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E.U. Considers Due Diligence Law for Company Supply Chains

Large companies operating in the European Union could be held responsible for environmental violations or human rights abuses committed by businesses in their supply chains under a law proposed on Wednesday by the European Commission, the bloc’s administrative arm.

“We can no longer turn a blind eye on what happens down our value chains,” said Didier Reynders, the European Union’s commissioner for justice.

Under the legislation, known as a due diligence law, businesses would need to establish regulations to detect, prevent and mitigate breaches of human rights, such as child labor, as well as environmental hazards in their supply chains. National governments would define the financial penalties for companies violating the rules.

Victims could sue for compensation in domestic courts of E.U. member nations, even if the harm occurred outside the bloc.

The commission proposed the rules after some member nations, including Germany and France, introduced different versions of due diligence law at the national level.

The legislation will now be discussed by the European Parliament and the 27 national governments, with all parties able to modify the language. The final draft will require passage by the E.U. lawmakers and member nations. The whole process could take a year or more.

The proposal would initially apply to companies with more than 500 employees and annual revenue over 150 million euros (about $170 million), a group that includes about 10,000 E.U. businesses, about 1 percent of the total. Around 2,000 companies based outside the bloc but doing business in the European Union, amounting to an annual revenue of more than €150 million, would also be covered. After two years, the range would be expanded to include smaller businesses in so-called high-impact sectors, such as textiles, food products and mining.

Businesses expressed concern over the proposal.

“It is unrealistic to expect that European companies can control their entire value chains across the world,” said Pierre Gattaz, president of BusinessEurope, a trade organization. “Ultimately these proposals will harm our companies’ ability to remain competitive worldwide.”

But Richard Gardiner of Global Witness said the legislation had the potential to become “a watershed moment for human rights and the climate crisis,” if the European Union resisted efforts to water down the proposed measures.

We’ve been investigating big corporations for decades, and when we reveal the harm they’re causing to people and planet, the response is invariably the same: ‘We weren’t aware,’” Mr. Gardiner said. “Today’s proposal from the commission may make that response illegal.”

But some analysts remained skeptical, pointing out that the commission’s final proposal, which was delayed several times, is much less ambitious than what was initially planned.

“This outcome is the result of an unprecedented level of corporate lobbying,” said Alberto Alemanno, a professor of European Union law at the business school HEC Paris. He said the final result “was downgraded into yet another narrow piece of tick-the-boxes compliance law.”

Julia Linares Sabater, a senior officer at the WWF European Policy Office, said the businesses affected “represent a drop in the ocean of the E.U.’s total economy.”

“The E.U. needs to be far more ambitious to successfully tackle the climate and biodiversity crises,” she added.

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