European Parliament’s Legal Affairs Committee Gives Green Light to Bill on Firms’ Impact on Human Rights & Environment

On Tuesday, the European Parliament’s Legal Affairs Committee gave approval to a bill, which had been agreed upon with EU governments, that mandates firms to address their adverse impacts on human rights and the environment.

The new rules, known as “due diligence” regulations, were adopted by MEPs on the Legal Affairs Committee with 20 votes in favour, 4 against, and no abstentions.

Lara Wolters MEP

“I’m delighted that a clear majority of Legal Affairs Committee members backed the Due Diligence Directive today.

“It is high time that this legislation is adopted, to stop corporate abuse and to give companies clarity in what is expected of them. I’m looking forward to the plenary vote and confident that it will be adopted swiftly,” Lara Wolters MEP.

These rules compel companies to mitigate the negative consequences of their operations on various fronts, including human rights violations such as slavery and child labour, as well as environmental concerns like biodiversity loss, pollution, and the destruction of natural habitats.

The obligation to prevent, terminate, or lessen these detrimental effects extends to both the upstream partners involved in design, manufacturing, transportation, and supply, and the downstream partners engaged in distribution, transportation, and storage.

The scope of these regulations and the transition plan associated with them are significant. They will be applicable to companies within the EU and beyond, including parent companies with more than 1000 employees and a turnover exceeding 450 million euros.

Franchises with turnovers exceeding 80 million euros, generated with at least 22.5 million euros from royalties, will also fall under these regulations.

Furthermore, companies will need to integrate due diligence practices into their policies and risk management systems, and establish and execute a transition plan aligning their business models with the global warming limit set forth in the Paris Agreement, aiming for a maximum of 1.5°C temperature rise.

This transition plan must outline time-bound climate change targets, the necessary actions to achieve them, and the investments required for plan implementation.

Regarding civil liability and penalties, firms failing to adhere to their due diligence obligations will be held accountable.

They will be required to fully compensate any victims affected by their negligence, establish complaints mechanisms, and engage with individuals and communities adversely impacted by their activities.

Member states will appoint supervisory authorities tasked with monitoring, investigating, and imposing penalties on non-compliant companies.

These penalties may include fines of up to 5% of a company’s net worldwide turnover.

Foreign companies operating within EU member states will need to designate an authorised representative to communicate with supervisory authorities regarding due diligence compliance on their behalf.

Additionally, the European Network of Supervisory Authorities will be established by the Commission to facilitate cooperation among supervisory bodies.

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