Beyond SEC Climate Disclosure: The Proposed EU Due Diligence Rule
Large companies doing business in the European Union may soon be required to monitor their value chains for environmental and human rights risks under a due diligence rule set to be voted on during the European Parliament's plenary session on June 1.
The proposed rule on corporate sustainability due diligence would go beyond the current proposed SEC climate disclosure rule by requiring certain large companies to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement. It could also hold companies liable for human rights and environmental violations occurring at any point within their value chains.
Far-Reaching Implications for Businesses Operating in the EU
Although U.S. companies doing business in Europe are trying to streamline the rule, the proposal could have far-reaching implications for businesses operating in the EU and beyond if implemented in its current form, meaning many large companies would need to examine their business practices and supply chains in order to comply.
Under the proposed EU rule, European courts would have authority to hold companies liable for violations and national authorities in the EU would have the ability to levy hefty fines on businesses for noncompliance.
Pushback from U.S. Investors, Asset Managers & Bankers
Despite pushback from U.S. companies including investment giants and the American Chamber of Commerce to the EU over provisions related to banking in particular, the European Commission and European Parliament have been holding firm on requiring all sectors to be included. But, after pushback from the French government, the European Council is now proposing a carve out for financial services.
Although the EU has a history of being a trailblazer in sustainability regulations, this new proposed law would have far-reaching implications for large, non-EU-based companies that do business in the bloc. This would lead to a wide range of companies being forced to prioritize sustainability and ethical practices in their operations. It also calls out the importance of considering more global collaboration in addressing these pressing issues.
Conclusion
As regulations around the world become more stringent, companies that do not prioritize these issues could face significant financial and reputational damage.
Should this EU due diligence proposal be adopted in its current form, companies would be required to closely monitor their supply chains to integrate global sustainability and ethical standards into their business practices. And even if this doesn’t directly apply to your company, you can still be at risk if you currently supply products or services to these large companies or are looking to become a supplier in the future.
With this and other regulations progressing across the globe, you may not want to wait for these regulations to force your hand. Proactively addressing these issues can help you stay ahead of the curve and position your company as a leader in sustainability. Whether you're looking to reduce your carbon footprint, improve worker safety and human rights, or enhance your overall sustainability strategy, Uplift can help.
The Uplift Agency
Uplift builds strategies, programs, and communication campaigns that advance ESG in workplaces, supply chains and communities.
We know how to navigate the road ahead because we’ve already been down it – 90 percent of our team has led environmental or social programs in corporations or nonprofits. Because ESG is all we do, our services are more comprehensive and integrated than most firms.
