Today, the European Commission put forward a proposal for a law to clean up supply chains worldwide and make business sustainable. This new law will introduce important reforms, which will only apply to a small group of very large companies selling goods and services on the EU market. Contrary to the Commission’s initial ambitions, it does not include significant reforms to directors’ duties.
In reaction, Oxfam EU’s Economic Justice Policy Lead, Marc-Olivier Herman, said:
“This long-awaited proposal is a far cry from what is needed to protect people and the planet from irresponsible business practices. Instead of the promised ‘game-changer’ proposal, the European Commission has put forward legislation that will only apply to 1 percent of companies in Europe.
“We need a law that lives up to the Commission’s ‘gamechanger’ aspirations. One that makes all companies, not just the biggest, responsible for their human rights or environmental violations and for damage to the climate. One that holds companies to a high standard of care with no chance to escape their obligations through the small print.
“The shelving of reforms to directors’ duties and remuneration is a missed opportunity of historic proportions, especially in the face of the current climate and inequality crises, and carries the fingerprint of the regressive business lobby. The proposal is too weak to ensure directors will look beyond immediate financial returns and take into consideration human rights, the environment and the climate when making strategic decisions.”
“It is now up to the European Parliament and European leaders to fix the proposal and make it work for people and the planet.”
Notes to editors
Oxfam spokespeople are available for comment and briefing.
In October 2020, Didier Reynders, EU Commissioner for Justice, said “Sustainable corporate governance can be a real game-changer in the way companies operate throughout their supply chains.”
Key features of the Corporate Sustainability Due Diligence Directive proposal:
- Limited scope: 99% of companies will be left out. The proposed legislation will only apply to the largest companies active on the EU market: companies with an annual turnover of over 150 million euro and over 500 employees. In three ‘high risk’ sectors - textiles and leather, agriculture and food, and extractives – limited due diligence obligations will apply to companies with an annual turnover of 40 million euro and at least 250 employees. The Commission estimates that 13000 EU companies and 4000 companies from outside the EU will have to comply with the legislation.
- Supply chain coverage: Companies will have a duty of care for their entire value chain. This duty will extend to their own operations, their subsidiaries and ‘established business relationships’ both upstream and downstream. However, a company can satisfy its duty of care through contractual assurances from its direct business partners and outsource verification of compliance.
- Due diligence obligations: These obligations will cover internationally recognized human rights and a limited set of environmental norms listed in the annex of the directive. Companies will also be required to adopt a climate transition plan in line with the 1.5°C objective of the Paris Agreement, accompanied with emission reduction objectives only when climate change is a risk to the company itself – turning a blind eye to the vast impacts of companies’ emissions on the planet.
- Enforcement and liability of companies: The proposal requires EU countries to appoint authorities with the power to carry out investigations and impose sanctions to enforce the legislation. EU countries will have to ensure companies are liable for damages if they fail to comply with their due diligence obligations in relation to international human rights and a very limited set of international environmental norms. Companies will not be liable for their failure to carry out adequate climate due diligence.
- Directors’ obligations: The proposal, which was initially titled the 'Sustainable Corporate Governance initiative’ introduces only cosmetic reforms to the duties of company directors related to the oversight of a company’s due diligence policies and actions. Companies will not be required to tie directors’ remuneration to the sustainability performance of the company. Corporate governance reforms were axed from the proposal because of pressure from the business lobby and by some Nordic countries.
The legislative proposal on Sustainable Corporate Due Diligence is accompanied by a Communication on Decent Work Worldwide setting out the Commission’s vision for more sustainable supply chains, including how it will deliver on President von der Leyen’s promise to ban goods tainted by forced labor from the EU market.
Next steps:
- The European Parliament and the Council of the EU (composed of the ministers of the 27 EU countries) will amend the Commission’s proposal. This process is expected to last at least a year.
- Once adopted, EU countries will have to transpose the legislation into their national law.
Read our joint press kit which breaks down the why, what and the how of the new law.
Large business associations have been hostile to the Sustainable Corporate Governance initiative which led to today’s legislative proposal. Many companies however have been supportive. Most recently, over 100 companies and investors published a joint statement calling for effective EU rules to protect people and the planet.
Contact information
Jade Tenwick | Brussels, Belgium | jade.tenwick@oxfam.org | mobile +32 473 56 22 60
For updates, please follow @NewsFromOxfam and @OxfamEU
Oxfam spokespeople are available for comment and briefing.
In October 2020, Didier Reynders, EU Commissioner for Justice, said “Sustainable corporate governance can be a real game-changer in the way companies operate throughout their supply chains.”
Key features of the Corporate Sustainability Due Diligence Directive proposal:
- Limited scope: 99% of companies will be left out. The proposed legislation will only apply to the largest companies active on the EU market: companies with an annual turnover of over 150 million euro and over 500 employees. In three ‘high risk’ sectors - textiles and leather, agriculture and food, and extractives – limited due diligence obligations will apply to companies with an annual turnover of 40 million euro and at least 250 employees. The Commission estimates that 13000 EU companies and 4000 companies from outside the EU will have to comply with the legislation.
- Supply chain coverage: Companies will have a duty of care for their entire value chain. This duty will extend to their own operations, their subsidiaries and ‘established business relationships’ both upstream and downstream. However, a company can satisfy its duty of care through contractual assurances from its direct business partners and outsource verification of compliance.
- Due diligence obligations: These obligations will cover internationally recognized human rights and a limited set of environmental norms listed in the annex of the directive. Companies will also be required to adopt a climate transition plan in line with the 1.5°C objective of the Paris Agreement, accompanied with emission reduction objectives only when climate change is a risk to the company itself – turning a blind eye to the vast impacts of companies’ emissions on the planet.
- Enforcement and liability of companies: The proposal requires EU countries to appoint authorities with the power to carry out investigations and impose sanctions to enforce the legislation. EU countries will have to ensure companies are liable for damages if they fail to comply with their due diligence obligations in relation to international human rights and a very limited set of international environmental norms. Companies will not be liable for their failure to carry out adequate climate due diligence.
- Directors’ obligations: The proposal, which was initially titled the 'Sustainable Corporate Governance initiative’ introduces only cosmetic reforms to the duties of company directors related to the oversight of a company’s due diligence policies and actions. Companies will not be required to tie directors’ remuneration to the sustainability performance of the company. Corporate governance reforms were axed from the proposal because of pressure from the business lobby and by some Nordic countries.
The legislative proposal on Sustainable Corporate Due Diligence is accompanied by a Communication on Decent Work Worldwide setting out the Commission’s vision for more sustainable supply chains, including how it will deliver on President von der Leyen’s promise to ban goods tainted by forced labor from the EU market.
Next steps:
- The European Parliament and the Council of the EU (composed of the ministers of the 27 EU countries) will amend the Commission’s proposal. This process is expected to last at least a year.
- Once adopted, EU countries will have to transpose the legislation into their national law.
Read our joint press kit which breaks down the why, what and the how of the new law.
Large business associations have been hostile to the Sustainable Corporate Governance initiative which led to today’s legislative proposal. Many companies however have been supportive. Most recently, over 100 companies and investors published a joint statement calling for effective EU rules to protect people and the planet.
Jade Tenwick | Brussels, Belgium | jade.tenwick@oxfam.org | mobile +32 473 56 22 60
For updates, please follow @NewsFromOxfam and @OxfamEU