European due diligence vote hailed as an ‘important milestone’ for supply chains
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After an intense session of debate, the EU has finally agreed its corporate sustainability due diligence directive in what has been described as ‘a watered-down’ form, compelling large companies to mitigate on human rights and environmental factors in their supply chains, writes Neill Barston.
The move is especially significant, as it applies to core markets serving the confectionery sector, including cocoa, soy and palm production, across, supply, production and distribution elements of the industry.
Significantly, as market observers have noted, it has taken a period of five years to bring the legislation forward, and incorporates slavery, child labour, labour exploitation, biodiversity loss, pollution or destruction of natural heritage within its parameters – coming in response to growing consumer awareness of core supply chain activities and need for greater human rights protection.
As Confectionery Production reported last week, the vote was 374 votes in favour and 235 against, with19 abstentions, and comes amid pushback from a total of 20 countries within the European bloc seeking to delay the implementation of linked EUDR deforestation legislation that authorities have confirmed remains on track to begin from the end of 2024.
Legislation history
For its part, the connected due diligence legislation had been provisionally agreed in December 2023 by the EU parliament, but following a period of further internal lobbying, this will now only apply to the largest companies with turnover higher than €450 million worldwide and more than 1000 employees.
As the EU confirmed, the legislation will also apply to companies with franchising or licensing agreements in the EU ensuring a common corporate identity with worldwide turnover higher than 80 million euro if at least 22.5 million euro was generated by royalties. Non-EU companies, parent companies and companies with franchising or licensing agreements in the EU reaching the same turnover thresholds in the EU will also be covered.
Moreover, as the EU noted, companies will also have to adopt a transition plan to make their business model compatible with the Paris Agreement global warming limit of 1.5°C. Furthermore, companies will now be compelled to provide detailed online information on their due diligence obligations via practical portals containing the Commission’s guidance.
Significantly, businesses that do not meet the required thresholds will face financial penalties and will be ‘named and shamed’ as a result, with penalties up to 5% of companies’ net worldwide turnover. The Commission will establish the European Network of Supervisory Authorities to support cooperation and enable exchange of best practices. Companies will be liable for damages caused by breaching their due diligence obligations and enable compensation to anyone affected by its actions.
The new framework will now be ratified by the European Council, and will be introduced in a phased approach from 2027, applying to companies with over 5,000 people with a turnover of 1.5 billion, in 2028 for those with over 3,000 employees and 900 million turnover, through to 2029, including those employing over 1,000 and a turnover of 450 million.
Commenting on the result, MEP Lara Wolters (S&D, NL) said: “Today’s vote is a milestone for responsible business conduct and a considerable step towards ending the exploitation of people and the planet by cowboy companies. This law is a hard-fought compromise and the result of many years of tough negotiations. I am proud of what we have achieved with our progressive allies. In Parliament’s next mandate, we will fight not only for its swift implementation, but also for making Europe’s economy even more sustainable.”
