News
Supply chain 2.0: is an EU directive on the way?
Planned directive “on corporate sustainability due diligence and amending Directive (EU) 2019/1937” (CS3D) close to completion?
The EU’s new supply chain directive is being discussed in Germany mainly because the governing parties cannot agree on it.
But what would it change?
Scope of protection
Similar to the German Supply Chain Act (LkSG), it requires risk assessment and risk minimisation for certain human rights and environmental risks, but it additionally demands climate targets to limit global warming to 1.5 °C. “Climate neutrality” is to be achieved by 2050.
Some companies and areas of activity in the financial sector are excluded, at least for the time being.
Human rights and climate reports
What the report will contain is to be set out in a separate regulation. The first reports are expected for 2028. Large companies are also to adopt a climate transition plan, unless they already report under the Corporate Sustainability Reporting Directive (CSR). Climate targets are to take precedence over other concerns, such as social ones, and are to be promoted through financial incentives for senior employees.
From the supply chain to the chain of activities
In the directive, the supply chain is called the chain of activities or value chain, because it covers not only the supplier side (“upstream”), but also the delivery side up to the disposal of the former product (“downstream”).
SMEs are to be relieved by having the responsible companies cover part of their bureaucracy costs.
Legal consequences
Sanctions of up to 5% of net group turnover and public naming (“naming & shaming”) are planned, and participation in public tenders is to depend on implementation. Unlike the LkSG, there are to be direct rights to compensation, which can also be asserted by trade unions and by governmental or semi-governmental organisations.
Staggered effect from 2028
Companies with 1,000 or more employees are to fulfil the obligations three years after entry into force, so probably from 2028. One year later, companies with 500 or more employees are to be bound. The high-risk sector would follow a year later, from 2030.
Scope of application
While the LkSG only applies from 1,000 employees, the CS3D starts much earlier. The supply chain directive applies equally to partnerships and corporations
with 500 or more employees or a worldwide turnover of €150 million or more. For companies from third countries, only a turnover of €150 million in the EU counts, regardless of how many employees they have. Both criteria also apply to the parent company if only the group as a whole meets them.
For companies in high-risk sectors with at least €20 million in turnover in those sectors, a total turnover of €40 million or 250 employees is sufficient. For companies from third countries, the employee threshold is again dropped.
For licensors and franchisors with a common brand (“common identity”), it applies from €7.5 million in licence fees and €40 million in turnover in the previous year.
All values must be reached twice in a row, in the previous year and the year before that. Employees are counted not per head but as full-time equivalents (“Full Time Equivalent”, FTE).
Source
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