The European Commission is by the end of the year set to propose new rules subjecting companies to stricter controls in a bid to encourage them to ensure suppliers respect human rights and do not harm the environment.
The Commission says the rules will aim to balance companies’ capacity to control what happens in their global supply chain, especially small and medium-sized businesses (SMEs), with the need to improve the oversight of the private sector’s impact beyond Europe’s borders.
“It is important that we respect inside and outside the EU the same principles and values,” Lucrezia Busa, a cabinet member of EU Justice Commissioner Didier Reynders, told an online EURACTIV debate on the subject on 9 March. “I am sure we will get it right.”
The Commission’s proposal will take into account the impact of companies’ activities on different stakeholders, including workers and consumers, especially in regards to risks affecting the environment, human rights or labour rights.
The new rules are set to expand upon similar legislation already seen in a number of European countries.
Socialist MEP Lara Wolters told the same event that these national rules are either limited to only the largest companies, as in France, or to combat specific issues, such as in the Netherlands, where the rules are aimed at tackling foreign child labour.
The EU proposal is expected to be more comprehensive across the bloc, covering a range of issues and widening its scope to include SMEs.
The European Parliament’s due diligence report, which is set to help to prepare the ground for the Commission proposal, was approved by a cross-party majority on 10 March.
“The EU can take our responsibility and leverage our 450-million-consumer market” to protect the environment and human rights, said Wolters, who acted as rapporteur for the report.
But firms are concerned about the ample scope of the proposal.
“Companies understand the importance of preventing and mitigating risks that can occur in the supply chains but cannot be made responsible for any impacts in the chain that are completely out of their control,” said business group BusinessEurope back in January.
Winand Quaedvlieg, vice-president of the Employers’ group in the European Economic and Social Committee, warned the initiative as it stands includes “unclear definitions, has a catch-all approach of value change suppliers and stakeholders, includes open and vague norms and draconian sanctions”.
He hoped that there would be a “very serious impact assessment” before any legislation is established, because businesses would be weakened after the pandemic and the extra administrative burden could be too costly to them.
But Wolters argued that the initial report had been kept deliberately “vague” because “we want proactiveness from companies” and to avoid being “overly prescriptive.”
“We went all in for proportionality” she added, promising that companies would not be overloaded with obligations. Instead, firms should prioritise the risks that are “more salient” in their supply chain and address them first.
The rules will ask companies to do only “what reasonably can be expected of them,” Wolters said.
Not all SMEs will be covered, only those listed or facing risks in their value chain, such as the garment industry or minerals in conflict regions. SMEs could also apply to be exempted from the rules, if they can present valid reasons, she said.
Bertram Kawlath, vice-president of German Mechanical engineering association of VDMA, argued that as many firms depend upon a vast number of suppliers across different countries, the rules should only cover so-called tier one suppliers, those delivering parts or systems.
“It should cover things that I can really control,” Kawlath said.
He also expressed concern about potential legal consequences that business leaders might face under the new legislation. “There is personal prosecution looming,” he added.
But civil society organisations argued that this was not the end goal of the proposal.
Tim Gore of the Institute for European Environmental Policy said the expectation was for companies to “know more about their supply chains, and [become] … more transparent about their risks.”
He admitted it would be a “daunting process” for big companies with thousands of suppliers, such as supermarkets, but pointed to tools that can help firms prioritise which risks they want to tackle.
The Parliament’s proposal does not include personal liability at this stage, though this is the stated aim of some groups, among them the European Center for Constitutional and Human Rights.
[Edited by Josie Le Blond]