Jan Strupczewski & Kate Abnett

BRUSSELS, (Reuters) – The European Commission proposed Wednesday a law that would require large EU companies to ensure their suppliers adhere to environmental standards.

Directors of European Union companies will be required to comply with the Corporate Sustainability Due Diligence Law. This law requires them to make sure that their business strategies are aligned with the Paris climate accord.

Didier Reynders, EU justice commissioner, stated that “we can’t turn our backs on what happens down the value chains.”

EU-based firms must assess their supply chains once a year, before they make major business decisions, or start new activities. They will need to consider risks like forced labour or child labor.

When a company recognizes these issues, it should take the appropriate steps to stop or prevent them. This includes developing corrective actions plans that suppliers must follow.

After lengthy negotiations with EU Parliament and EU government, which are expected to last more than one year, the Commission’s proposal will become EU law.

This would be applicable to approximately 13,000 EU companies, which includes the EU’s largest firms – those with more than 500 employees and a net turnover greater than 150 millions euros.

If companies are involved in high-impact industries like clothing, animal care, forestry and food, as well as the extraction of fossil fuels or metals, they will be covered.

However, this would mean that 99% of Europe’s companies would be exempt.

Lara Wolters from the EU, who led the Parliament report that called for the law last year and welcomed it, said however that even though small firms in high risk sectors might still cause abuses, they should be protected.

It would apply to about 4,000 foreign companies whose activities within the EU are in compliance with the EU’s turnover thresholds.

Governments in all 27 EU members states would ensure compliance. Fines would be imposed on companies that disregard the law.

EU-based companies may also be responsible for damages to suppliers who are guilty of an act that could not have been avoided or ceased by due diligence taken by them.