EU supply chain law - after the vote is before the vote

At the end of last week, the majority of MEPs voted in favor of the compromise text of the Legal Affairs Committee on the Corporate Sustainablity Due Diligence Directive (EU Supply Chain Act). But even though there was a clear majority of 366 votes in favor, the 225 votes against show that there was and still is a lot of discomfort with the position found. Why this is so and where there is still need for action is explained by Dr. Uta-Bettina von Altenbockum, Head of Communications and Sustainability at Deutsches Aktieninstitut in the current column. 

The vast majority of EU parliamentarians, even if they voted against the compromise proposal, share the goal of the planned law that human rights should be respected in the supply chain. Incidentally, this also applies to the vast majority of companies and the associations that have closely supported the EU supply chain law from the beginning. It is therefore not a question of whether a supply chain law should be enacted, but of how it should be designed. This can and must be argued about, because the topic is complex and finding the right balance in the specifications is not easy. This is important to emphasize, as any criticism of the law is quickly interpreted as a rejection of the project as a whole. 

Further need for discussion

The fact that the positions on the design of the directive are sometimes far apart becomes clear when one considers the difficult compromise reached in the European Parliament's Legal Affairs Committee, which is the lead committee. Although the report by rapporteur Lara Wolters was available at the end of November, there were tough negotiations before the committee was able to agree on a compromise proposal at the end of April. No sooner had the compromise been agreed than there was criticism from various parliamentary groups, who warned, among other things, of bureaucratic burdens on small and medium-sized companies.

But even after the vote in Parliament, the bill still has a long way to go before it can be passed. The positions of the Commission, Parliament and Council differ considerably on important points, such as the risk-based approach, the liability issue and full harmonization. 

Risk-based approach, liability and harmonization - what needs to be done

It is important that a risk-based approach is reflected in the law, as it is in the internationally recognized principles of the United Nations and the OECD, respectively. This allows companies to focus their human rights due diligence on those areas of their value chain where violations may come into consideration. Overall, only the most serious risks should need to be addressed. In addition, action by the company should only be required when it becomes aware of substantiated human rights violations in its value chain. 

It would also be good to exclude areas of the value chain that are within Europe from monitoring. Knowledge of human rights violations within the EU would have to be reported to the authorities of the member state concerned.  
Companies should only be liable for damage they have caused themselves by acting intentionally or negligently. In view of the complexity of value chains, the various persons acting and the limited possibilities of companies to exert influence, it is only possible to establish an obligation for companies to make an effort with regard to their duties. Only if companies know exactly what they have to do can liability be associated with a breach of duty. There is still a need for clarification here. 

There is a strong desire for more European harmonization in the area of supply chain law. Laws of the member states, such as the German supply chain due diligence law, threaten to lead to a patchwork of supply chain rules. A European regulation avoids companies having to deal with divergent regulations in the member states, which reduces costs and effort for them. If the implementation of the planned directive leads to deviations in the member states, this harmonization would be thwarted. The aim must therefore be to harmonize the directive as far as possible.      

Exciting negotiations ahead

Trilogue negotiations between the Parliament, Council and Commission are scheduled to begin as early as the beginning of June. The dossier will really pick up speed in the fall at the latest under the Spanish EU Council Presidency. Then it will become clear whether it will be possible to form an effective, manageable supply chain law from the various positions that will support companies in their goal of avoiding human rights violations in the value chain.