EU Commission wants to significantly soften supply chain law

The EU supply chain law should take effect later, then only affect a fifth of the companies currently envisaged and produce less information. This is what the EU Commission is asking for. As justification, it refers to the mandate adopted by the EU heads of state to reduce bureaucracy, especially for small and medium-sized enterprises (SMEs). The aim is to increase the resilience and competitiveness of the European Economic Area (EEA).

The proposal published on Wednesday already contains detailed proposals for adapting four directives: the Audit Directive, the Accounting Directive, the Sustainability Reporting Directive (CSRD) and the Supply Chain Directive (CSDDD) itself. The latter should take effect in three waves (depending on the size of the company) from 2027. The EU Commission would like to postpone the second and third waves of the Supply Chain Directive by two years.

The Supply Chain Directive adopted last year is intended to put the economic power of the EEA at the service of human rights and environmental protection. Transparency obligations should enable companies that profit from child or forced labor outside the EU, for example, to be held accountable. Larger companies should also adapt their business model to the Paris Agreement on climate change. Foreign companies that generate a lot of turnover in the EEA are also included. So far, SMEs that are neither active in the financial sector nor listed on the stock exchange and all micro-enterprises have been excluded. The latter are defined by a single-digit number of employees and either less than 450,000 euros in total assets or less than 900,000 euros in annual turnover.

The EU Commission would like to raise these limits to 1,000 employees and either a balance sheet total of 25 million euros or a turnover of 50 million euros. Around 80 percent of those currently covered would be exempt immediately. Only around 6,000 EU companies and 900 from outside the EU would remain. In addition, the EU Commission is against sector-specific reporting requirements; these are currently intended for high-risk sectors whose supply chains frequently involve human rights violations or environmental damage.

It should be easier for the rest

It should also be easier for the large companies that are still covered. They should no longer be required to obtain information from SMEs not covered by the transparency requirement to be able to describe the supply chain. In other words, only if large companies purchase from other large companies that are responsible for what they supply do they have to pay attention to human rights and environmental protection as defined by these guidelines.

A further simplification concerns the form of reporting: some topics will no longer be covered. For others, instead of explaining things, companies should simply provide figures. The EU Commission also wants to completely dispense with standards for disclosures. Instead, there are to be non-binding guidelines, and only for individual topics. A deepening of transparency, which is planned as an option for the future, is to be completely omitted.

Germany already has a supply chain law. However, the EU version goes beyond its requirements. For example, the German law excludes the possibility of companies being liable for breaches of due diligence.

(ds)