Europe is pursuing a steady improvement in the sustainability of its production framework, aiming to align with public welfare and environmental protection. The European Parliament reached an agreement on Thursday, establishing obligations for large companies operating in the European Union to monitor and mitigate adverse effects of their activities on the environment and human rights. Noncompliance will be subject to fines.
The resolution, approved by 366 votes in favor, 225 against and 38 abstentions, was endorsed by the European Parliament together with the Council and the European Commission. It outlines a Due Diligence Directive that places emphasis on a company’s responsibility to report on sustainability practices and to address environmental and social impacts within its operations and across its value chain, including suppliers involved in sales, distribution, transportation, or waste management.
The legislation requires companies to monitor, prevent and address issues such as child labor, forced labor, pollution, and environmental degradation. It aims to reduce not only direct impacts but also those generated by partners in the supply chain, extending responsibility to practices across procurement, manufacturing, and logistics.
MPs advocate applying the rules to EU-based companies with more than 250 employees and a turnover above 40 million euros, alongside larger entities with more than 500 employees and global turnover over 150 million euros. Non-European companies with substantial EU manufacturing and turnover above 150 million euros would also fall under the directive.
Banks and finance in scope
There is pressure to include companies from all sectors, including finance, in the scope of the directive. Some Member States favored keeping financial activities regulated nationally, but the Parliament seeks broad, uniform coverage across industries.
The proposal urges a transition plan to limit global warming to 1.5 degrees Celsius. For the largest employers with more than 1,000 employees, meeting the transition plan could influence executive compensation.
Companies would also need to implement a mechanism to file complaints and to disclose information on sustainability due diligence to investors through a centralized European access point. This ESAP database is part of a broader move to improve transparency and should be launched in 2026.
Fines and phased implementation
The Parliament plans penalties for noncompliant firms, including fines of at least 5% of total turnover. Non-EU companies that violate the rules could be excluded from EU public procurement.
The rules would apply after a grace period of three or four years from their adoption, with full implementation aimed for 2028 at the earliest. The forthcoming timeline considers company size and readiness for adaptation.
Business Europe, the European employers’ association, expressed concerns that the proposed rules may be overly prescriptive and lack enforceable specifics. It urged a cautious approach during negotiations with the Council to ensure proportional implementation and avoid unnecessary interference in business management.
In contrast, environmental groups like the WWF and human rights organizations such as Amnesty International welcomed the Parliament’s direction, while noting room for improvement. WWF welcomed the inclusion of the financial sector but pointed out gaps in treating financing companies as part of the value chain. It also supported expanding the definition of environmental damage, while noting that certain areas, such as biodiversity loss, remained excluded.
Amnesty International highlighted the Parliament’s intent to promote access to justice for victims of corporate human rights abuses, while acknowledging that achieving this in the financial sector could be challenging. It urged adjustments during negotiations to strengthen accountability.
Overall, the debate continues, with the aim of balancing robust safeguards with practical implementation across industries and regions. This approach seeks to enhance corporate accountability while supporting sustainable growth and respect for human rights across the European Union.
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This content reflects ongoing discussions within European governance and the evolving framework for due diligence in corporate operations. The emphasis remains on transparency, accountability, and effective remedies for those affected by corporate activities.