European Parliament adopts rules for companies on human rights and the environment

The European Parliament adopted with 374 votes in favour, 235 against and 19 abstentions the new Due Diligence Directive, agreed with the Council, which requires companies and their partners throughout the supply chain – from sourcing to distribution – to prevent, stop or reduce their negative impacts on human rights and the environment. These impacts include slavery, child labour, labour exploitation, loss of biodiversity, pollution and destruction of natural heritage.

Risk-based approach and transition plan

The rules will apply to companies and parent companies with more than 1,000 employees and a worldwide turnover of more than ¤450 million. Companies with franchise or licensing agreements in the EU involving a common corporate identity with a turnover of more than ¤80 million will also be covered if at least ¤22.5 million is derived from royalties. Non-EU companies, parent companies and companies with franchise or licence agreements in the EU that meet these EU turnover thresholds will also be covered.

These companies will have to integrate due diligence into their policies, make relevant investments, seek contractual guarantees from their partners, improve their business plan or provide support to the SMEs they work with to ensure they comply with the new obligations. They will also have to adopt a transition plan to align their business model with the 1.5°C global warming limit set out in the Paris Agreement.

Fines and compensation to victims

Member States will have to provide companies with detailed online information on their due diligence obligations through practical portals containing Commission guidelines. They will also set up or designate a supervisory authority to investigate and impose sanctions on non-compliant companies. These will include public denunciation and fines of up to 5% of their global net turnover. The Commission will set up the European Network of Enforcement Authorities to support cooperation and enable the exchange of best practice. Companies will be liable for damages caused by breaches of their due diligence obligations and will have to compensate victims in full.

 

Rapporteur’s statement

Following the plenary vote, Lara Wolters MEP (S&D, Netherlands) said: “Today’s vote is a milestone for responsible business conduct and a significant step towards ending corporate exploitation of people and the planet. This law is the result of a hard-fought compromise and many years of tough negotiations. I am proud of what we have achieved with our progressive allies. In the next term of the Parliament, we will fight not only for its swift implementation, but also to make the European economy even more sustainable”.

 

Next steps

The Directive must now be formally adopted by the Council, signed by the co-legislators and published in the EU’s Official Journal. It will enter into force 20 days later. Member States will have two years to transpose the new rules into national law.

The new rules – with the exception of the reporting obligations – will apply gradually to EU and non-EU companies that reach the turnover thresholds indicated in the Union:

from 2027 for companies with more than 5,000 employees and a worldwide turnover of more than EUR 1.5 billion;
from 2028 for companies with more than 3,000 employees and an aggregate turnover of EUR 900 million or more;
from 2029 for all other companies including those with more than 1,000 employees and a worldwide turnover of more than ¤450 million.

 

Background

The Parliament has repeatedly called for greater corporate accountability and mandatory due diligence legislation. The Commission’s proposal presented on 23 February 2022 complements other existing and future legislation, such as the regulation on deforestation, the regulation on war minerals and the regulation banning products made with forced labour.
Background