European agreement a 'turning point' on corporate responsibility
The European Parliament has ruled that large companies must take more responsibility for their supply chain after voting to integrate human rights and environmental impact into companies’ governance.
Companies will be required to identify and prevent, end or mitigate the negative impact of their activities on child labour, slavery, labour exploitation, pollution, environmental degradation and biodiversity loss.
They will also have to monitor and assess the impact of their value-chain partners, including not only suppliers but also sale, distribution, transport, storage, waste-management and other areas.
The new rules will apply to EU-based companies with more than 250 employees and a worldwide turnover over 40 million euro as well as to parent companies with over 500 employees and a worldwide turnover of more than 150 million euro. Non-EU companies with a turnover higher than 150 million euro, if at least 40 million was generated in the EU, will also be included.
Companies will have to implement a transition plan to limit global warming to 1.5° and, in the case of large companies with over 1,000 employees, meeting the plan’s targets will have an impact on directors' bonuses.
The new rules also require firms to engage with those affected by their actions, including human rights and environmental activists, introduce a grievance mechanism and regularly monitor the effectiveness of their due diligence policy.
Non-compliant companies will be liable for damages and can be sanctioned by national supervisory authorities. Sanctions include measures such as “naming and shaming”, taking a company’s goods off the market, or fines of at least 5% of the net worldwide turnover. Non-EU companies that fail to comply with the rules will be banned from public procurement in the EU.
MEP Lara Wolters said: “The European Parliament's support is a turning point in the thinking about the role of corporations in society. A corporate responsibility law must ensure that the future lies with companies that treat people and the environment in a healthy way - not with companies that have made a revenue model out of environmental damage and exploitation.”
According to the text adopted, the new obligations would apply after three or four years depending on the company’s size. Smaller companies will be able to delay applying the new rules by one more year.
Clean Clothes Campaign welcomed the European Parliament’s report on Corporate Sustainability Due Diligence Directive but said it would be better to embed value chain mapping and transparency into the due diligence obligation.
Following Parliament’s approval, EU states will hold negotiations for final implementation.
