Update on the EU Supply Chain Act

The implementation of the EU Supply Chain Act is progressing. On June 1st, 2023, the European Parliament took its position on the proposal for a directive on the due diligence obligations of companies regarding sustainability (abbreviated as “CSDDD” and often referred to as the “EU Supply Chain Act”). The EU Parliament’s proposal includes significant tightening measures compared to previous drafts. We have taken a closer look at the position paper and answered the most important questions below:

Which companies will be affected?

According to the European Parliament, the new regulations should apply to EU-based companies, regardless of their industry, with more than 250 employees and a worldwide turnover of over EUR 40 million as well as parent companies with more than 500 employees and a worldwide turnover of over EUR 150 million.

Non-EU companies with a turnover of more than EUR 150 million should also be included if they generated at least EUR 40 million in the EU.

Are there any extensions to the catalog of obligations?

In addition to expanding the scope of addressees, the EP also makes additions to the catalog of obligations. Companies should develop and implement a plan that ensures their business model and corporate strategy are aligned with the goals of transitioning to a sustainable economy and limiting global warming to 1.5°C in accordance with the Paris Agreement and the goal of becoming carbon neutral by 2050. For the management bodies of companies with more than 1,000 employees, the fulfillment of the plan will affect variable remuneration.

What other tightening measures should be taken into account?

The EU Parliament also advocates tightening up civil liability compared to the Commission’s draft. The statute of limitations is to be extended and the burden of proof is to be eased. There are also further refinements in the definition of the covered value chain compared to previous drafts.

What are the penalties for non-compliance?

Companies that fail to comply with the regulations will be held liable for damages and could be subject to sanctions by national supervisory authorities. Sanctions include measures such as publicizing the company’s name (so-called “naming and shaming”), withdrawal of the company’s goods from the market or fines of at least 5% of the company’s worldwide net sales. Non-EU companies that do not comply with the rules are to be excluded from public procurement in the EU.

What’s next?

The Council of the European Union already decided on its negotiating position back in November 2022. Unlike the EU Parliament, the Council called for a number of simplifications compared to the EU Commission’s proposal. With the European Parliament’s negotiating position now established, the way is clear for the Trilogue negotiations (Council, Commission, Parliament), which could start as early as summer 2023.

The exact content of the CSDDD or the EU Supply Chain Act is not yet entirely foreseeable. This applies in particular to the issues of sanctions and (civil) liability, which were hotly debated when the individual drafts were published.

While the German Supply Chain Due Diligence Act* has been in force since the beginning of the year, the directive on the EU Supply Chain Act is not expected until 2024. Nevertheless, companies should already use the time to prepare themselves in the best possible way for the upcoming obligations.

Contact us; we will be happy to support you.

*A summary of the obligations already in force under the German Supply Chain Due Diligence Act and the implications for Austrian companies can be found here.

Disclaimer

This article is for general information only and does not replace legal advice. Haslinger / Nagele Rechtsanwälte GmbH assumes no liability for the content and correctness of this article.

 

21. June 2023

 

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