EU Set to Pass Supply Chain Rules, but They're 'Heavily Watered Down,' Lawyer Says
A European Parliament committee this week approved an updated version of new EU-wide supply chain due diligence rules that represent a narrower version from the original proposal but would still require certain companies to conduct specific due diligence on their supply chains to address various environmental and social concerns.
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Parliament’s Legal Affairs Committee approved the new Corporate Sustainability Due Diligence Directive (CSDDD) March 19, and the rules next need formal approval by the entire European Parliament and EU member states before they can become law. That final approval could end a monthslong saga in which the EU couldn’t secure the needed votes to push forward a stricter set of rules after facing opposition from pro-business groups in Germany and elsewhere (see 2402120042 and 2402290013).
Some lawmakers and business groups said they were concerned smaller companies would struggle to comply with the requirements under the CSDDD’s original language (see 2403120066). Under the revised bill, the due diligence requirements would apply to firms with over 1,000 employees and with an annual 450 million euro turnover, or about $490 million. The previous language had applied to companies with 500 employees and a turnover of 150 million euros, or about $165 million.
Sara Bandehzadeh, a German-based lawyer with Fieldfisher, said the new CSDDD is a “heavily watered down version of the original and earlier proposals.” They would cover “fewer companies and activities and also provides for a more gradual phasing-in period than originally envisaged,” Bandehzadeh said during a March 20 webinar hosted by the law firm and Barnes & Thornburg.
The new version now excludes nearly “70% of companies which were originally covered in the first draft,” she said. “Only very large companies are covered.”
The rules would still give authority to each member state to investigate and penalize violators, Parliament said, including by fining them up to 5% of a company’s net worldwide turnover. Bandehzadeh said businesses would have to put in place new “governance structures” to comply with the rules, and make sure they are identifying potential risks and “preventing, ending and minimizing any violations.”
She also noted that portions of the EU laws are still “far more extensive” than the German Supply Chain Act, which took effect last year and which requires certain corporations with a presence in Germany to comply with various supply chain due diligence obligations or face potential fines (see 2304240051). Bandehzadeh added that the CSDDD is “likely to pass.”
Parliament Member Lara Wolters of the Netherlands, the parliament's lead negotiator for the directive, said “it’s high time that this legislation is adopted,” adding that she’s “confident that it will be adopted swiftly.”