Brussels prepares stricter rules on supply chain liability
European companies could be sued for environmental, human rights violations in their supply chains
Supply chain under scrutiny
One of the more vexed and contested proposals in the commission’s legislative portfolio is getting closer to its debut, write Sam Fleming, Mehreen Khan and Andy Bounds in Brussels.
Proposals for rules on sustainable corporate governance, which were knocked back twice last year by the commission’s internal regulatory scrutiny board, are tentatively scheduled for release in the middle of February.
The commission has yet to finalise the provisions, but under the current draft large companies could find themselves taken to court if they fail to do enough to crack down on human rights or environmental abuses in their supply chains, according to people familiar with the discussions.
The rules would apply to companies with more than 500 employees and €150m of annual revenues. There may be an additional category for “high-risk” sectors such as mining, which apply to 250-500 employees. Smaller companies would be exempt.
The mooted regime, which is being spearheaded by Didier Reynders, the justice commissioner, has had a fraught genesis. Earlier ideas, including the possibility of forcing companies to withdraw certain non-compliant products from the single market, have not made it into the latest draft — although there is plenty of scope for things to change.
Reynders told the FT this month that the commission will come forward with an “ambitious proposal on due diligence, concerning environmental issues and human rights issues” — with the goal of landing the proposals in the first quarter of the year.
“We will start with large companies — we don’t want to put too many burdens on SMEs,” he said.
Members of the European parliament have been pushing hard for tighter rules, in part because of concerns over the use of forced labour in China’s Xinjiang region. Member states including Germany and the Netherlands have been moving forward with their own regimes.
The legislation would allow companies to be taken to court by injured parties if they fail to meet the required due diligence standards, while also permitting EU member states to introduce financial penalties. Companies would need to show they have properly examined risks in their supply chains.
The commission declined to comment on the details of the proposals, which are also being overseen by Vera Jourova, commission vice-president.
Heidi Hautala, a Finnish Green MEP, said that without access to justice for victims of abuses covered by the directive the instrument would have almost no meaning. “It is something real, if the companies have to do everything in their power to identify the salient risks in the supply chain and work on those risks,” she said.
Business groups, while backing an EU-wide framework, have expressed concerns about the proposals. “The new rules should not task European companies with solving problems out of their scope, mixing up the roles of companies and governments,” said BusinessEurope, which represents the bloc’s large employers.