The European Parliament’s Committee on Legal Affairs (JURI) is set to vote on Wednesday 27 January on the draft report by Lara Wolters (S&D, the Netherlands) which sets out Parliament’s expectations on due diligence in the corporate supply chain with regard to human rights and the environment, pending the legislative proposal promised in 2021 by the European Commission (see EUROPE 12477/24).
More than 800 amendments were submitted for the initial draft report, in which the MEP took a very broad approach, which was probably a little too far-reaching in the eyes of the EPP and ECR groups (see EUROPE 12569/20).
According to our information, there has been a lot of debate internally and the rapporteur’s ambition has received some backlash from pro-industrial groups.
A recent letter from German CDU/CSU deputies, including MEP Axel Voss (EPP, Germany), calling on the European Commission to introduce an alternative proposal—one that would not aim to implement corporate due diligence, but rather focus on digital workplace certifications—has caused some stir.
After some concessions on the level of detail in the report, there now appears to be a political consensus among the groups.
A broad obligation
According to the compromises put together by the political groups and seen by EUROPE, the text should require the future directive to ensure that companies operating in the internal market fulfil their obligation to respect human rights, the environment and good governance and do not contribute to negative impacts on those through their own activities or those directly related to their operations, through a business relationship or in their value chains.
Businesses would therefore be required to take all appropriate measures to prevent and remedy any negative impacts they might have, should they occur.
They should also establish a due diligence strategy, specifying the negative impacts on human rights, the environment and good governance that are likely to be manifested in their activities, as well as their degree of severity and likelihood.
The political groups also agreed that the future legislation should apply to large companies governed by the law of a Member State or established in the EU, as well as to listed SMEs and high-risk SMEs–which should be defined by the Commission in the directive.
The future legislation is also expected to apply to these same categories of companies, if they are governed by the laws of a third country and are not established in the EU when operating in the internal market by selling goods or providing services.
In addition, the text provides for specific measures for SMEs and micro-enterprises, which should be able to obtain advice and financial support to fulfil their due diligence obligations.
Liability and sanctions
In addition, the Parliament text should demand that future legislation will: – ensure that companies can be held accountable, in accordance with national law, for the negative impacts on human rights, the environment and good governance that they cause or contribute to in their value chain; and – seek to ensure victims’ access to remedies.
In addition, companies should be required to establish a ‘grievance mechanism’ that allows any stakeholder to express reasonable concerns about the existence of a potential negative impact.
Parliament is also expected to call for investigative and sanctioning powers for the competent authorities of the Member States in case of non-compliance with the obligations. They could impose fines in proportion to a company’s turnover, temporarily or indefinitely exclude companies from public procurement and State Aid or impose other administrative sanctions.
“A crucial moment”
“This is a crucial moment for this file, and we urge MEPs to follow up on their commitments and vote to support this report”, said Richard Gardiner, senior Campaigner Corporate Accountability at Global Witness.
In his view, the Parliament report should be seen as a statement of intent of the level of ambition needed. “It shouldn’t be seen as a fixed position, but rather as giving the Commission the confidence that it can do something very ambitious”, he explained to us.
In particular, Mr Gardiner felt that the Commission should go further in consulting stakeholders, which he believes is an essential element of meaningful due diligence.
“[What Parliament] is proposing on liability is a game changer. Now, the Commission needs to expand it and allow the victims outside the EU, that were affected by companies linked to EU companies in their supply chain, to access Justice in EU courts”, he added. (Original version in French by Marion Fontana)