EU Supply Chain Directive: Obliging Companies to Ensure Respect for Human Rights and Environmental Protection

The EU wants to oblige companies to ensure that their suppliers respect human rights and environmental protection.

Red rag: It is difficult to find out whether textile production, for example, is fair here in Bangladesh Photo: Joy Saha/imago

BERLIN taz | The vote in the Legal Affairs Committee on Tuesday on the compromise on the EU Supply Chain Directive was not particularly spectacular with just 25 MEPs voting. They represent the most important factions in Parliament. After 10 minutes all points are accepted. The procedure belies the sleepless nights members spent negotiating red lines and the explosive nature of the issue.

The grievances along the supply chains are great. The pressure to produce cheaply and the lack of enforcement of laws lead to serious human rights violations among suppliers in many places. Slave labor on cocoa plantations, land evictions for oil drilling, air pollution, child labor in textile factories – the list is long.

Civil organizations have long been mobilizing for companies and investors to take responsibility for how their profits are generated – i.e. along the value chain. Some companies in the “high-risk” sectors, the textile and chocolate industries, are also campaigning for a supply chain law. They want legal certainty and the same rules for others. Ideally, self-commitments, which they adhere to anyway, should become law. The biggest opponents of the directive are the business associations – especially from Germany. They fear bureaucracy and competitive disadvantages.

Draft weakened

The EU directive on due diligence in supply chains is coming. Essentially, companies then have to analyze risks and take measures to rectify grievances. It is still unclear to what extent the interests of business associations and conservatives will prevail over left-wing forces in parliament. The compromise by the parliamentarians has already been significantly weakened compared to the initial draft. It is the basis for negotiations with the EU member states, which have much weaker regulation in mind. These are the points that cause controversy:

What trade associations have successfully prevented in the German supply chain law is still up for debate in the EU: civil rights to claim damages for those affected whose human rights have been violated, as well as for NGOs and trade unions. In addition, according to the wishes of the parliamentarians, a supervisory authority should be able to levy fines of at least 5 percent of global sales against companies that break the rules.

The demand that the burden of proof should be reversed, i.e. victims no longer have to provide evidence of injuries, but companies should prove their innocence, did not prevail in the legal committee. That would have lowered the threshold for access to justice for those affected. Business associations and Germany had also campaigned in the Council for a so-called “safe harbour” clause to be built in, which would define exceptions to civil liability, for example for companies that take part in voluntary commitment initiatives.

Company bosses should be able to be legally prosecuted

The EU parliamentarians also want to include the financial sector – but only its direct relationships and without liability. Nevertheless, the compromise continues to be rejected by the EU Council. He had suggested that member states should be free to decide whether due diligence obligations also apply to investors.

Originally, the legislative initiative also focused on corporate governance. Company bosses should be able to be legally prosecuted and their pay should be controlled. The demand that company managers should be bound to the 1.5-degree target of the Paris climate agreement has been retained in the draft by the EU parliamentarians. In the future, the payment of their bonuses should also be linked to how well they make their companies sustainable. An agreement with the EU member states on this is not in sight.

Another point of discussion is the scope of the law. The draft already covers more companies than the German supply chain law, which affects companies with more than 3,000 and next year more than 1,000 employees. The EU member states also support this. According to the wishes of the parliamentarians, however, the regulation should apply to companies with 500 and later 250 employees.

Restriction to direct suppliers

In addition, non-EU companies with sales of more than 150 million are affected, of which 40 million were generated in the EU. In the face of demands from civil society and the left-wing camp to oblige all companies, the compromise to define at least certain risk areas, such as the mining of minerals, the textile or cocoa industry, has not prevailed either. According to the current draft, companies affected by the regulation should control the entire chain in addition to their suppliers, including sales, distribution and logistics. Voices from the council and the trade associations call for a restriction to direct suppliers.

After the compromise was accepted by the Legal Affairs Committee, the EU Parliament still has to approve it. That is considered safe. Negotiations with the governments of the member states are to begin in the EU Council in the summer and the directive is to be adopted by the end of the year.