Regulators

EU's New Legislation Requires Businesses to Protect Human Rights and Enforce Ethical Supply Chain

Published on: 24 February 2022 07:45 PM
by KnowESG

A Brief Summary

The new proposals announced recently by the EU will require businesses to report on international rules on environmental damage, child labour, workers' rights etc. Companies failing to act accordingly could face fines and compensation claims.

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The new legislation covers around 4000 international businesses and 13,000 inside the European Union, which applies to companies with more than 500 employees and over €150 million in revenues, after two years to companies with more than 250 employees and €40 million. Companies outside the EU but earning within the EU should also follow the rules.

Didier Reynders, Commissioner for Justice said: “This proposal is a real game-changer in the way companies operate their business activities throughout their global supply chain. With these rules, we want to stand up for human rights and lead the green transition. We can no longer turn a blind eye to what happens down our value chains. We need a shift in our economic model. The momentum in the market has been building in support of this initiative, with consumers pushing for more sustainable products. I am confident that many business leaders will support this cause.”

The proposals apply to company operations, subsidiaries and value chains that require them to incorporate due diligence into policies. The legislation helps identify human rights and environmental violations within and outside the EU. Additionally, companies have to maintain a complaints procedure to monitor the efficacy of policies and measures.

Companies belonging to 500 employees/ €150 million category must ensure that their business strategies align with the Paris Agreement goal of reducing global warming to 1.5 °C.

The new due diligence rules proposed by the European Commission will be presented to the European Parliament and the Council for approval.

Věra Jourová, Vice-President for Values and Transparency, said: “This proposal aims to achieve two goals. First, to address consumers’ concerns who do not want to buy products that are made with the involvement of forced labour or that destroy the environment, for instance. Second, to support the business by providing legal certainty about their obligations in the Single Market. This law will project European values on the value chains, and will do so fairly and proportionately.”

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