Due diligence: EU lawmaker vote in favour of a common position on EU rules to hold companies accountable for human rights

By

Matthieu Guinebault

Translated by
Cassidy STEPHENS

Published
Apr 25, 2023

European Union lawmakers on Tuesday backed rules requiring thousands of large companies to identify, prevent and remedy human rights abuses, such as child labour or slavery, and environmental damage caused by their suppliers.

The European Parliament's Legal Affairs Committee has voted in favour of the draft directive on corporate social and environmental due diligence. This measure follows the "duty of care" adopted in 2017 in France, which has since been applied in Germany.

Thanks to this agreement between the parties, legislators can now begin negotiations with the EU member states, which have already reached a common position, that should start to be implemented in stages from around 2030.

EU companies will have to comply with the legislation if they employ more than 250 people and have a turnover of more than €40 million ($44 million). Non-EU companies from the US and elsewhere with a net turnover of at least €40 million in the EU would also be affected.

Tuesday's agreement excludes small and medium-sized companies from the scope, following opposition from centre-right parties.

Lawmakers backed a legal obligation for managers of companies with more than 1,000 employees to be responsible for implementing a carbon reduction plan. Member states will have to provide for sanctions in case of non-compliance.

Scope criticised as limited

Last December, EU member states agreed to include the financial services sector as an option. On Tuesday, members of the European Parliament made its inclusion mandatory, although with some concessions for fields such as asset management.

"It is disappointing that MEPs backed plans that would mean many of the EU's biggest companies would not have to lift a finger until 2030 - this is time we cannot afford to lose," said Aurelie Skrobik, Global Witness' corporate responsibility campaigner.

Last year, textile federations in seven European countries expressed concerns about the proposed duty of care, fearing that it would distort competition even between national players. NGOs deplored the text, which they considered disappointing, and denounced the shortcomings and gaps in the draft.

Lawmakers want to start negotiations with EU member states for a final agreement by the end of the year, after a parliamentary vote on tuesday's agreement around June 1.

The date of entry into force of the financial services agreement and the number of companies affected will be key issues in the negotiations with EU states, but climate lobbyists say some lawmakers may question parts of Tuesday's deal in the June plenary vote.