, and not only to lower risks related to uncontrollable and external worldwide crises. Producing locally and shortening supply chains also have a considerate impact when looking at sustainability and environmental aspects, such as the reduction of greenhouse gas emissions and depletion of natural resources and soil. Businesses and consumers are more than ever aware of their environmental footprint when selling or buying goods and services.
This article provides an overview of the most pressing legislative- and policy developments and aspects to consider when making changes to green up and optimize the supply chain, when coordinating a sustainability agreement with other parties in the chain or competitors to help realize climate objectives, and when making sustainability claims when selling goods and services in the EU.
Legislative- and policy developments:
The transition to a more sustainable climate and environment is high on the agenda of EU and Dutch policy- and lawmakers. Following the international ambitions under the Kyoto Protocol and the Paris Agreement on climate goals, the European Commission published an ambitious proposal for a Green Deal  in 2020. Subsequent Action Plans on a circular economy and zero-pollution stress the need for companies to review and adopt changes to their supply chains and give companies a push in the right direction. The Green Deal requires all economic industries cooperate to invest in environmental friendly techniques, help businesses to innovate, secure clean, more affordable and healthy forms of transport, secure more energy-efficient buildings, and cooperate with international partners to meet climate global environmental standards. Main pillars include the insurance of more sustainable, more environmentally-respectful production cycles and measures to cut environmental pollution rapidly and efficiently. Recent legislative- and policy developments that influence a company’s sustainability strategy include – amongst others – the:
- European Commission Initiative on Sustainable Corporate Governance;
- European Commission Proposal on Corporate Sustainability Reporting;
- European Commission Initiative on Empowering the Consumer for the Green Transition;
- Dutch Authority for Consumers and Markets (ACM) Guidelines on Sustainability Agreements;
- ACM Guidelines on Sustainability Claims;
- Dutch bill on Responsible and Sustainable Business Conduct ;
The next paragraphs will focus on some valid legal questions in this context, reviewed under different areas of EU and Dutch law.
The COVID-19 pandemic has accelerated the growth of e-Commerce which has increased delivery related carbon emissions. Companies in the retail industry may be challenged with an increase in demand and pressing logistic questions, and above that to meet the net-zero emission pledges. This requires them to look into their logistics and operating systems. For example, optimizing routing to lower fossil fuel consumption, use order batching to decrease the number of routes and miles
driven and other ‘tech’ driven solutions such as 3D load optimization that ensures delivery vehicles carry their full capacity. The adoption of such logistic changes require existing contracts to be reviewed, updated or terminated and may also require new contracts to be negotiated an drafted. In order to make changes to an existing distribution agreement, parties generally require the consent of the other contracting party, unless the possibility of one party to make unilateral changes has been priorly agreed upon through a clause in the agreement or general terms and conditions.Yet not all counterparties are willing to adopt sustainability strategies as this oftentimes results in costs increases (e.g. when a seller requires its resellers to contract with electric delivery services). To leverage bargaining powers and get sustainability deals through, companies higher in the supply chain could consider giving temporary discounts to their resellers or other forms of compensation.
Sustainability Agreements: the Opportunities under Competition Law
Policy- and law makers see an opportunity for competitors and parties in a certain chain to work together in combating the climate crisis and protect the environment, biodiversity, climate, public health, animal welfare, fair trade and working conditions (i.e. child labor). However, cooperation with competitors is very sensitive under competition law and therefore competing parties may be reluctant to initiate together sustainability initiatives. This is something the ACM wants to avoid. To open up more opportunities for businesses to collaborate to achieve climate goals, the ACM recently published a draft ‘Sustainability Agreements Guidelines’ (“Guidelines”). The Guidelines give businesses more scope to collaborate to achieve sustainability goals without breaching competition rules. In the Guidelines, it is explained in what situations competitors are able to work together in order to help combat the climate crisis, and to realize other sustainability objectives. Businesses get more opportunities for making arrangements, particularly for realizing climate objectives, such as reducing CO2 emissions. Sustainability agreements between competitors are allowed if the benefits for society as a whole offset the drawbacks of the possible restriction of competition. This is a new assessment, as under the current rules the benefits for ‘users’(lower carbon emissions) must be equal to or greater than the disadvantages for those users (price increase). Hence, under the new rules it is no longer required that users are fully compensated for the harm caused by the restriction of competition resulting from the agreement. This means that the benefits will more quickly outweigh the disadvantages and the agreement will be more easily allowed under competition law.
