European Union Hold Corporations Accountable for Supply Chain Abuses

On Friday, representatives from European Union member states endorsed a new legislation aimed at safeguarding human rights within supply chains and holding large corporations accountable for any involvement in child or forced labor outside the EU, or for causing significant environmental harm. This initiative seeks to ameliorate the human rights landscape, protect the environment, and propel endeavors toward international climate preservation objectives.

Although the law covers all sectors of the industry, the European brewing and beverage industry is not expected to experience significant impacts, as the main raw materials such as barley, malt, and hops originate from industrialized countries where high ethical standards regarding labor and environmental conditions are already in place.

The proposed legislation garnered support from 17 ambassadors, who collectively represent 65% of the EU population. This backing met the "qualified majority" requirement needed to push forward the "corporate sustainability due diligence directive," also known as the European Supply Chain Act, to its final vote in the European Parliament, where lawmakers are expected to support it.

This legislative framework emerged after intensive negotiations between member states and parliamentary representatives.

It is noteworthy that Germany, the largest economy in the EU, decided to abstain due to internal disagreements within its governing coalition, despite already implementing a similar law—the German Supply Chain Act (LkSG)—which became effective on January 1, 2023.

Following a month-long quest for consensus, the Belgian government, currently holding the rotating presidency of the EU Council, brokered a compromise. This compromise sets limits on the number of companies expected to adhere to the legislation. Under the new agreement, it applies to companies with more than 1,000 employees, a significant increase from the previous threshold of 500, and a net turnover of EUR 450m (USD 490m)—triple the previous amount. Implementation of the law will occur gradually over a five-year period, with the initial phase encompassing companies with over 5,000 employees and annual revenues of EUR 1.5 billion.

Environmental organizations estimate that these changes will exclude approximately 70% of the companies originally intended to be covered by the law.

Meanwhile, the German Chamber of Commerce and Industry (DIHK) criticized the legislation as burdensome and impractical. Additionally, BusinessEurope, a prominent lobby group, warned of potential legal challenges that European companies might face, placing them at a disadvantage compared to their global counterparts.

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