EU Member States advocating for looser regulations in the Supply Chain Due Diligence Act - EU nations seek looser regulations for supply chain standards
Let's dive into the latest buzz in EU policy-making, where enthusiasm for the Supply Chain Act seems to be waning.
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The initial EU intention was to enforce accountability upon companies with over 1,000 employees and annual turnovers exceeding 450 million euros, for human rights violations and environmental pollution within their supply chains, under the Supply Chain Act. However, a sudden shift in tide calls for an increase in these thresholds, to at least 5,000 employees and 1.5 billion euros in annual turnover.
This proposed revision corresponds to the French Supply Chain Act currently in effect. Germany, as initially planned at EU level, was set to regulate companies with over 1,000 employees. However, the black-red federal government wishes to scrap these rules entirely.
Heike Drillisch, coordinator of Initiative Supply Chain Act, believes that this approach is merely a disingenuous simplification of the regulations. "By undermining the core of due diligence obligations, these changes would significantly weaken the regulations' effectiveness," she warns.
The majority of EU nations are on board with this relaxation. Companies would no longer be obligated to adhere to human rights and environmental standards across their entire supply chain, but only with their direct suppliers. The governments also propose demanding less detailed information and strict requirements for high-risk supply chains only.
The EU countries also plan to abolish the previously proposed EU-wide civil liability for infractions of the regulations, making lawsuits against companies for violations more challenging. Legal proceedings would depend on the jurisdiction in the respective EU country.
More leniency is also proposed for company sustainability reporting, with the EU law not applying until there are 1,000 employees and an annual turnover of at least 450 million euros. This would affect around 80% of the initially targeted companies.
The Council of the 27 Member States must now consult with the European Parliament on these easements, for which the parliament has not yet adopted a negotiating position. The law's implementation has already been delayed, with the first rules set to take effect on July 26, 2028, a year later than initially planned.
Recent calls by German Chancellor Friedrich Merz (CDU) and French President Emmanuel Macron to scrap the Supply Chain Act entirely have caused tension in Berlin, with Development Minister Reem Alabali-Radovan and Finance Minister Lars Klingbeil (both SPD) contradicting Merz.
- EU
- Supply Chain Act
- France
- Brussels
- Federal Government
Some interesting tidbits:- The employee threshold for EU companies could potentially increase from the 500 employees initially proposed to 1,000 employees.- The net turnover threshold for non-EU companies could triple, rising to EUR 450 million in the EU, making them subject to the due diligence obligations.- Proposals suggesting raised uniform thresholds for sustainability regulations could apply only to companies with more than 3,000 employees and more than EUR 450 million net turnover.- Reporting and enforcement updates are also planned, with many reporting obligations under the CSRD and related directives either delayed or suspended.
Overall, European policymakers seem keen on scaling back the Supply Chain Act to ease compliance burdens on businesses, potentially excluding smaller companies and lessening reporting requirements for others. This balance attempts to reconcile the ambition of ethical supply chain oversight with cost and complexity concerns of companies operating within the EU.
- The EU countries are pushing for increased thresholds in the Supply Chain Act, proposing to raise the employee threshold from the initial 500 to 1,000 and the net turnover threshold from EUR 450 million for non-EU companies to a potential triple, making them subject to due diligence obligations.
- In the ongoing debate, the EU countries plan to relax the Supply Chain Act by allowing companies to adhere to human rights and environmental standards only with their direct suppliers instead of across the entire supply chain, and by abolishing the previously proposed EU-wide civil liability for infractions, making legal proceedings more challenging.
