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BRUSSELS – Long-awaited due diligence laws by the European Union aimed at making multi-nationals accountable for social and environmental transgressions in supply chains have been slammed by rights groups. The European Commission this week presented draft laws which would require EU companies with more than 500 employees and a turnover of €150m to prevent human rights and environmental abuses along their supply chains, by carrying out ‘due diligence’. In industries where the risk of exploitation is higher – including fashion – companies with more than 250 employees and turnover of €40m would be covered, while SMEs would be exempt.

However, rights groups claim that limitations relating to company size mean the laws, if implemented, would apply to less than 0.2 per cent of European Union companies.

The European Coalition for Corporate Justice (ECCJ) said in a statement: “By restricting the scope so dramatically, the proposal wilfully ignores many harmful business operations, as staff size and annual turnover are not reliable indicators of how a company is impacting the lives of workers and communities worldwide.”

ECCJ director Claudia Saller said: “Companies are increasingly under pressure to take their social and environmental duties seriously. But many hide behind their complex supply chains to avoid accountability and dodge difficult questions. The Commission’s proposal is the first EU initiative of its kind and that in itself is ground-breaking, but it fails to deliver on the potential.”

The ECCJ has also warned that other loopholes in the proposed regulations could mean that multi-nationals are absolved of any responsibility beyond Tier One suppliers. This is particularly pertinent to fashion given the scale of sub-contracting in fashion supply chains.

Added the ECCJ: “Under the new law, companies could be held liable for harms committed at home or abroad by their subsidiaries, contractors and suppliers, and their victims will have the opportunity to file lawsuits before EU courts. This is an important step that creates a right to remedy for people affected by corporate malpractice.

“However, a dangerous loophole risks making the law ineffective in preventing harm beyond the first tier of the supply chain – and impeding victims from holding companies liable. The text implies that companies could fulfil their obligations by adding certain clauses in their contracts with suppliers and offloading the verification process to third parties. Companies should not be allowed to shift their responsibilities on to their suppliers or to get away with harm by participating in voluntary industry schemes.”

The ECCJ also claims the draft laws do nothing to reduce, “serious legal hurdles in bringing transnational cases against companies – such as high costs, short time limits, limited access to evidence, restricted legal standing, and a disproportionate burden of proof.”

More on these new draft laws in our next magazine.

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