By Suzanne Cosgrove
The European Parliament announced Thursday that it has adopted its position for negotiations with member states on rules to integrate human rights and environmental impact into corporate governance. Negotiations with member states on the final text of the legislation are next–the members adopted a draft directive in November 2022, according to the Parliament’s release.
The newly confirmed rules will apply to EU-based companies, regardless of their sector, which have more than 250 employees and company revenues worldwide over 40 million euro, as well as to parent companies with over 500 employees and company revenues worldwide of more than 150 million euro.
Non-EU companies with a turnover higher than 150 million euro also will be included, if at least 40 million euro was generated in the EU.
Companies will be required to identify, and if necessary, prevent, end or mitigate the negative impact of their activities in areas that include child labor, labor exploitation, pollution, environmental degradation and biodiversity loss. The companies also will be required to assess the social and environmental impact of their value-chain partners, not only for suppliers but also for those involved in distribution, transportation, storage, waste management and other areas.
Non-compliant companies will be held liable for damages and can be sanctioned by national authorities. Planned sanctions include measures such as “naming and shaming,” or fines of at least 5 percent of the net worldwide turnover. Non-EU companies that fail to comply with the rules will be banned from public procurement in the EU.
The new obligations will apply after three or four years, depending on the company’s size. Smaller companies will be allowed to delay the application of the rules by one year.