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27th Mar 2023

EU plans to make supply chains greener, less abusive

  • Companies ignoring the rules would face fines and they would need to make sure victims get compensation from companies found ignoring the new rules (Photo: Sosialistisk Ungdom - SU)
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A proposal to hold EU companies accountable for human rights abuses and environmental violations throughout their supply chains was unveiled by the EU Commission on Wednesday (23 February).

But it emerged that 99 percent of businesses may be exempt.

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  • Companies must check regularly their supply chains to detect and mitigate forced or child labour risks (Photo: Nick Shaw / Banana Link)

The draft law would apply to very large EU companies (500 workers and net turnover of more than €150m) and some large firms (250 workers and net turnover of more than €40m) active in high-risk industries, such as agriculture and fashion.

Non-EU companies with the same profile would also fall under the rules.

Europe could no longer turn a "blind eye" to abuses such as child labour and exploitation of workers, or pollution and biodiversity loss, said EU justice commissioner Didier Reynders.

And while all of that sounds broad-reaching — the commission estimates some 13,000 companies in the EU and 4,000 non-EU companies would be covered — it still only represents around one percent of EU companies.

Dutch socialist MEP Lara Wolters, who led the European Parliament's work on the issue last year, said that the rules should fully cover all the supply chain of high impact sectors, such as oil extraction, ministry of agriculture, in order to be effective.

She warned that leaving out of the scope small- and medium-sized businesses in risk sectors could be a "potential risk" since they can contribute to abuses.

Obliged to hit Paris targets

The proposal introduces obligations for directors to ensure their business strategy is aligned with the 2015 Paris Agreement target of limiting global warming to 1.5 Celsius. And it also requires companies to include emission-reduction objectives in their operations plans.

Those companies covered will also have to apply due-diligence policies that involve regularly assessing their supply chains to detect and mitigate, among other issues, forced labour risks and environmental impacts like deforestation or water pollution.

But they can fulfil these requirements just by signing contractual obligations with their suppliers, and that is problematic for both MEPs and civil organisations who see a big loophole.

Wolters, the lawmaker, told reporters that the scenario was likely to work against proactive due diligence since it could effectively shift company obligations onto third parties.

Claudia Saller, head of the European Coalition for Corporate Justice, said in a statement that the initiative "fails to deliver on the potential" because many companies simply hide behind their supply chains "to avoid accountability and dodge difficult questions."

In principle, companies ignoring the rules would face fines and they would need to make sure victims get compensation from companies found ignoring the new rules.

But in practice there would likely be wide variations across the bloc since enforcement is left to EU member states.

The proposal, which has previously triggered internal disputes in the commission — forcing a delay of the draft law on at least two occasions — will first be discussed by EU governments and MEPs before entering into force.

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