Haggling over the European Union's supply chain due diligence law has been reminiscent of a bazaar, one policy watcher noted. But the Corporate Sustainability Due Diligence Directive, a bill requiring companies to document sustainability in their supply chains, was passed by a European Council vote on March 15.
After France, Germany and Italy rejected the bill for placing too much bureaucratic burden on too many companies, its scope was reduced in the final version.
The law now only applies to companies with at least €450 million in annual global turnover and those with more than 1,000 employees. Such businesses will need to trace and report a number of environmental and social factors throughout their supply chains.
A previous version of the law suggested thresholds of €150 million and 500 employees.
Points of scrutiny in the law include child labor, slavery, labor exploitation, pollution, deforestation, excessive water consumption or damage to ecosystems. Companies would 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.
Activist law group ClientEarth said the bill can potentially improve international business practices but the reduction in scope leaves much on the table. Only a third of the companies covered in the initial version will need to comply under the final version, the group said.
"Last minute horse-trading means the law will now only cover a small number of companies, falling short of its initial aim to tackle the full breadth of companies' environmental footprint," Anaïs Berthier, head of ClientEarth's Brussels office, said March 15.
Parliamentarians behind the bill were outraged on Feb. 28 when the bill was vetoed after two years of legislative work and compromise.
ClientEarth described an "unsettling trend" of lobbying that has thwarted the policymaking process in Brussels recently, affecting several environmental laws under development.
German Finance Minister Christian Lindner, a vocal critic of the corporate sustainability directive who wanted to see it scrapped, said the bureaucracy associated with the bill is a burden for economies.
"But [European Commission President] Ursula von der Leyen wanted to assert herself. At least she had to lay down some arms thanks to our resistance," Lindner said in a post on X, formerly known as Twitter.
The European Parliament and European Council also agreed March 5 to a ban on products made with forced labor, though companies have at least three years before it takes effect.
SolarPower Europe, representing a European solar industry inextricably linked with Chinese supply chains, welcomed the regulatory clarity.
"Companies need legislative certainty to manage their compliance requirements effectively and efficiently, and through these latest political decisions, the solar sector now has a path forward to reinforce our supply chain sustainability in line with law," said Anett Ludwig, head of supply chains at SolarPower Europe.
