Beginning of June, the European Parliament has approved its stance on integrating human rights and environmental impact into companies' governance, paving the way for negotiations with member states. Under the proposed rules, companies will need to identify and address the negative impact of their activities on human rights and the environment, including issues like child labor, slavery, pollution, and biodiversity loss. This responsibility extends to their value-chain partners, covering suppliers, sales, distribution, transport, storage, and waste management.
Who will need to comply?
The regulations will apply to EU-based companies, regardless of sector, with more than 250 employees and a worldwide turnover exceeding €40 million. Parent companies with over 500 employees and a worldwide turnover surpassing €150 million will also be included. Non-EU companies generating at least €40 million in the EU, with a total turnover exceeding €150 million, will be subject to the rules as well.
What will firms need to do?
In addition to implementing a transition plan to limit global warming, larger companies with over 1,000 employees will see their directors' variable remuneration tied to meeting the plan's targets. The rules also emphasize companies' engagement with stakeholders, the introduction of a grievance mechanism, and regular monitoring of due diligence policy effectiveness.
What will be fines for non-compliance?
Non-compliant companies may face damages, sanctions from national supervisory authorities, including fines of at least 5% of net worldwide turnover, and exclusion from EU public procurement for non-EU companies.
What are the next steps?
The new obligations will be applicable after 3 or 4 years, depending on the company's size, and smaller companies may have the option to delay compliance for an additional year. The negotiating position received 366 votes in favor, 225 against, and 38 abstentions.
Source: Unsplash