The Parliament approved its stance on negotiations with member states concerning regulations that incorporate human rights and environmental impact into companies’ governance. Under these regulations, companies will be obligated to identify and, when necessary, prevent, end, or reduce the negative consequences of their activities on human rights and the environment, including child labour, slavery, labour exploitation, pollution, environmental degradation, and biodiversity loss. They will also need to monitor and evaluate the impact of their value-chain partners, which includes not only suppliers but also sales, distribution, transportation, storage, waste management, and other areas.
These new rules will be applicable to EU-based companies, regardless of their sector, including financial services, that have more than 250 employees and a global turnover exceeding 40 million euros. The rules will also extend to parent companies with over 500 employees and a global turnover exceeding 150 million euros. Non-EU companies with a turnover higher than 150 million euros, provided that at least 40 million euros were generated within the EU, will also be subject to these rules.
The responsibilities of directors and companies’ engagement with stakeholders are emphasized in the new regulations. Companies will be required to implement a transition plan to limit global warming to 1.5 degrees Celsius. For larger companies with over 1000 employees, meeting the targets set by the plan will impact the directors’ variable remuneration (e.g., bonuses). The regulations also mandate that companies interact with those affected by their actions, including human rights and environmental activists, establish a grievance mechanism, and regularly evaluate the effectiveness of their due diligence policy. To ensure accessibility for investors, information about a company’s due diligence policy should be available on the European Single Access Point (ESAP).
Regarding enforcement, non-compliant companies can face damages and sanctions from national supervisory authorities. Sanctions may involve publicizing the company’s non-compliance (“naming and shaming”), removing the company’s goods from the market, or imposing fines equivalent to at least 5% of the net worldwide turnover. Non-EU companies that fail to comply with the regulations will be prohibited from participating in public procurement within the EU.
The approved text states that the new obligations will take effect after 3 or 4 years, depending on the size of the company. Smaller companies will have the option to delay implementing the new rules for an additional year.
The Parliament’s negotiating position received 366 votes in favour, 225 against, and 38 abstentions.
