EU supply chain law initiative

In a globalized economy it takes a European strategy to protect human rights and the environment in supply and value chains effectively

On 23 February 2022, the European Commission presented a Proposal for a Directive on Corporate Sustainability Due Diligence. The draft of the Corporate Sustainability Due Diligence Directive (CSDDD) contains human rights due diligence, but also environmental due diligence obligations and requirements for corporate social responsibility.

The aim is that companies operating in the EU implement certain due diligence obligations in order to prevent that their business activities have negative implications on human rights and the environment in their chains of activity within and outside Europe.

According to the proposed directive, companies coming under the scope of application will in future have to identify risks in their entire chain of activity, take preventive and remedial action and report on the situation. Companies must look at their upstream supply chains (e.g. raw material mining) and at their downstream supply chains (e.g. disposal) in an appropriate manner.

On 14 December 2023, an informal agreement on the final draft of the durective has been made by EU co-legistlators.

The most important elements of the EU-Commission’s directive proposal are the following:

  • Scope: The directive covers three groups of companies:
    • Companies with at least 500 workers and a global annual net turnover of 150 million euros,
    • companies with at least 250 workers and a global annual minimum global turnover of 40 million euros provided that at least 20 million euros worth of their turnover is achieved in a risk sector. Risk sectors include the textile industry, agriculture and forestry, fishing, food, chemistry, exploitation of mineral resources (e.g. crude oil, natural gas, coal, metals and ores),
    • companies from a third country if their annual net turnover is a) more than 150 million euros in the EU or b) 40 to 150 million euros in the EU and at least 20 million euros of their worldwide turnover is earned in a risk sector.
  • Due diligence obligations: Companies should identify human rights and certain environmental risks in their chains of activity, take preventive and remedial action and report on the situation. Here, companies should only do what is appropriate against the backdrop of the severity of the risk and their individual scope of influence.
  • Scope of corporate social responsibility: Due diligence refers to the upstream as well as downstream chain of activity. The upstream chain of activity includes all of a company’s activities to manufacture a product (e.g. raw material mining) and to render services. The downstream chain of activity includes all of the company’s business partners’ activities regarding transport, storage or disposal. Customers and consumers are not covered.
  • Climate action: Big companies with more than 500 workers will be obligated to draw up a climate action plan in order to adjust their corporate strategy to comply with the 1.5° C goal and to set themselves corresponding emission reduction targets.
  • Enforcement: It is envisaged to combine monitoring of compliance by authorities with administrative fines and civil law liability.
  • Accompanying measures for companies and in particular for indirectly covered SME.
  • Annexes on internationally protected human rights and international environmental instruments from which concrete obligations of conduct for companies are derived.
  • Entry into force: After its adoption, the member states have two years time to translate the directive into domestic law. Thereafter, national implementing laws will gradually enter into force according to company size, until the above scope will apply five years after adoption of the directive. The German Supply Chain Act will have to be adjusted to the directive.

Position of the Federal Government

Germany supported the decision by the EU member states of 1 December 2022 by which the General Approach of the Council regarding the EU Commission Draft Directive was adopted. The final draft is closely based on German legislation in important points. It is also closely aligned with the UN Guiding Principles on Business and Human Rights and includes clearly formulated due diligence obligations for companies in order to comply with human rights and environmental aspects in the chains of activity. The central human rights and environmental instruments enshrined in the annex are the basis for the mandatory conduct obligations which companies have to comply with. Companies are called upon to prioritize the risks of their business activities for humans and the environment according to clear principles - such as the severity of the risk or the possibility to influence the polluter.

The Federal Government actively contributed to the negotiations with the European Parliament and the Commission. In this context, important points included enshrining the "staying and helping is better than cutting and running" principle and clear guardrails for the case of withdrawal. The Federal Government rejected exemptions giving priority to a company’s economic interests over the protection of human rights against severe violations. Instead, further incentives should make companies join effective sectoral initiatives or use quality certifications. Further points supported by The Federal Government were e.g. an enhanced access to remedies for victims of human rights violations, the introduction of the right to sue on behalf of victims according to the German example and easier access to documents.

Next Steps

The agreed draft law requires formal approval by the Legal Affairs Committee and the European Parliament as a whole, as well as by the Council (EU governments) before it can enter into force.

BMAS / Dominik Butzmann

I very much welcome the European Parliament's initiative for ambitious EU supply chain rules. The EP's latest decision is completely in line with the "Council Conclusions on Human Rights and Decent Work in Global Supply Chains" adopted by all 27 EU member states in the Council of the European Union on 1 December 2020 during Germany’s presidency. It is good for Germany to lead the way with its own national rules. It is encouraging that on some points the EP's plans go even further than the recent national compromise. This is a boost for Commissioner Didier Reynders, who has my full support.

How it all started

The German EU Council Presidency of 2020 as the starting point

As a community of shared values and biggest single market worldwide with a share of 15 percent in all global imports, the EU has a particular responsibility to fight against negative implications on human rights and the environment in global supply chains. In the framework of the German EU Council Presidency, the Federal Ministry of Labour and Social Affairs had invited important stakeholders to an online conference on "Global Supply Chains - Global Responsibility" which took place on 6 and 7 October 2020. The guest list included EU Commissioners Nicolas Schmit and Didier Reynders, the Director-General of the ILO, Guy Ryder, the then Federal Minister of Justice, Christine Lambrecht, the former Federal Minister for Economic Cooperation, Gerd Müller, the Portuguese Minister of Labour, Mendes Godinho, and the Slovenian Minister of Labour, Cigler Kralj, as well as representatives from the European social partners, civil society and businesses. Panel discussions and workshops were held, discussing the question how an EU action plan - "Human Rights and Decent Work in Global Supply Chains" - could be strengthened in order to enhance corporate responsibility across the EU.

The conclusions focused on five fields of action:

  • Mandatory due diligence
  • European sector dialogues
  • EU quality criteria for National Action Plans (NAPs)
  • Eliminating child labour, forced labour and human trafficking
  • Access to remedies

You can download the conclusions of the conference [PDF, 1MB], and here you have access to a video summary of the conference.

Clear commitment in the Council for "Employment, Social Affairs, Health and Consumer Protection"

In December 2020, the 27 EU member states in the “Employment, Social, Health and Consumer Protection Council” with Federal Labour Minister Hubertus Heil in the chair spoke out in favour of a European Supply Chain Act. This was the first time that all member states committed themselves to adopt a directive that will be binding across Europe. 

European Parliament's Committee on Legal Affairs with a clear vote

Also the European Parliament's Committee on Legal Affairs voted in favour of a concrete law initiative own-initiative report in January 2021. In March 2021 the report was adopted by the European Parliament with 504 against 79 votes (with 112 abstentions). According to the decision by the European Parliament, companies will be obliged to identify, address and remedy risks in their supply chains in future. This includes activities in their entire chain of activity - including direct and indirect business relations as well as investment chains. The required rules do not only relate to the respect of human rights, but also to the environment and corporate social responsibility.