EU Lawmakers Want to Extend Reach of Draft ESG Oversight of Corporations

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A panel of European Union lawmakers on Thursday backed an amendment to extend the reach of groundbreaking draft legislation to force companies to check whether their suppliers use slave or child labor, or pollute the environment.

The EU’s executive European Commission proposed the draft corporate sustainability due diligence (CSDD) law last year to put pressure on companies to meet net-zero climate targets.

Under its terms companies would have to identify, monitor and mitigate the adverse impact of their activities on the environment, as well as adopt transition plans to meet net-zero goals.

Parliament’s environment committee voted on Thursday to back a more ambitious scope of the draft law, to cover companies with more than 250 staff and an annual worldwide turnover of more than 40 million euros ($43.04 million).

Lawmakers said this aligns the draft rules with the EU’s rules on corporate sustainability reporting.

The commission’s draft set the threshold higher, at 500 staff and worldwide turnover of more than 150 million euros, meaning fewer companies would need to comply.

“With its position, the environment committee sends a strong signal: We want to oblige companies to ensure their entire value chain is climate neutral by 2050,” German center-left committee member Tiemo Wolken said in a statement.

The European Parliament and EU states have the final say.

EU states reached a deal among themselves last December, sticking with the original aim of covering only large companies. They also gave themselves an option to exempt financial services from the rules.

Parliament’s economic affairs committee last month backed including finance in the rules’ scope.

Parliament’s legal affairs committee leads on the draft law and is due to vote next month, which would open negotiations between the assembly and EU states on a final text, with clashes expected over financial services, scope and other elements.

“The environment committee today voted to do what the commission failed to do: take the climate crisis seriously and set concrete rules for reducing business emissions,” said Jill McArdle, corporate accountability campaigner at Friends of the Earth Europe.

Like many EU states, parliament’s biggest party, the center-right EPP, has opposed toughening up the rules.

The World Benchmarking Alliance, which ranks company efforts to meet sustainable goals, said the coming months will be crucial, and the current political divide risks leading to divided implementation and adherence to the final law.

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(Reporting by Huw Jones; editing by Jan Harvey)