Isme seeks opt-out for small firms from EU law tackling human rights, labour and climate abuses

ISME chief executive Neil McDonnell. Photo: Gareth Chaney/Collins

Sarah Collins

Small Irish companies are fighting for opt-outs from a draft EU law that would make them liable if their suppliers violate human rights, labour or climate rules.

Neil McDonnell, chief executive of the Irish SME Association, said the draft as it stands – it was recently toughened by MEPs –  would lock smaller firms out of public tenders and force them to assume full responsibility for everything from food, plastics and clothing to electronics and parts they source from abroad.

“We’re not saying due diligence should not take place,” Mr McDonnell said. “What we are saying is the cost of due diligence should not be placed on local businesses.

“The notion that a small business can audit whether Uyghur forced labour or sweatshops are being used – that’s not even to talk about carbon verification. SMEs will exit a whole load of value chains. The net result will be all of this risk activity will have to be concentrated in big business.”

MEPs have yet to finalise their joint position on what is known as the ‘corporate sustainability due diligence directive’. They are expected to do so in May, when they will begin negotiations with national diplomats, who favour more exemptions and a longer lead-in time.

The original Commission draft contained opt-outs for firms with fewer  than 500 staff and €150m in global revenues, except for those in “high-impact sectors”  such as textiles or mining (with 250 staff and €40m in revenues). There was also an opt-out for financial firms.

The original draft would affect around 660 firms in Ireland, which would have to monitor and avoid deforestation, oil spills or forced labour by their suppliers.

Foreign workers or community organisations could, in theory, sue for damages through the Irish courts if Irish-based firms failed to take action to stop any harm.

Irish firms are worried because Dutch Labour Party MEP Lara Wolters, the European Parliament’s lead negotiator on the draft, wants to drop the “high-impact” threshold to 50 staff and €8m in turnover and include listed companies, banks and pension funds, construction firms, tech companies, food and drinks marketers and online retailers on the high-risk list.

Fianna Fáil MEP Barry Andrews, the lead author on the draft for the European Parliament’s trade committee –  one of six committees that has a say – said he was “delighted” that more firms could be included, and insisted it would only affect large and high-risk firms.

“This is the beginning of the end of irresponsible business practices that lead to environmental damage and human rights abuses, making multinationals legally responsible for their supply chain.

“The original Commission proposal lacked ambition and would have excluded from scope 99pc of EU companies. Of the remaining 1pc, many are already practicing due diligence or are caught by other existing or proposed legislation such as the deforestation regulation or the batteries directive. In my view, the Commission proposal would not have had a meaningful impact.”

EU governments, meanwhile, say the law should catch firms with more than 1,000 employees and €300m in net worldwide turnover, in a first phase. Large European firms, including the group representing Ibec in Europe, also say the law is “too far reaching” and have called for changes.