"MEPs slowly turn tide on corporate environmental and climate obligations"

The European Parliament’s environment committee has voted to include an obligation for large companies and SMEs in certain risky sectors to risk-assess their global value chains for abuses like oil spills and pollution, but the improvements are not yet sufficient to prevent and end the vast impacts of companies on climate change, said the European Coalition for Corporate Justice.

MEPs voted to strengthen the definition of ‘adverse environmental impacts’ to encompass impacts on soil, water, biodiversity and the climate. This definition is consistent with other EU laws – such as the corporate sustainability reporting directive, the regulation on deforestation-free products, and the taxonomy regulation.

Furthermore, the committee agreed to include climate mitigation and adaptation in the scope of companies’ obligations. It voted for new rules saying that companies should adopt climate transition plans in line with the 1.5-degree target of the Paris climate agreement. These transition plans must be time-bound and include science-based targets, minimising the risk of further greenwashing.

The committee included important clarifying definitions of human rights and environmental defenders, animal welfare, and science-based targets. It also put forward the ‘polluter pays’ principle, in accordance with the environmental crime directive.

These provisions go a step further than the Commission’s proposal, which focused on human rights and some environmental risks but did not include climate due diligence requirements – despite growing evidence of climate breakdown around the world. Under the Commission’s draft text, companies would only have to identify and end impacts that result from the breach of one of the 12 international environmental conventions listed in the law – a list that doesn’t include the Paris Agreement and other important standards for environmental protection.

However, not all civil society demands were met today. The committee left scope 3 emissions (indirect emissions that are not produced by the company itself, but by the customers using the company’s products or suppliers making products that the company uses) at the discretion of each company. This would mean that some of the most harmful business impacts could be excluded from the law. Energy giants like Shell or TotalEnergies would not be held accountable for the emissions that come from how their oil is used.

The committee agreed on an obligation to link directors’ pay to meeting climate transition targets but is only for large companies. 

Lastly, we strongly denounce the conservative European People’s Party bad faith negotiation tactics. A week before the vote, the political group backed out of several compromise amendments to the environment committee’s proposal, despite the best efforts of the file’s rapporteur Tiemo Wölken to secure a strong cross-party majority. The EPP has also voted against compromise texts in other committees.

The gaps in the environment committee’s proposal for the planned due diligence directive must be closed by the legal affairs committee next month. MEPs must not only include a more complete list of environmental standards and cover scope 3 emissions, but also maintain the broad definition of environmental impacts and keep specific criteria for credible transition plans to limit global warming to 1.5 degrees.

To drive meaningful corporate action on climate, the European Parliament must follow its own 2019 declaration of a “state of climate emergency” with strong legislative action on corporate sustainability.

The European Parliament will agree on its final position in May 2023, ahead of negotiations with the Council and Commission on the final law.