EU to Officially Implement New Supply Chain Due Diligence Rules

The Council of the European Union last week officially adopted new EU-wide supply chain due diligence rules that will require certain companies to conduct specific due diligence on their supply chains, including to root out forced labor.

The council’s adoption is one of the final steps in a months-long saga in which EU member states disagreed about the scope of the rules, ultimately negotiating a narrower version that will apply to fewer companies and activities (see 2403210012). The law, known as the Corporate Sustainability Due Diligence Directive, needs final signatures before it can be published in the EU Journal and take effect.

Pierre-Yves Dermagne, the Belgian deputy prime minister whose country holds the Council of the EU presidency, said the law will allow the EU to penalize “large” companies that breach supply chain due diligence obligations. “It is a concrete and significant step towards a better place to live for everyone,” Dermagne said.

The new rules -- originally set to apply to companies with 500 employees and a turnover of 150 million euros, or about $165 million -- will now apply to certain companies with more than 1,000 employees and a turnover of more than 450 million euros, or about $490 million. Those companies will need to “take and implement a risk-based system to monitor, prevent or remedy human rights or environmental damages identified by the directive,” the council said, adding that companies that violate the rules will need to put in steps to “prevent, mitigate, bring to an end or minimise” those violations, and they may face penalties.

Companies with 1,000 employees and a 450 million euro turnover will have five years to comply with the rules once they take effect; companies with 3,000 employees and a 900 million euro (about $976 million) turnover will have four years, and those with 5,000 employees and 1.5 billion euro (about $1.6 billion) turnover will have three years.

The council’s adoption comes about a month after the European Parliament approved the rules. Once the rules officially enter EU law 20 days after they’re published in the EU Journal, Parliament said, member states will have two years to “transpose the new rules into their national laws.”

Human rights and environmental groups applauded the move. Hannah Storey, Amnesty International policy adviser for business and human rights, called it a “defining moment for human rights and corporate accountability” and is a “step towards, for example, preventing the use of child or forced labour and the abuse of workers involved in making products for sale in the EU.”

Human Rights Watch noted that the law will require companies to “take a range of measures” to mitigate their supply chain risks, including by potentially changing where they source their products. “This could help bring pressure on companies to adopt fair business models and to support their business partners to also adhere to human rights, labor rights, and environmental standards,” it said.