Rules intended to embed environmental, governance and social requirements into EU-based companies’ supply chains have struggled to gain acceptance.
German and Italian officials recently failed to back measures under the European Commission’s Corporate sustainability and due diligence initiative, which would have required greater scrutiny of corporate supply chains. In a revised version of the rules, only companies with more than 1000 employees and a turnover of €300 million or more will be affected. That is an increase in size from the original proposal of 500 employees and €150 million turnover.
Reduced oversight
The revisions also appear to reduce the scope of the work involved with a narrower provision on civil liability.
“Under the latter clause, which defines what activities a company can be legally liable for, companies will now only have to conduct due diligence on their downstream distribution, transport and storage operations,” according to the Euractiv news website.
“Conversely, they will no longer have to account for the product disposal stage, which involves activities such as dismantling, recycling, and landfilling. Moreover, activities carried out by any of their ‘indirect business partners’ will also fall outside of their liability,” it said, citing official EU sources.
Worries over competition
The European Union’s suite of green-leaning initiatives, including the supply chain rules, could saddle businesses with a huge amount of compliance work and make the Eurozone less competitive, critics argue. The due diligence legislation was intended to force companies to clean up their supply chains and to allow campaigners to take businesses to court where those suppliers were found to use child labour, for example, or to be causing environmental damage.
Significantly, businesses are expected to cover suppliers beyond the first tier in their value chains. That includes suppliers, sub-suppliers, and other entities in the supply chain. These requirements could add significant complexity to existing risk assessments and supply chain risk management.
