EU to Enforce ‘Ethical’ Supply Chain With Stiff New Fines
EU to Enforce ‘Ethical’ Supply Chain With Stiff New Fines
(Bloomberg) -- The European Union’s ethical supply-chain rules are a “game changer” but must be backed by “dissuasive” sanctions, EU Justice Commissioner Didier Reynders said.
The proposals unveiled Wednesday will require companies to report on any violations to international rules on child labor, workers’ rights or environmental damage. Firms that fail to act could face fines as well as compensation claims.
“This proposal is a real game-changer in the way companies operate their business activities throughout their global supply chain,” Reynders said on Wednesday. “With these rules, we want to stand up for human rights and lead the green transition. We can no longer turn a blind eye on what happens down our value chains. We need a shift in our economic model.”
Potential fines would be set by each EU government and should be “effective, proportionate but also dissuasive,” Reynders told reporters ahead of the announcement. “We ask to organize that with a percentage” of company revenue, he said.
The rules would mean companies can’t ignore problems flagged to them such as the use of child labor on crop plantations, Reynders said, even if it comes from campaigners or the media.
The proposals target some 4,000 international businesses and 13,000 inside the 27-nation bloc. It will hit EU companies with worldwide revenue of more than 150 million euros ($170 million) and at least 500 employees, as well as firms in “high-impact” industries, including clothing and mining, if they make more than 40 million euros a year and have 250 employees.
For companies based elsewhere, they can be included based on revenue generated in the EU. The financial industry is excluded.
Under the measures, directors’ bonuses could also potentially be linked to companies’ plans to tackle climate change, but the proposals don’t compel such action.
The law is a potential game-changer for corporate sustainability, according to Richard Sterneberg, head of global government relations at law firm DLA Piper.
“This EU proposal ends an era of ‘nice to have’ due diligence,” he said. “Complicated supply chains will need to adapt.”
The law won’t target forced labor which will be tackled by a separate proposal later this year, Reynders said.
The draft rules will still need the backing from the European Parliament and EU governments before they will need to be transposed into member countries’ national laws.
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