The chance that a European law on responsible business conduct will be introduced in the short term is becoming increasingly smaller. European member states did not reach the required large majority on Wednesday on the precise elaboration of that law, which has been under negotiation in the European Union for years.
It is very uncertain whether any new negotiations will be completed on time. This means that the legislation, which is also closely monitored in the Netherlands, will probably no longer be able to be adopted within this European Parliament deadline, which will cause significant delays.
The so-called ‘sustainable chain legislation’ was presented in Brussels at the beginning of 2022 and was supposed to oblige companies to detect and tackle abuses in their production chain – for example human rights violations or environmental pollution. Companies that consciously fail to do so could face significant fines and possibly lawsuits.
In December, a long-awaited political agreement was reached between the European Parliament and the EU member states on the legislation. It stated, among other things, that this will apply to companies with more than 500 employees and a turnover of 150 million euros. For companies in so-called risk sectors such as the textile industry, agriculture and commodity trading, the limit would be 250 employees. With the law, the EU would play a leading role globally in enforcing corporate social responsibility.
The legislation was controversial from the start and became part of a fierce lobby in which companies mainly objected to the heavy regulatory burden and the risk of legal charges. There was also support for European legislation – including from member states such as Germany and France, which were already working on similar laws and feared a patchwork of European rules.
Yet it is now Germany and France, among others, that did not support a final agreement on the legislation. In Germany, the liberal coalition party FDP is an obstacle, which fears too great a burden for companies. At the last minute, France also demanded this week that fewer companies would be affected by the new legislation. Because Italy, among others, did not want to approve the law, there was insufficient support.
The dwindling support for chain legislation cannot be seen separately from a shifting political wind in Brussels, in which business interests have gained strength at the expense of environmental and social legislation. Last year, several government leaders called for a pause on new green legislation. Economic headwinds in many EU countries have reinforced calls for European companies to be spared.
The consequence is that the previously reached agreement is now in doubt. This means that there is little chance that the legislation will be completed before the European Parliament (EP) goes into recess at the end of April, in the run-up to elections in early June. Before a law can be finally adopted by the EP, months of legal preparations are required.
Rare
It is rare that a law is still stuck after a political agreement. In mid-December, Lara Wolters, PvdA MEP and chief negotiator of the EP, proudly presented her ‘anti-looking away law’ during a press conference in Strasbourg. Both the European Parliament and the member states always have to vote again on the elaboration of such a political agreement in a legal text, but this is normally considered a formality in Brussels.
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What will happen next with the law is uncertain. Diplomats emphasized on Wednesday that there is still the will among the majority of member states to come up with a European law. But if new negotiations have to be opened, the question is whether and when this can be completed successfully.
Wolters on Wednesday lashed out at EU member states that play “political games”. “undermining agreements made” and “merely listening to a minority of the extreme corporate lobby.” In a press conference, the Dutchwoman emphasized that the ball is now first in the court of the sleepers, to provide clarity about where the tricky points are.
In doing so, she kept the door open for possible changes to accommodate critical member states. “But at the moment I have not seen any concrete proposals. If we get that, the European Parliament will, as always, look at it seriously.” A spokesperson for the German government said on Wednesday that it did not expect an agreement to be reached before the elections.
In the Netherlands, there has also been talk for years about legislation for responsible entrepreneurship. Voluntary agreements on this theme have existed between social organizations and the business community for ten years, but in practice these have proven to be too non-binding. In the 2021 coalition agreement, it was agreed that national legislation would also be introduced to make responsible entrepreneurship mandatory. Later, the VVD wanted to wait for European legislation first. The Netherlands did support the law in Brussels on Wednesday.
Abuses
If the law were indeed rejected, it would create a special situation, says Martijn Scheltema, who is involved in responsible entrepreneurship as a professor of private law at Erasmus University. “The law is related to other legislation that has been adopted in Europe. For example, a new reporting obligation requires companies to report on their investigation into abuses in the chain. The text of the law refers to the new Responsible Business Act. From a legal perspective, that is no longer correct.”
Scheltema points out that although there was a significant lobby around the law, companies would also benefit from new legislation. “The idea behind the law is: we want to create a level playing field. There is now a patchwork of national legislation and international guidelines on responsible entrepreneurship. For large companies, which often operate in many different countries, it is not nice that each country does something different. If Europe has the principle that companies should not do business at the expense of human rights or the environment, then it is very logical to create a level playing field.”