With 366 votes in favor of the law and 225 against (38 abstained), the EU Parliament in Brussels voted in favor of the European version of the Corporate Sustainability Due Diligence Directive (CSDDD) on June 1. The EU Parliament wants companies within the EU to be required to more strictly monitor compliance with human rights in the manufacture of their products.
Under the legislation, companies in the EU would be held responsible for child or forced labor as well as environmental pollution at their international suppliers. Companies based in the EU with more than 250 employees and more than €40 million in annual sales are subject to the rules, regardless of their industry. Companies based outside the EU will also have to comply with the rules if they have annual sales of more than €150 million, of which at least €40 million is generated in the EU. According to the legislation, they can then be held accountable in European courts. Among the contractors that companies would be required to monitor for human rights compliance are suppliers, distributors, transportation companies, warehouses, and waste management businesses.
Depending on the size of the company, the regulations are to be applied after a transition period of three to four years. In addition, companies will be required to draw up climate protection plans to limit global warming to 1.5 degrees.
The EU member states had already agreed on their position on the proposal by the end of last year. After the vote on June 1, the legislation is now being revised by the Parliaments’ office in order to be the object of negotiations together with the Council of EU’s General Approach and the Commission draft proposal. The inter-institutional negotiations are expected to start before the summer, with a final version of the directive to be consolidated by the end of the year.
FESI welcomes the vote but calls for further improvements before the trilogues
The Federation of the European Sporting Goods Industry (FESI) said it welcomes the results of the vote on the CSDDD on June 1. FESI and its members support the objectives of the proposed directive. However, due to the inherent complexity and sensitivity of the subject, which took international organizations decades to address, it acknowledges that the adopted text is not entirely pragmatic.
“For some parts of the text, such as alignment with existing international standards,” commented Jérôme Pero, FESI’s Secretary General. ”The Parliament’s position represents a positive development in relation to the original proposal of the commission, and for that, I congratulate the rapporteurs and shadow rapporteurs in the Parliament for their efforts. However, there is still a number of issues in need of improvement, in particular as regards to ’Directors’ duties’ that are redundant with Corporate Governance law and a certain lack of harmonization. I’m hopeful that the trilogues will be an opportunity to further improve the text in the interest of companies but also enforcement authorities.”
FESI welcomes the adoption of a risk-based approach and the prioritization of potential and actual impacts based on the severity and likelihood of said impacts as a step in the right direction. Being able to prioritize and develop appropriate measures to address the most significant risks is a fundamental element of the due diligence process, which has proven to be highly effective in addressing adverse impacts.
Furthermore, FESI supports the progress made by the European Parliament towards harmonization and avoiding further fragmentation of the internal market. Nevertheless, the sporting goods industry regrets that concerns about insufficient harmonization have only been partially addressed, which could allow 27 due diligence regulations to flourish beyond the existing proposal in the coming years.
Maintaining references to director due diligence will have negative side effects, including disrupting existing and well-established governance models, without adding value to companies’ ability to apply effective due diligence. In light of the deletion of Article 26 on “Enforcement of directors’ duties,” which FESI welcomes, the Federation would like to point out the new inconsistency created with the remaining reference to directors’ duties in the adopted text and hopes that the upcoming trilogue negotiations will clarify the gap and take into account the issues of companies operating in the EU market.
FESI announced that it is looking forward to the start of the trilogues (tripartite meetings on legislative proposals between representatives of the Parliament, the Council and the Commission) and urges policymakers to address the key issues related to harmonization, appropriate prioritization and unnecessary interference in corporate governance through instruments such as directors’ duties. The association will continue to advocate for better EU legislation on behalf of its members.
