The European Parliament has approved a significantly diluted version of the proposed European Supply Chain Act, marking a compromise that has drawn criticism from human rights advocates and environmental groups. Tuesday’s vote in Strasbourg, with 428 votes in favour, 218 against and 17 abstentions, represents a substantial watering down of the original draft legislation intended to hold companies accountable for human rights and environmental abuses within their supply chains.
The approved text effectively simplifies the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Social Responsibility Due Diligence Directive (CS3D), primarily by reducing reporting obligations and limiting the scope of impact on smaller businesses. The revised legislation now largely focuses on the responsibility of a comparatively narrow range of major corporations, raising concerns about the effectiveness of the directive in achieving its stated aims.
Specifically, mandatory social and ecological reporting requirements will now only apply to EU-based companies exceeding 1,000 employees and generating annual revenue above €450 million. The reporting threshold for non-EU companies operating within the EU has also been set at the same €450 million revenue mark, contingent on a significant portion of that revenue deriving from EU sales.
Due diligence obligations, central to the original intent of the Act, are now limited to large EU-based companies employing over 5,000 individuals and reporting annual revenue surpassing €1.5 billion. This threshold applies equally to non-EU entities generating sales within the EU exceeding that same figure. While non-compliance will still trigger liability at the national level, potentially incurring fines of up to three percent of global net annual revenue, critics argue the significant hike in thresholds diminishes the Act’s overall deterrent effect.
The compromise has been characterized by some MEPs as a necessary step to ensure the Act’s viability, citing concerns that overly stringent regulations could place an undue burden on businesses and potentially hinder economic growth. However, others have condemned the revisions as a capitulation to corporate lobbying, effectively shielding a substantial portion of global supply chains from meaningful oversight.
The directive now requires formal approval from the Council, a procedural formality expected to be swiftly concluded. However, the considerable compromises already made have sparked a wider debate about the EU’s commitment to upholding human rights and environmental sustainability within global supply chains and whether the final legislation represents a genuine step forward or a symbolic gesture. The long-term impact of the weakened Act remains to be seen and will likely be subject to intense scrutiny by civil society organizations and affected communities.