Supply chain divergence challenges a ‘Brussels effect’ from Europe’s human rights and environmental due diligence laws

Human rights violations and pressing environmental issues have tainted agricultural trade. The role of international market demand for commodities such as soy in causing those problems is clear, yet they remain mostly unaddressed. Therefore, European countries have led a new global trend on mandatory human rights and environmental due diligence (HREDD), advancing the EU’s growing global regulatory ambitions. Here, the authors analyse the prospects for successful externalisation of Europe’s sustainability standards – a ‘Brussels Effect’ – using Brazilian soy as a case. Their analysis exposes how the practice of supply chain divergence (i.e., the segmentation of exports tailored to different consumer requirements) can easily evade policy impacts and negate their additionality where Europe commands a minor market share. To avoid becoming just a niche market in these cases, the EU would need to expand on its actions, (i) engaging with other major consumer countries to export its standards, (ii) doubling down on HREDD’s coverage to include financial actors and companies trading with other markets, or (iii) moving beyond ‘do no harm’ policies to adopt more strategically targeted ‘do good’ instruments to counter drivers of deforestation on the landscape level.

Policy implications

• Europe’s diminishing market share of forest-risk commodities such as soy and exporters’ proven ability to segment supply chains to meet different consumer requirements (i.e., supply chain divergence) severely limit the impact of human rights and environmental due diligence laws. Additional policies are needed to prevent Europe from simply becoming a niche market.
• A ‘Brussels Effect’, i.e., the adoption of environmental and human rights standards beyond Europe’s supply chains to make more than just a dent in tropical deforestation and other sustainability issues, depends either on their adoption by Asian consumer markets or on Europe imposing its standards on companies that trade or finance those commodities irrespective of who consumes them.
• Yet, sustainability transformations in critical landscapes of concern such as the Amazon or the Cerrado require that ‘do no harm’ policies such as human rights and environmental due diligence be strategically combined with ‘do good’ policies, supporting alternatives that meet local development needs sustainably.
• Concerned demand-side actors in Europe or elsewhere can proportionately play a much more significant and outsized role by catalysing landscape-level transformations through engagement with other producer country actors – outside forest-risk commodity supply chains – devoted to more sustainable land uses (e.g., Indigenous peoples, smallholder farmers), who would benefit from financial support and could hedge against drivers of deforestation. This requires thinking beyond the due diligence toolbox to strategically combine it with foreign development aid and possibly foster new sustainable supply chains.