EU supply chain scrutiny law thwarted by member state veto

An EU law that would require companies to document sustainability and workers' rights in their supply chains has failed to be ratified by member states.

The Corporate Sustainability Due Diligence Directive is meant to raise standards in European supply chains, but critics fear the additional bureaucracy would stifle business.

Crucially, Germany, Italy and France vetoed the plan in a Feb. 28 vote of the European Council, meaning it failed to reach the "qualified majority" threshold of 15 or more member states, representing 65% of the EU's population, voting in favor.

The Council is the final hurdle before a law is passed. The European Parliament approved the law in December 2023.

Lara Wolters, the Dutch member of the European Parliament leading the legislation, said she was outraged that two years of legislative work and compromise with the concerned parties did not result in agreement.

Wolters said at a Feb. 28 press conference that business lobbies had managed to convince politicians that "accountability is a burden and human rights are a nice-to-have."

Points of scrutiny in the law would include child labor, slavery, labor exploitation, pollution, deforestation, excessive water consumption or damage to ecosystems. Companies would also need to adopt plans to show they comply with the Paris Agreement on climate change, through which nations aim to limit global warming to 1.5 degrees C above pre-industrial levels.

According to Wolters, many businesses were already working to comply with the new rules in anticipation of the law being passed.

Whether the directive can still be salvaged is now unclear.

Christian Lindner, Germany's liberal finance minister, said the supply chain law would have introduced excessive bureaucracy for companies, was poorly drafted and beyond repair.

The Belgian council presidency said it would now "see if it is possible to address the concerns put forward by the member states."

European voters will head to the polls in June. At this point, the law is considered unlikely to be passed before then. Whether the newly elected parliament will be supportive of it remains to be seen.