EU Postpones Supply Chain Law Decision Amidst German and Italian Opposition

European Union (EU) countries have deferred a decision on the proposed Corporate Sustainability Due Diligence Directive (CSDDD), a law aimed at compelling large companies to assess whether their supply chains involve forced labor or contribute to environmental harm. The postponement was prompted by indications from Germany and Italy that they would abstain from voting.

For the CSDDD to advance to a final vote in the European Parliament, a "qualified majority" of 15 EU countries representing 65% of the EU population is required. However, on Friday, it became evident that there was insufficient support from the 27 EU countries to move the law forward, especially with Germany and, crucially, Italy opting to abstain.

Germany's Finance Minister and leader of the Free Democrats (FDP), Christian Lindner, emphasized the shared concerns among EU nations, stating on social media, "Germany is obviously anything but alone with its concerns." Germany, traditionally a key driver of EU integration, has been increasingly cautious, with internal divisions within its coalition government.

The FDP, known for its pro-business stance, opposed the law, citing concerns about imposing excessive bureaucracy on businesses. Notably, they also expressed late objections to other EU initiatives, including a law to end sales of CO2-emitting cars by 2035 and plans to reduce truck emissions.

In contrast, Germany's coalition partners, the Social Democrats and the Greens, supported the law and criticized the last-minute opposition, warning that Germany's credibility within the EU would be compromised.

The CSDDD, scheduled to come into force in 2027, mandates that large EU companies identify and address issues related to forced or child labor and environmental damage in their supply chains. The rules apply to EU companies with more than 500 employees and a net worldwide turnover exceeding €150 million ($161.5 million), as well as non-EU firms with EU turnover exceeding that amount, with a three-year lag.

Penalties for non-compliance could reach up to 5% of a company's global turnover. Critics argue that the law adds to reporting burdens for EU companies, who already must comply with a separate set of Environment, Social, and Governance (ESG) disclosures starting this year.

The law has also drawn opposition beyond the EU, with concerns raised in the United States, as it covers approximately 4,000 companies conducting business in the bloc but headquartered elsewhere.

Campaign groups expressed dismay at the postponement, emphasizing the potential impact on corporate responsibility, consumer protection, human rights, and environmental sustainability. The EU has rescheduled discussions on the CSDDD for February 14, keeping the fate of this significant legislation uncertain.

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