The European Parliament has approved a significantly watered-down version of the proposed European Supply Chain Act, signaling a palpable shift away from initially ambitious goals regarding corporate accountability for human rights and environmental abuses. Tuesday’s vote in Strasbourg, secured with 428 votes in favor against 218 opposed and 17 abstentions, marks a compromise that critics argue weakens the directive’s potential impact.
The approved legislation revises existing guidelines for sustainability reporting (CSRD) and corporate social responsibility due diligence (CS3D), substantially reducing reporting obligations and limiting the scope of application, particularly concerning smaller businesses. A key change reduces the breadth of companies compelled to report on social and ecological impact, now confined primarily to EU entities employing over 1,000 individuals and boasting an annual turnover exceeding €450 million. The threshold for non-EU headquartered companies is likewise set at €450 million, provided this revenue is generated within the EU.
Furthermore, the due diligence obligations – designed to ensure companies are actively monitoring and mitigating risks of exploitation and environmental damage within their supply chains – are now confined to large EU conglomerates employing over 5,000 individuals and achieving an annual turnover above €1.5 billion. This restriction extends to non-EU businesses operating within the EU and surpassing this revenue benchmark.
While the directive does introduce potential financial penalties for non-compliance – up to three percent of global net annual turnover – the significant elevation of these thresholds raises serious questions about the directive’s genuine commitment to fostering a more ethical and sustainable business landscape. Critics contend that these adjustments effectively shield a significant portion of global supply chains from critical scrutiny, undermining the directive’s intended preventative function and potentially creating a two-tiered system where smaller or less profitable companies are effectively left unregulated.
The legislation now requires formal approval from the Council of the European Union, considered a procedural formality, but the parliamentary vote highlights a growing trend of political pressure softening initially robust environmental and social responsibility agendas. The final form of the directive is likely to be a source of ongoing debate regarding the EU’s commitment to truly holding corporations accountable for their impact on human rights and the environment.
