Clifford Chance

The EU Batteries Regulation promotes a circular economy throughout the entire life cycle of batteries. Its adoption by the Council on 10 July 2023 completed the legislative procedure.

The batteries sector is constantly moving, not least due to the growth in electric mobility. The new EU regulation on batteries and waste batteries ("Batteries Regulation") repeals the existing 2006 batteries directive and is part of the European Green Deal. It aims to strengthen the functioning of the internal market and reduce environmental and social impacts through all stages of the battery life cycle.

Promoting a circular economy

The Batteries Regulation addresses the entire battery life cycle, from design to end-of-life, and aims to promote a circular economy. It lays down requirements on sustainability, safety, labelling, (CE) marking and information to allow the placing on the market or putting into service of batteries within the EU. Those obligations inter alia include information on battery components and recycled content, individual "battery passports" and QR codes. It also sets out minimum collection targets and obligations regarding the treatment of waste batteries including targets for the recovery of materials (e.g. lithium and cobalt) with a view to increasing sustainability in the batteries sector. Covering all categories of batteries, including portable batteries, transport batteries, electric vehicle batteries and industrial batteries, the Batteries Regulation has a broad application.

Battery due diligence obligations for economic operators

The Batteries Regulation sets out extensive due diligence obligations for economic operators seeking to make batteries available or putting them into service on the EU market for the first time. The term "economic operator" is to be understood broadly and includes manufacturers, importers and distributors of batteries.

In general, these economic operators that place batteries on the market or put them into service for the first time are required to carry out battery due diligence. Economic operators that had a net turnover of less than 40 million Euro in the financial year preceding the last financial year (and that are not part of a group, consisting of parent and subsidiary undertakings, which, on a consolidated basis, exceeds the limit of 40 million Euro) are exempted.

Key due diligence requirements

To a large extent, the battery due diligence requirements build on the typical core elements of corporate due diligence, such as risk management and analysis, implementation of remedial actions and documentation. However, whilst general corporate due diligence focusses on risks a company may be exposed to, the newly introduced battery due diligence focusses on risks for people and the environment resulting from the companies' operations in the battery sector.

Economic operators will need to establish and implement battery due diligence policies and processes to fulfil their obligations, and their policies must be verified by a notified body and periodically audited. The Batteries Regulation itself does not determine who these notified bodies are but rather leaves it up to the Member States to appoint bodies authorized to carry out conformity assessment bodies, i.e. the notified bodies. In any event, the conformity assessment body must be a third-party body independent from business and as regards the batteries it assesses, in particular independent of battery manufacturers, the battery manufacturers’ trade partners, shareholding investors on the battery manufacturers’ plants.

In this context, an economic operator will be required to inter alia:

• adopt and clearly communicate to suppliers and the public, a battery due diligence policy for certain raw materials (i.e. cobalt, natural graphite, lithium, nickel and chemical compounds based on these raw material, which are necessary for the manufacturing of the active material of batteries), and associated social and environmental risks;
• incorporate standards in their battery due diligence policy which are consistent with internationally recognized due diligence standards including the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises;
• assign responsibility to top management to oversee the battery due diligence policy and maintain records for a minimum of ten years;
• establish and operate systems of controls and transparency over supply chains, including chains of custody, traceability systems or identification of upstream actors in the supply chain; and
• incorporate its battery due diligence policy (including risk management measures) into supplier contracts and agreements.

Especially with regard to the latter it seems likely that economic operators will pass on certain due diligence obligations to their suppliers through contractual agreements. For example, economic operators are obligated to introduce a system of controls and transparency regarding their batteries supply chain, with which they can identify all upstream actors in their supply chain. Especially in the case of long, global supply chains, economic operators are hereby dependent on information received from their suppliers on the supplier's own value chain. In practice, this is likely to lead to companies that do not fall directly within the scope of the Batteries Regulation being at least indirectly affected.

In line with other EU due diligence requirements, the economic operator is required to establish a grievance mechanism including an early-warning risk-awareness system and a remediation mechanism. Companies will need to ensure that any grievance mechanisms they have already implemented, for example, under different EU due diligence schemes, are fully in line with the Batteries Regulation's requirements. In this respect, the Batteries Regulation references the UN Guiding Principles on Business and Human Rights. Please see here and here for previous briefings and talks regarding grievance mechanisms and remedy in the context of the UN Guiding Principles on Business and Human Rights.

The economic operators must also:

• document specific information about raw materials used in batteries they are placing on the EU market, such as the name and address of the supplier, the country of origin and the quantities of the raw material present in the battery;
• carry out a risk assessment to identify risks of adverse impacts in its supply chain. In order to respond to identified risks, they will be required to design and implement a strategy to prevent, mitigate and otherwise address adverse impacts by (for example) adopting risk management measures and where necessary taking steps to exert pressure on suppliers; and
• keep documentation demonstrating the fulfilment of the due diligence obligations for ten years after the last battery manufactured under the economic operator's battery due diligence policy has been placed on the market.

A lack of consistency in EU due diligence schemes creates challenges

The EU Batteries Regulation is just one of an increasing number of EU legislative acts imposing new due diligence obligations on companies, including requirements covering environmental and social impacts. In particular, economic operators that are subject to the Batteries Regulation may well also be subject to the EU Conflict Minerals Regulation which entered into force in 2021 (further information on the Conflict Minerals Regulation can be found here). In addition, the draft Directive on Corporate Sustainability Due Diligence ("CS3D") currently being debated in the EU Trilogue procedure provides for extensive additional environmental and human rights due diligence obligations for companies. In contrast to the Batteries Regulation, the CS3D does not focus on specific sectors or products but will apply to companies if they exceed certain employee and/or net turnover thresholds. Therefore, at least large economic operators that need to comply with the Batteries Regulation will likely also be subject to the CS3D (please refer to our recent blog post on the draft CS3D for further details).

Although these due diligence schemes all originate from the EU legislator, some inconsistencies are already apparent. Overcoming these inconsistencies in practice and ensuring compliance with all relevant requirements will be challenging for companies. However, all these due diligence schemes have been modelled with an eye to the due diligence processes of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. These two non-legally binding international standards therefore serve as valuable guidance for the adaptation and refinement of companies' internal risk management systems to create a platform on which to comply with each of the EU's new EU due diligence obligations seeking to identify and address adverse impacts on people and the environment.

What's next?

The Batteries Regulation is immediately applicable in the Member States and does not need to be transposed into national law. The Batteries Regulation will soon be published in the Official Journal of the EU and will enter into force 20 days afterwards. However, the due diligence obligations for economic operators will only apply from 24 months after its entry into force, i.e. in summer 2025. The EU Commission is required to publish guidelines regarding the application of the due diligence obligations in Q1 2025. Companies will have to consider carefully whether it will be feasible to wait until then before beginning to develop policies, processes and systems that will allow them to comply with the Regulation's requirements.