EU drastically scales back supply chain law, exempting most companies

The EU Council has endorsed a substantial revision of the bloc's supply chain legislation, significantly easing the regulatory burden on businesses. The "Omnibus I" package, now formally approved following a parliamentary vote, dramatically scales back the scope of the EU Supply Chain Act, which was initially envisioned as a flagship initiative for global corporate responsibility.

The reform primarily targets small and medium-sized enterprises (SMEs) by substantially increasing the thresholds for reporting and due diligence requirements. Under the revised Corporate Sustainability Due Diligence Directive (CS3D), companies will only be subject to its rules if they have at least 5,000 employees and generate a net turnover of at least €1.5 billion. According to the European Parliament's rapporteur, Jörgen Warborn, this adjustment means approximately 85 percent of the companies originally covered will fall outside the law's scope, leaving an estimated 1,500 large corporations affected.

The rationale provided by the Council of Ministers is that only major players possess the necessary leverage to influence global value chains and manage the considerable costs associated with monitoring processes. This decision addresses concerns that smaller suppliers could be disproportionately burdened if large corporations rigorously demanded extensive data from every link in their supply chains.

The directive mandates affected companies to mitigate adverse impacts on human rights and the environment, such as child labor, slavery, labor exploitation, pollution, deforestation, excessive water consumption, and ecosystem damage. These issues have repeatedly surfaced in the supply chains of major global corporations.

Similarly, the Corporate Sustainability Reporting Directive (CSRD) has seen its scope narrowed. Henceforth, only companies employing over 1,000 individuals and reporting annual sales exceeding €450 million will be required to submit detailed sustainability reports. Stricter turnover thresholds are also imposed on companies from third countries seeking to access the European market, increasing bureaucratic hurdles.