European Union countries on Friday postponed a decision on a proposed law requiring large companies to determine if their supply chains use forced labour or cause environmental damage after Germany and Italy indicated they would abstain.
A “qualified majority” of 15 EU countries representing 65 percent of the EU population is needed for the corporate sustainability due diligence directive to proceed to a final vote in the European Parliament, where lawmakers are expected to support it.
On Friday, one diplomat said it was clear there were not enough envoys from the 27 EU countries to back the law, with Germany set to abstain. A decisive move was Italy’s last minute decision to say it would abstain, according to an Italian source.
“Germany is obviously anything but alone with its concerns,” Germany’s finance minister and leader of the Free Democrats Christian Lindner said on his X social media account.
Once the engine of EU integration along with France, Germany is increasingly becoming the brake, with a divided coalition.
Germany’s pro-business FDP opposed the law, arguing it would burden business with excessive bureaucracy. They also brought late objections to an EU law to end sales of CO2-emitting cars by 2035 and on EU plans to reduce truck emissions.
Their coalition partners, the Social Democrats and the Greens, backed the law and warned that Germany would lose credibility in the EU with their last minute opposition.
Campaign groups expressed outrage at the postponement.
Steve Trent, CEO and founder of the Environmental Justice Foundation, said some governments were irresponsibly blocking a move to meaningful corporate responsibility.
“Protections for consumers, human rights and a sustainable planet for future generations are at stake,” he said.
The Belgian EU presidency said the item had been removed from the agenda of Friday’s meeting of envoys from the EU’s 27 countries and would be rescheduled, with an EU diplomat saying it was set to be moved to Feb. 14.
Under the CSDDD, due to enter force in 2027, large companies in the EU will have to identify and take remedial action if they find their supply chains employing forced or child labour or damaging the environment, such as deforestation.
The rules will apply to EU companies that have more than 500 employees and a net worldwide turnover above €150 million ($161.5 million) and for non-EU firms whose EU turnover is more than that amount, albeit with a three-year lag.
Fines for breaching the rules could be as much as 5 percent of a company’s global turnover.
Critics have said it piles further reporting requirements on EU companies which must already comply with a separate set of environment, social and governance (ESG) disclosures coming into force from this year.
The law has also raised corporate hackles elsewhere, such as the United States, because it encompasses about 4,000 companies that do business in the bloc but are headquartered elsewhere.
By Philip Blenkinsop, Charlotte Van Campenhout; Additional reporting by Huw Jones, Maria Martinez and Miranda Murray and Gisela Vagnoni; Editing by David Evans and Kylie MacLellan
Luxury Brands Lag on Efforts to Reduce Forced Labour
Despite strides made to eliminate the use of forced labour in fashion’s supply chain, companies’ lack of transparency is causing them to fall behind, according to a new industry report.