EU Enacts Sweeping Law for Ethical Supply Chains

The European Union has taken a significant step towards ensuring ethical practices in global supply chains. On Friday, EU member states finalized approval of a new law that will hold large companies accountable for human rights and environmental abuses throughout their operations, both within and outside the bloc. The legislation, formally called the Corporate Sustainability Due Diligence Directive (CSDDD), but also known as the European Supply Chain Act, is a landmark achievement for the EU, which has long advocated for stricter regulations to promote ethical business conduct.

The new law will require large companies with a presence in the EU to identify and address environmental and human rights risks within their supply chains. This includes ensuring decent working conditions, preventing child labor and forced labor, and mitigating environmental damage. Companies will be responsible for conducting due diligence assessments, establishing grievance mechanisms, and taking steps to prevent or remedy any violations identified.

The CSDDD applies to EU-based companies with more than 500 employees and a global turnover of €150 million, and to non-EU companies with at least 450 million euros in turnover within the EU. The law will come into effect gradually over a five-year period, with larger companies facing stricter requirements starting earlier. Companies that fail to comply with the CSDDD could face fines and be held liable for damages caused by human rights or environmental violations in their supply chains.

The passage of the CSDDD is a culmination of years of negotiations and debate within the EU. While many member states voiced strong support for the legislation's goals, there were concerns about the potential burden it could place on businesses. A previous attempt to finalize the law in late 2023 failed to garner enough support from member states. However, negotiations led by Belgium resulted in a revised version of the law with a higher turnover threshold, addressing some of the concerns raised by businesses.

The EU's new supply chain law is expected to have a significant impact on businesses operating in the bloc. Companies will need to adapt their operations to comply with the new due diligence requirements, which will likely involve increased investment in supply chain monitoring and risk management. However, proponents of the law argue that these costs will be outweighed by the long-term benefits of ensuring ethical and sustainable supply chains. The CSDDD could also set a global precedent, as other countries look to the EU for leadership on corporate sustainability issues.

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