The European Commission has announced it is drawing up new laws which will place additional pressure on companies to ensure their global supply chains are both sustainable and responsible.

Under the proposal companies will be required to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss.

The EC said: “For businesses these new rules will bring legal certainty and a level playing field. For consumers and investors they will provide more transparency. The new EU rules will advance the green transition and protect human rights in Europe and beyond.”

It added: “A number of Members States have already introduced national rules on due diligence and some companies have taken measures at their own initiative. However, there is need for a larger scale improvement that is difficult to achieve with voluntary action. This proposal establishes a corporate sustainability due diligence duty to address negative human rights and environmental impacts.”

The new due diligence rules will apply to all EU limited liability companies of substantial size and economic power (with 500+ employees and EUR 150 million plus in net turnover worldwide). It will also apply to other limited liability companies operating in “defined high impact sectors”, which do not meet both Group 1 thresholds, but have more than 250 employees and a net turnover of EUR 40 million worldwide and more.

Any Non-EU company active in the EU with a turnover aligned with those EU companies which is generated in the EU.

The rules will apply to the company’s own operations, their subsidiaries and their value chains (direct and indirect established business relationships).

“This means more effective protection of human rights included in international conventions,” said the commission. “For example, workers must have access to safe and healthy working conditions. Similarly, this proposal will help to avoid adverse environmental impacts contrary to key environmental conventions. Companies in scope will need to take appropriate measures in light of the severity and likelihood of different impacts, the measures available to the company in the specific circumstances, and the need to set priorities.”

Věra Jourová, EC Vice-President for Values and Transparency, said: “This proposal aims to achieve two goals. First, to address consumers’ concerns who do not want to buy products that are made with the involvement of forced labour or that destroy the environment, for instance. Second, to support business by providing legal certainty about their obligations in the Single Market. This law will project European values on the value chains and will do so in a fair and proportionate way.”

Didier Reynders, Commissioner for Justice said: “This proposal is a real game-changer in the way companies operate their business activities throughout their global supply chain. 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. The momentum in the market has been building in support of this initiative, with consumers pushing for more sustainable products. I am confident that many business leaders will support this cause.”

The proposal will be presented to the European Parliament and the Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law and communicate the relevant texts to the Commission.

The new due diligence rules will apply to all EU limited liability companies of substantial size and economic power (with 500+ employees and EUR 150 million plus in net turnover worldwide). It will also apply to other limited liability companies operating in “defined high impact sectors”, which do not meet both Group 1 thresholds, but have more than 250 employees and a net turnover of EUR 40 million worldwide and more.

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