Firms could face being held legally liable for environmental and human rights transgressions in their supply chains with the risk of fines under a proposed EU law.
The draft legislative initiative, put forward by the European Parliament's Legal Affairs Committee, included the need for sanctions for firms for non-compliance, a ban on imports of products linked to forced or child labour, and legal support for victims of corporations in third countries.
In the draft report on corporate due diligence and accountability, the committee said “due diligence should not be a box-ticking exercise”, and while there were a number of international due diligence instruments available to firms, “their voluntary nature hampers their effectiveness and their effect has indeed proved limited”.
Binding EU due diligence rules would oblige EU companies to identify, address and remedy aspects of their value chain that could or already do infringe on human rights and cause damage to the environment, MEPs said.
Under the proposed law, all firms that want to access the EU internal market, including those established outside the EU, would have to prove that they comply with environmental and human rights due diligence obligations.
MEPs also stressed firms should be “held liable for their actions and be fined for causing harm or contributing to it, unless they can prove that they have acted in line with due diligence obligations and taken measures to prevent such harm”.
“The rights of victims or stakeholders in third countries – who are especially vulnerable – would also be better protected,” they said.
The draft report will be voted on in a European Parliament plenary session next month, and will be presented to the European Commission (EC) as a legislative initative if MEPs back it.
The proposed legislation followed a study published by the EC in February 2020 that found only one in three firms in the EU was currently taking due diligence measures, despite 70% of businesses surveyed supporting EU-wide due diligence rules.
Lara Wolters, shadow rapporteur and member of the Progressive Alliance of Socialists and Democrats in Parliament, said: “A new law on corporate due diligence will set the standard for responsible business conduct in Europe and beyond. No longer will companies be able to harm people and the planet without being held accountable.
“The new rules will hold companies legally responsible for avoiding and limiting risks in their entire value chain. They will give victims a legal right to support and to seek reparations, and will ensure fairness, a level playing field and legal clarity for all businesses, workers and consumers”, she added.
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