Next step towards "EU supply chain Act"!
On 01 June 2023, the European Parliament ("EP") has now also adopted its position on the proposal on Corporate Sustainability Due Diligence ("EU Supply Chain Act"). Negotiations on the final text are entering the final round.
The legislative process in the European Union takes time. The EU Commission had already published its proposal for a directive on February 23, 2022. The Council then presented its proposal in November 2022. We already reported on this in our Law Blog in January 2023.
Now the EP has also defined its negotiating position and called for significantly stricter regulations. Here is a brief overview of the stricter regulations demanded by the EP (we have picked out the most important ones):
Who should be covered
1) EU companies (regardless of the industry)
- with more than 250 employees and a net worldwide turnover of more than EUR 40 million; or
- if it is the ultimate parent company of a group of companies that has more than 500 employees and generates a net worldwide turnover of more than EUR 150 million.
2) Third country companies (regardless of the industry)
- with a net worldwide turnover of more than EUR 150 million provided that at least EUR 40 million was generated in the Union; or
- if it is the ultimate parent company of a group of companies which has more than 500 employees and a net worldwide turnover of more than EUR 150 million and at least EUR 40 million in the Union.
The EP adds climate change mitigation measures to the list of obligations
- a transition plan to limit global warming to 1.5° must be implemented
- there is a specific responsibility for members of the company management
- for companies with more than 1,000 employees: parts of the variable compensation for members of the company management must be linked to the achievement of the transition plan
Stricter sanctions
Violations of the "EU Supply Chain Act" are to be severely punished:
- maximum limit of financial sanctions not less than 5% of the net worldwide turnover
- third country companies: Exclusion from the public procurement procedure within the EU
- "Naming and Shaming" measures (public statement indicating the company responsible and the nature of the violation)
- suspension of products from free circulation or export
Perspective
We expect the start of the trilogue negotiations for the EU supply chain law in the summer of 2023. The negotiating parties (Commission, Council, EP) have very different negotiating positions - we are looking forward to the final outcome and expect that the directive will enter into force in the course of 2024, after which the member states will probably have two years to implement the directive into national law. We expect the Austrian legislator to pass its own supply chain law, as no relevant regulations exist at the moment.
The situation in Germany is different: Here, the " Act on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains “ (Gesetz über die unternehmerischen Sorgfaltspflichten zur Vermeidung von Menschenrechtsverletzungen in Lieferketten), which came into force on 01 January 2023, needs to be adapted. As a contractual partner of many larger German companies, the domestic economy has already felt the impact of the new regulation of supply chains.
Excursus: Supply Chain Intelligence Institute Austria
Austria has recently established an institute for supply chain research ("Supply Chain Intelligence Institute Austria", or "ASCII" for short). According to media reports, the Ministry of Economics and the Province of Upper Austria have jointly made EUR 10 million available for this purpose. ASCII is to focus in particular on the security and reliability of supply chains in order to identify impending bottlenecks at an early stage. Among other things, the ASCII acts as a first point of contact for analyzing, evaluating and deriving recommendations for action for time-critical and complex issues in connection with value chains.
Conclusion:
All this shows that the topic of supply chains is gaining momentum. Austrian companies are well advised to start dealing with these requirements now. We are happy to assist!
Please note: This blog is for general information purposes only and in no way constitutes legal advice from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal advice. Binder Grösswang Rechtsanwälte GmbH accepts no liability of any kind for the content and accuracy of the blog.