MEPs have urged the European Commission to table an ambitious due diligence law obliging EU companies to address all aspects of their value chains that could affect human rights, the environment and good governance.
EU lawmakers backed a legislative initiative report by 504 votes to 79 on Wednesday (10 March), hoping that their proposals will feed into legislation that is due to be tabled by the European Commission in the coming weeks.
The Parliament’s proposal would require firms to analyse risks among their suppliers and to publish a due diligence strategy covering the whole value chain.
MEPs are anxious to ensure that the scope of the law covers large firms, listed small businesses and small businesses operating in high risk sectors.
Firms would also be required to “cease, mitigate and prevent” risks in their supply chains.
The report would leave firms breaching due diligence rules facing civil liability unless they could show that they have acted with all due care.
It does not include liability for serious offences, which are covered by criminal law.
Companies that want to access the EU internal market, including those established outside the EU, would have to prove that they comply with environmental and human rights due diligence obligations.
The Parliament also called for a ban on importing products linked to severe human rights violations such as forced or child labour.
“For businesses, we’re creating a level playing field and legal clarity. For consumers, we’re ensuring fair products. For workers, we’re enhancing protection. For victims, we’re improving access to justice. And for the environment, we’re taking a step that is very long overdue,” Lara Wolters, the Socialist rapporteur said during a debate in the Parliament on Monday (8 March).
“As long as we turn a blind eye to human rights violations in corporate value chains, we reward those who break the laws. It should be other way round. Through setting a legal standard we give responsible and sustainable companies a business advantage,” Heidi Hautala, the Green group’s spokesperson on the file, told EURACTIV.
EU lawmakers have been campaigning for legislation on companies’ due diligence for close to a decade. The EU’s Justice commissioner, Didier Reynders, has said that he will propose legislation in the second quarter of this year.
Some in the business community have expressed concern that the new regulatory requirements would impose additional costs and put them at a competitive disadvantage. Others have asked for small firms to either be fully exempted or assisted so they do not face an unrealistic bureaucratic burden.
However, there has been a shift by the business community on the need for harmonised due diligence. A handful of European countries, including France and the Netherlands already have national legislation on supply chain due diligence. And there is growing evidence that consumers increasingly want to shop ethically.
In February 2020, the Commission published a study which found that only one in three companies in the EU is currently taking some form of due diligence measures while 70% of European businesses support EU-wide due diligence rules.
“There is now a clear consensus across political divides that European companies need to put people and planet before profit,” said Richard Gardiner of the NGO Global Witness in a statement.
“Commissioner Reynders now has a clear mandate to move swiftly to propose legislation that mandates human rights and environmental due diligence across all sectors, including finance, and that holds companies liable for harms that occur in their value chains.”
[Edited by Frédéric Simon]