New EU law on corporate responsibility for human rights and the environment

Today, the European Commission released the long-awaited legislative proposal on corporate responsibility for human rights and the environment. Unfortunately, the long process has resulted in the proposal being watered down, effectively leaving 99% of EU companies without direct accountability. However, the last word has not been said and now all eyes are on the EU Member States and the European Parliament to have their say. Therefore, Swedish pressure is now required for a law that puts people and the environment first.

In February 2020, the European Commission promised to present a legislative proposal on corporate responsibility for human rights and the environment in their own operations and at the supply chain. Now, after two years, a proposal is finally on the table. Expectations from civil society have been high. If properly designed, the law could require all companies in all sectors selling goods and services on the EU market to be legally bound to respect human rights and the environment in their operations and supply chains - part of a systemic shift that could improve the lives of millions of people and workers around the world.

Human rights and environmental abuses in supply chains are widespread and take place in virtually all global supply chains and in all sectors. Testimonies from people affected by the actions of European companies remind us of this reality almost daily. Often, it's a matter of living wages, child labor, excessive working hours, lack of trade union freedoms and sexual harassment. Women workers are particularly vulnerable. Over the years, Oxfam has been able to show that the people who grow the food on our tables, including rice, vegetables and fruit, have almost no say in their situation and rarely have a living wage, while companies make huge profits - and at the same time are not held accountable for the violations they contribute to. This is what the EU law is meant to change.

It is therefore disappointing that the proposal presented today only covers the very largest companies in terms of turnover and number of employees. In practice, this means that 99% of EU companies will escape direct liability. The proposal states that companies are liable throughout their supply chain, with some exceptions that would allow companies to circumvent parts of that liability. These limitations are a betrayal of all those who fought for the legislation. Ultimately, it is a betrayal of the people whose lives, families and communities are too often exploited because of corporate negligence in a system that promotes economic profit over people and the environment.

But the final word has not yet been said. A process is now underway for EU governments and the European Parliament to have their say - and many eyes will turn to Sweden, a country that will soon take over the EU presidency and stands proud on issues of human rights and the environment. Oxfam therefore calls on Sweden to show leadership and put people and the environment first.

About the draft law

• Limited scope in terms of companies directly affected by the legislation. 99% of companies in the EU will not be directly affected. The proposed legislation will only apply to the largest companies in the EU market: companies with an annual turnover of more than €150 million and more than 500 employees. In a number of 'high-risk' sectors - including textiles and leather, agriculture and food, and mining and quarrying - the requirement will apply to companies with an annual turnover of more than €40 million and at least 250 employees. The Commission estimates that 13,000 EU companies and 4,000 non-EU companies will be directly affected by the legislation.
• Accountability throughout the supply chain. Companies will have responsibility for their entire supply chain. Responsibility applies to their own operations, their subcontractors and "established business relationships", throughout the supply chain. However, the proposal contains a number of exceptions which could in practice mean that companies could circumvent part of the responsibility.
• Due diligence requirements. These requirements will cover internationally recognised human rights and a limited set of environmental standards. No direct explicit requirement to comply with climate standards is included in the proposal.
• Implementation and corporate responsibility. The proposal requires Member States to designate authorities with powers to investigate and impose penalties to enforce the legislation. Member States would then need to ensure that companies are held accountable for violations if they fail to comply with legal requirements. 

Next steps

• The European Parliament and the EU Council of Ministers will now make changes to the Commission proposal. The process is expected to take at least a year.
• Once the law is adopted, EU countries will have to transpose it into their national laws

Other

• Large business associations have been critical of the law, leading to today's watered-down bill. However, many individual companies have been positive. Most recently, more than 100 companies and investors, including IKEA, Haglöfs and Ericsson, issued a joint statement calling for effective EU rules to protect people and the planet.