Two landmark bills that will fundamentally reshape how business is conducted in the European Union—and likely beyond—have cleared major hurdles this week after receiving final approvals from the European Parliament.
First the corporate sustainability due diligence directive, or CSDDD.
On Wednesday, the 27-member bloc’s elected body pushed through the proposed law with 374 votes in favor, 235 against and 19 abstentions, putting the world’s largest single market in spitting distance of legal accountability from big businesses that ignore environmental and human rights abuses in their supply chains.
But the version the European Parliament greenlit isn’t the same as the provisional agreement that it struck with the European Council, which represents governments of member states, in December. Due to what some civil society groups have derided as “political gameplay” from clout-heavy nations such as Germany, France and Italy, which threatened to abstain from the vote at the last minute, throwing the future of the measure into doubt, the European Council’s Belgian presidency proposed a compromise bill that would soften many of the requirements.
Instead of taking aim at EU and parent businesses with more than 500 employees and a net global turnover of 150 million euros ($160 million), for instance, the rules would apply to companies with more than 1,000 employees and a net worldwide turnover of 450 million euros ($481 million). Higher-risk industries, such as leather, textiles and agriculture, no longer face a lower employee threshold—it was previously 250—to fall into scope. And the definition of what “chain of activities” involves now excludes downstream activities at the product disposal stage and those performed by indirect business partners.
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It was this iteration of the CSDDD that the European Council—barring Germany, which still abstained, a move that was tantamount to a nein—achieved consensus on in March.
The spirit of the law, however, remains the same: to hold companies that breach their due diligence obligations liable for damages, including compensations for victims. Member states will be required to create or designate a supervisory authority to investigate and impose penalties on non-complying business, including “naming and shaming” and fines of up to 5 percent of their net global turnover.
“Today’s vote is a milestone for responsible business conduct and a considerable step towards ending the exploitation of people and the planet by cowboy companies,” Dutch politician Lara Wolters, the Member of the European Parliament who has shepherded the legislation, said after the plenary session. “This law is a hard-fought compromise and the result of many years of tough negotiations. I am proud of what we have achieved with our progressive allies. In Parliament’s next mandate, we will fight not only for its swift implementation, but also for making Europe’s economy even more sustainable.”
The final step of the CSDDD’s journey into law will take place at next month’s Competitiveness Council, where EU ministers will rubber-stamp the text. Once published in the EU Official Journal, it will enter into force 20 days later. Member states will have two years to transpose the new rules into their national laws. By 2026 or 2027, the regulation will take effect across the entire bloc on a rolling basis, beginning with the largest companies with more than 5,000 employees and a net global turnover exceeding 1.5 billion euros ($1.6 billion). By 2029, all in-scope businesses will be covered.
That the European Parliament’s vote happened on the 11th anniversary of the collapse of Rana Plaza, which killed 1,134 garment workers and injured thousands more in the Dhaka suburb of Savar in Bangladesh, didn’t go unnoticed.
“The Rana Plaza tragedy has shown what is at stake if businesses act recklessly. With today’s adoption of the CSDDD, the European Parliament assumes the responsibility to regulate business conduct to prevent a tragedy like Rana Plaza from happening again,” said Nele Meyer, director of the European Coalition for Corporate Justice, a consortium of 480 civil society groups across the continent. “For the CSDDD to be a game-changer and trigger a shift in business conduct, both states and businesses must prove now their commitment to the CSDDD and implement its rules effectively.”
But it’s a bittersweet victory, the coalition said, with “just a 0.05 percent of triumph for corporate justice.” To wit, the rules will only target 0.05 percent of EU companies, down from the 1 percent that the original agreement covered. The overwhelming feeling from the CSDDD’s champions, however, is that something is better than nothing.
“It was only a few weeks ago that EU member states nearly killed this law off completely, so today’s vote to pass the final law is something to celebrate,” said Beate Beller, corporate accountability campaigner at the corporate watchdog group Global Witness. “While national governments such as Germany, France and Italy weakened it at the last minute, a new chapter is about to begin for corporate accountability. The biggest companies operating in the EU will be obliged to respect human rights and the environment, and the law gives people who are at risk from dangerous business practices a chance to fight back.”
Writing on LinkedIn, Nazma Akter, president of the Sommilito Garments Sramik Federation and founder and executive director at the Awaj Foundation, called the European Parliament’s approval a “victory for the union’s long fight for workers’ legal rights.” The CSDDD, she said, will be a “vital tool to defend workers’ rights throughout the supply chain.”
Next, the forced labor regulation.
On Tuesday, more than a month after it arrived at an interim deal with the European Council, the European Parliament gave its last OK to rules that would block the sale and availability of goods made with forced labor from the EU market with 555 votes in favor, 6 votes against and 45 abstentions.
As with the CSDDD, the text will have to get one final approval from the European Council, along with publication in the EU Official Journal, following which member states will have to start applying it in three years.
“Today, worldwide, 28 million people are trapped in the hands of human traffickers and states who force them to work for little or no pay,” said Portuguese politician Maria-Manuel Leitão-Marques, rapporteur for the internal market committee. “Europe cannot export its values while importing products made with forced labor. The fact that the EU finally has a law to ban these products is one of the biggest achievements of this mandate, and a victory for progressive forces.”
The law will allow member-state authorities and the European Commission to investigate goods, supply chains and manufacturers with suspected links to modern slavery based on “factual and verifiable information,” whether from international organizations, cooperating authorities or whistle-blowers. Producers of banned goods will be required to withdraw their products from the EU and donate, recycle or destroy them, and non-compliant companies could be fined.
While the rules have garnered praise, they have also fielded criticism for not taking a harder line, specifically on state-sanctioned forced labor in China’s Xinjiang Uyghur Autonomous Region. Unlike the Uyghur Forced Labor Prevention Act in the United States, the forced labor regulation presumes innocence over guilt for products linked to the controversial province.
In a report published earlier this week, U.S. Secretary of State Antony Blinken said that Beijing is continuing to commit “genocide, crimes against humanity, forced labor and other human rights violations” against Uyghurs and other predominantly Muslim ethnic minorities in Xinjiang, though China has repeatedly denied this.
“The parliament’s vote is a positive one and will require companies to address forced labor in their supply chains,” said Zumretay Arkin, director of global advocacy at the World Uyghur Congress, an international organization of exiled Uyghur groups. “Unfortunately, the EU has missed a crucial opportunity to agree on an instrument that could meaningfully address forced labor when the government is the perpetrator, like in the Uyghur region in China. We welcome this milestone but stress that all related guidance, guidelines and considerations of when to investigate cases be created in a way that ensures the regulation can effectively ban products made with state-imposed forced labor.”
Another shortfall, according to Sian Lea, business and human rights manager at the nonprofit Anti-Slavery International, is the lack of obligation to remedy harm, which the CSDDD includes.
“For the forced labor regulation to have the greatest impact, it is crucial that victims of forced labor are able to access remedy for harm,” she said. “We will continue to work closely with the EU and civil society as this law comes into effect, to make sure that workers’ rights are respected and that frameworks for accessing remedy are established.”
As with the CSDDD, having some guardrails is better than none at all, said Ben Vanpeperstraete, senior legal adviser at the nonprofit European Center for Constitutional and Human Rights. He called the regulation a “crucial step forward in the fight against forced labor in global supply chains.”
“While there are significant shortcomings that need to be improved upon sooner rather than later, it is now important to translate the regulation into concrete practice,” Vanpeperstraete said. “The EU and member states need to work together with civil society organizations to ban unfair competition between companies based on forced labor.”