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Corporate lobbyists achieved great success in Brussels after the European Commission was forced to postpone a landmark proposal to make companies more accountable for human rights and environmental abuses in their supply chains.
The European Commission was due to present its proposal on new business due diligence in June, covering EU business links with practices such as Chinese forced labor in the western region of Xinjiang and child labor in the cocoa harvest. However, after concerted lobbying, Brussels is putting its proposal on hold until autumn.
In a further move that worries activists about a tougher approach to corporate responsibility, the file is no longer exclusively reserved for Justice Commissioner Didier Reynders, but is now shared with Internal Market Commissioner Thierry Breton, a former manager in several top French boardrooms.
The Commission’s package includes not only abuses in supply chains, but also corporate governance rules for the duties of board members. Leading companies and Nordic countries disliked panel interference, while small and medium-sized companies feared that the administrative burden of overseeing supply chains would be too much.
A Commission spokesman confirmed that the package is now being rolled back and said: “The proposal can be expected to be adopted after the summer. It is important to ensure that this proposal is fully prepared, taking into account the various aspects and a balance between the diversity of opinion of the stakeholders. “
Another Commission official was positive about Breton’s inclusion on the file, saying that the “co-lead” [by Reynders and Breton] is sensible because both can contribute with their perspective. “
However, the addition of Breton’s perspective was not welcome news for the nongovernmental organization Global Witness. “A change in management in the file carries the risk of reverting to the old approach, in which short-term profit comes first and the perceived ‘administrative burden’ for the business is prioritized. This approach brought us the climate crisis, ”said Richard Gardiner of the NGO.
Activists and progressive lawmakers warned the commission not to give in to corporate pressure. “The European Parliament has made it very clear what it expects from the Commission,” said Green MEP Heidi Hautala. “We are about to introduce world-class standards. It would be detrimental for the entire EU if we lost this “Brussels moment”. Let’s hope this delay doesn’t mean we are somehow falling back on the old reality of trusting that all kinds of voluntary mechanisms hold companies accountable and accountable. It just doesn’t work. “
The legislative process should proceed as quickly as possible “in order to avoid a kind of regulatory patchwork quilt between the various member states,” said Lara Wolters, the socialist legislator responsible for the acts in the European Parliament. She stressed that human rights concerns and the climate crisis need to be addressed as soon as possible. “These things cannot be done without a company, so we need laws that… make it clear what kind of business conduct we expect [from them] as soon as possible, ”said Wolters.
Even so, Oxfam EU’s Marc-Olivier Herman was cautiously optimistic that this reshuffle would not affect the ultimate goal. “To be honest, as long as the Commissioners don’t forget the main objective, I am not unduly concerned,” he said. “This initiative is an important part of the European Green Deal. We hope the Commission will keep an eye on the ball. “
The immediate reason for the delay is that the Commission’s internal “regulatory review body” – a five-person team that does “quality control” – gave the impact assessment of the future law a red card last Friday, according to industry officials and activists.
Herman warned of the importance of that red light, saying it wasn’t uncommon for a file to go through the regulator twice or even three times. According to its report for 2020, the panel issued 15 red cards for initial opinions from a total of 39 initiatives.
This veto by the Audit Committee is good news for governments and business associations in free-market Nordic countries, who are calling on the Commission to drop the part of the corporate governance proposal as they believe it undermines the internal organization of EU Companies.
“This is the wrong way. We should not disempower companies and shareholders who do everything right, ”Simon Kollerup, the Danish Minister for Industry, Economy and Finance, told POLITICO.
The Danish minister and business associations ask the Commission to split the legislative proposal in order to move forward with the due diligence part and drop the corporate governance rules.
“There are different traditions, structures and models for corporate governance in the EU. In view of this, it is difficult for me to see how harmonized EU regulation would have a positive effect, ”said Kollerup.
Lars Sandahl Sørensen, Chairman of the Federation of Danish Industries, said: “We hear that DG JUST’s impact assessment has received the red card from the Regulatory Scrutiny Board. That is good news.”
According to business associations from Sweden, Denmark, Finland, Estonia, Iceland and Norway, new rules will “obscure management responsibilities and create internal conflicts of interest and potentially crippled or unaccountable bodies and lawsuits.”
In any event, it should be up to the Member States, not the EU, to set rules for corporate governments, while they argue that a study by the accounting and advisory firm EY that fed into the Commission’s thinking on sustainable corporate governance, ” built on unfounded assumptions. ”
However, activists believe that companies shouldn’t be afraid to incorporate sustainability into their business operations.
“Of course, we can expect the worst offenders to panic – it is uncomfortable to be held accountable and some powerful companies have ignored their commitments for far too long,” said Gardiner of Global Witness. “They are trying to drive the EU into inaction with well-known arguments about profit margins, but most companies support the legislation, as the consultation report shows.”
However, other activists noted that a delay wasn’t necessarily a serious problem if it meant a stronger proposal. “It would be a great success for her [the Commission’s] Credibility if they questioned the initiative itself because of some alarmist voices, ”said Herman.
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