By publishing the Guidelines, the ACM has taken a leading position in Europe. The Guidelines have a broader interpretation of the European rules. Vestager (European Commission) recognizes the importance of the Dutch Guidelines and aims to implement a uniform approach.
Sustainability Claims, Labeling and Certification
CE marks and quality labels (organic, biologic, etc.) play an important role from a product compliance perspective but also from a marketing perspective, because consumers find it more and more important to make a sustainable purchase. ACM takes the stance that consumers must be able make a well informed choice. Certification labels play a key role in that process. ACM announced it will provide more information about certification labels to increase awareness of their reliability, and to taking stricter enforcement action in the case of misleading practices. Further, ACM requested businesses to stop using individual company logos that create the impression they meet some sort of statutory standard, to reduce the number of certification labels, and to make a greater effort in creating high-quality, uniform labels. Moreover, ACM requested the Dutch legislature to introduce stricter rules for certification labels.
Besides ACM’s initiatives regarding certification labels, the ACM launched investigations into misleading marketing sustainability claims in the fashion, dairy and energy sector (for example: ‘This t-shirt made of organic cotton’ “The majority of our green power is generated in the Netherlands”, etc.), The ACM sent letters to more than 170 companies in these three sectors requesting them to check the accuracy of their sustainability claims in all their “communication channels” (both online and offline), and if necessary, adjust these claims to comply with the unfair commercial practices legislation. In particular, the ACM requests companies to comply with the Guidelines Sustainability Claims it published on 28 January 2021. In these Guidelines the ACM has drawn up five rules of thumb for businesses to prevent their sustainability claims from being unclear, incorrect or misleading for consumers. The ACM intends to continue the investigation from 14 June 2021. As of that date, companies making sustainability claims that do not comply with the legislation run the risk of getting fined by the ACM
Sustainability is a hot topic for both law makers and authorities. The Dutch competition and consumer authority (ACM) takes a leading role in Europe by drafting guidelines that provide more room for businesses to collaborate to achieve sustainability goals without breaching competition rules. Based on this guidance, companies can verify whether new collaboration initiatives or new sustainability projects are compliant with competition law.
The ACM takes a strict approach on ‘green claims’, e.g. emphasizing the sustainability benefits of products or services for marketing purposes. Companies that are using misleading certifications, labels or sustainability claims run the risk of getting fined. Fines can be as high as 900,000 euros per violation or a percentage of the companies’ turnover. ACM initiated several investigations, following up on its policy. We advise checking sustainability claims for compliance with the applicable legislation. Making your supply chain more green often requires review or renegotiation of existing contracts, updates or terminations of existing relationships with suppliers or buyers. Reforming the supply chain is best done on the basis of accurate and up to date contract management information including a clear overview of expiry/termination dates, amendments and break out options of existing contracts to prepare for “greener contract negotiations” or “transition of the supplier base”.
Martine combines in depth knowledge of EU and competition law with a deep understanding of commerce and trade. She is praised for her ‘sharp strategic insight, knowledge and creativity in providing solutions’. She handles litigation in a ‘smart, assertive and effective’ manner.
Martine leads cases on abuse of dominance, vertical restraints and transfer of technology. Martine advises and handles disputes on tying, pricing, rebates, trademark and patent licensing and know how. With her lifelong focus on the fashion and retail sector she acts for her clients on internet sales restrictions, third party platform restrictions, geoblocking, dynamic pricing, omnichannel (seamless marketplace), e-commerce, inventory sharing, dual distribution, horizontal and vertical data sharing, loyalty programs and big data.
She structures complex international cooperation such as joint ventures, outsourcing and vertical (channel) agreements. Martine is an ‘outstanding knowledgeable authority on strategic competition law relating to franchising. She represents domestic franchisers in their international expansions plans and also assists foreign clients with establishing a presence in Europe, the Middle East and Africa’. Martine is a ‘shrewd contract drafter and negotiator’. She handles sales, manufacturing, procurement, logistics, transportation, warehousing, joint ventures, outsourcing and other domestic and international commercial contracts and related disputes. She also practices in customs and trade, and product safety and compliance. Martine’s interests include international trade unions and treaties (EU, WTO, ASEAN, APEC, NAFTA, Caricom) and exports regulations and sanctions.