Looking back on 2016, it was without doubt a year of political upheaval and increased scrutiny on the environmental, social and human rights implications of government regulations, corporate practices and consumer habits. In 2017, these changes will fuel additional compliance considerations for corporate supply chains around the world.
While the future is anything but certain, our regulatory experts have taken some of the guess work out of helping your compliance team plan for a successful 2017. The following list provides an overview of the biggest trends to look out for in the compliance industry in the coming year.
In brief, our experts note the year will be dominated by discussions over the phase-out of restricted substances, the influx of reports to meet this year’s regulatory deadlines, intensified focus on human rights violations and conflict-related materials, and new opportunities to combat bribery and corruption in the corporate sector.
REACH Authorizations and Restrictions
The Substances of Very High Concern (SVHC) Candidate List increases year after year, and 2017 will be no exception. In 2016, five new substances were added to the list, meaning 2017 will see companies make significant adjustments to their production activities in order to remove these from their supply chains. The particular significance of these additions for 2017 is underlined by the Forum for Exchange of Information on Enforcement’s commitment to enforce Article 33 of the REACH regulation during 2016/17, based on the European Court of Justice’s (ECJ) ruling of ‘Once an Article, Always an Article’.
The Annex XIV list for Authorization and the Annex XVII list for restriction are also undergoing constant expansion. For Authorization, a number of ‘Sunset Dates’ will fall within 2017 making it essential for companies to conduct proper due diligence measures to determine if their products contain substances in scope of the regulation, and to implement sound obsolescence management programs to avoid production disruptions.
A surge of substance registration filings is also expected during 2017 in anticipation of the EU REACH registration deadline on May 31, 2018. This is particularly significant given that all new substances not included under the 2010 and 2013 deadlines, yet which were manufactured in or imported to the EU in qualifying amounts since this time, must be registered by this deadline. This will create increased workloads for many small and medium sized enterprises (SMEs), making it important for them to ensure they don’t leave registration to the last minute.
Companies in scope of RoHS will work to implement the June 2015 amendment to Annex II of EU RoHS 2 (Directive 2011/65/EU) which adds four new substances (Phthalates, typically used to soften plastics) to the list of restricted substances. This brings the total number of restricted substances on the list to ten. While the rule does not come into effect until July 2019 with the exception of Category 8 products (medical devices) and Category 9 products (monitoring and control equipment) (which have an additional two years to comply by July 2021), 2017 will be a year in which companies need to begin or ramp up their efforts to remove these substances from their production activities.
Additionally, 2019 also marks the year when restrictions for Category 11 items (i.e. all other miscellaneous Electrical and Electronic Equipment or ‘EEE’) will come into effect. This will require companies to gather accurate supply chain data to underpin timely changes to suppliers, product lines, production processes, and to conduct inventory actions as necessary.
Increased Focus on Corporate Respect for Human Rights
Around the world, governments, companies and consumers are becoming increasingly concerned with the responsibility of businesses to ensure respect for human rights, with a particular focus on the risks associated with forced labor and trafficking in supply chains. This was reflected in the multitude of national and regional regulations on modern slavery and anti-human trafficking (AHT) throughout 2015 and 2016, and will be continued in new regulations expected to arise in 2017. Furthermore, by the end of 2017 a range of companies in scope of the UK Modern Slavery Act will be required to publish their slavery and human trafficking statement online or face the risk of an injunction and/or fines.
This shift toward greater accountability in supply chains will be particularly evident in Europe this year where Member States were expected to transpose the Non-Financial Reporting (NFR) Directive into national legislation by December 6, 2016. The Directive requires certain companies to publish annual risk assessments and reports on environmental, social and employee issues, respect for human rights, diversity in their board of directors, and anti-bribery and anti-corruption (ABAC). As indicated in the EU’s political agreement of June 2016, companies will also be expected to report on conflict minerals under the EU NFR Directive. The EU is expected to officially release its Regulation on Conflict Minerals during 2017.
The UN Guiding Principles on Business and Human Rights are also being transplanted into national legislatures around the world, with a total of 12 states already having released National Action Plans (NAPs) to this effect. A further 26 states are currently in the process of developing NAPs. The rise of these kinds of regulations focused on respect for human rights make it essential for companies to implement strong due diligence plans so as to avoid the financial, legal and reputational risks associated with these issues during 2017 and beyond.
New Tools to Facilitate Anti-Bribery and Anti-Corruption Compliance
ABAC regulations will remain a critical consideration within ethical supply chain management decisions and compliance planning. This is particularly relevant given the introduction of the ISO 37001 Anti-Bribery Management Systems designed to assist companies in preventing, detecting and remedying bribery and corruption in their supply chains.
Specifically, ISO 37001 can be utilized by companies throughout 2017 to keep pace with the ABAC regulations now flooding the international market, which are being modeled after the Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Companies in scope of these ABAC provisions should consider utilizing the ISO systems to facilitate the implementation of training, assessments, due diligence processes, management structures, third party intermediary risk assessment and reporting procedures in 2017 to mitigate the risk of non-compliance.
Cobalt: The Next Conflict Mineral?
In the European Union and United States, legislators are seeking to pass laws which would classify cobalt as a conflict mineral under Dodd-Frank Section 1502. The Dodd-Frank Act was enacted with the goal of preventing armed groups in the Democratic Republic of the Congo (DRC) from benefiting from the sale of conflict minerals, specifically tin, tungsten, tantalum and gold (3TGs).
However, legislators are on the cusp of developing a more comprehensive law that would include cobalt on the list of conflict minerals. This comes on the back of a report released by Amnesty International in January 2016 describing the life threatening labor conditions in the cobalt mining industry in the DRC.
If included in conflict mineral regulations, a range of companies could suddenly fall within the scope of Dodd-Frank, and would be required to perform the risk assessment and reporting obligations associated with this act. The trend towards widening definitions of what constitutes a conflict mineral makes it a business imperative for companies to know and understand their own supply chains to determine whether they are at risk, to remedy any outlying issues, and to stay ahead of the regulatory environment in which they operate.