EU proposes rules forcing companies to assess supply chain for environment, human rights issues

The European Commission on Wednesday proposed a law to make
large corporations operating within the EU check whether their global supply chain
follows environmental standards and respects human rights.

The draft legislation, Corporate Sustainability Due
Diligence, will also ensure that companies and their business strategy align
with steps to limit global warming to 1.5 Celsius, as agreed under the Paris
climate agreement.

“We can no longer turn a blind eye on what happens down our
value chains,” EU justice commissioner Didier Reynders said.

ALSO READ: EU"
proposes rules to force firms in making data transfer easier for individuals

Under the proposal, companies will have to assess their
supply chains at least once a year and before taking any major business
decision to evaluate risks, including forced labor, child labor, insufficient
workplace safety, and environmental impacts like pollution and ecosystem
degradation.

If any company identifies such issues, it must implement a corrective
action plan to prevent or stop them.

99% of companies exempted

The proposed law would apply to companies with over 500
employees and a net turnover of more than 150 million euros, totaling around
13,000 EU firms and big corporations.

Companies in high-impact sectors like clothes, animals,
forestry, food and beverages, and the extraction of fossil fuels and metals are
also covered if their net turnover is over 40 million and employs more than 250
workers.

However, that totals around 1% of all the EU companies, and
most firms would be exempted.

“Mere mandatory Human Rights and Environmental Due
Diligence and a general provision on liability, applying to a minority of
companies, will not be enough to halt corporate abuse,” Giuseppe Cioffo,
Corporate Regulation and Extractives Officer at CIDSE, said.

The law would also apply to around 4,000 companies that are
based outside the EU but have operations within the EU and meet the turnover
thresholds.

ALSO READ: US"
lawmakers urge Biden to push for changes in EU’s Digital Markets Act

The proposal will become EU law after lengthy negotiations
with the European Parliament and 27 member countries and is likely to take more
than a year. Governments in the member states would monitor the compliance, and
companies would be charged penalties for ignoring the law.

Last October, the EU"
proposed new rules for gig economy companies, forcing them to classify
drivers, couriers, cleaners, and other workers as employees, with a minimum
wage, holiday pay, unemployment and health benefits, and other legal
protections.

Picture Credit: CNBC