Member states agree in principle on Europe-wide standards for companies. The EU Supply Chain Law will require companies to respect human rights in their supply chains.
EU countries agreed in early December on a Europe-wide supply chain law that would oblige companies to comply with human rights standards. In Germany, the national supply chain law is already in force, and the requirements are to apply from the beginning of 2023. Depending on how the EU regulation turns out, however, adjustments will be necessary.
WHAT IS PLANNED?
Many companies are now globally networked and produce in countries outside the European Union. The EU Commission wants to oblige European companies to monitor their entire supply chain to determine whether suppliers violate environmental and climate standards as well as human rights. To this end, the EU Commission made proposals in February for a Europe-wide supply chain law.
According to this, companies from third countries must also comply with the rules if they generate a certain amount of sales in the EU. Under certain circumstances, European companies would also be liable for violations by suppliers, for example if the damage was caused jointly by a European company and its business partner.
TO WHICH COMPANIES SHOULD THIS APPLY?
In the European Union, according to the Commission’s proposal, a threshold of 500 employees with an annual global turnover of 150 million euros is envisaged, above which companies should pay attention to compliance with human rights standards in their supply chains. For companies that generate at least half of their sales with the production of clothing, shoes or food, the limit should already be 250 employees.
The EU-wide supply chain law is not to apply to small and medium-sized enterprises (SMEs). According to the Commission, they account for 99 percent of companies in the EU.
HOW CERTAIN IS IT THAT THIS WILL BECOME LAW ACROSS EUROPE?
Member states still have to negotiate the details with the EU Parliament. The member states want to weaken some of the Commission’s proposal and give companies more time by when they will be held accountable. First, the rules are to apply to companies with more than 1,000 employees, three years after the legislation comes into force.
For companies with 500 or more employees, the rules would then apply four years after they come into force, instead of two years as proposed by the Commission.
The EU Parliament wants to keep the rules stricter and lower the employee limits for companies. Dutch Social Democrat Lara Wolters, who is leading the law in the EU Parliament, proposed a limit of 50 employees for manufacturers and retailers of clothing and footwear. The final position of the parliament is not expected until May.
WHAT DOES AN EU-WIDE SUPPLY CHAIN LAW MEAN FOR GERMANY?
The EU plans go beyond the German Due Diligence Act. In Germany, companies with more than 3,000 employees will initially be affected from 2023. From 2024, the requirements will also apply to companies with 1000 or more employees. Small and medium-sized companies are explicitly excluded. In September, the traffic light coalition agreed to support the EU Commission’s significantly stricter plans for a supply chain law.
If the EU were to adopt stricter rules than those in force in Germany, the German government would be obliged to bring national law into line with EU law and would therefore have to make improvements.