Tough Human Rights Law Could ‘Trickle Up’ to Many US Businesses

New rules facilitate a right of private action and penalties of up to 5% of net turnover

The European Union is set to require companies to monitor and report on human rights in their supply chains. While the incoming regulation will only affect the largest U.S. companies, suppliers will also have to disclose labor practices to these larger firms.

The Corporate Sustainability Due Diligence Directive, or CS3D, is similar to the EU’s Corporate Sustainability Reporting Directive in that it requires companies to report on climate, labor practices and human rights. However, it strives to go beyond reporting requirements and compel companies to take concrete actions to clean up their supply chains, not only through threat of fines from the EU, but also from the private-right action the law provides.

While large companies in the U.S. exercise some degree of due diligence over supply chains, there’s a gap between the current standard and what will be required when CS3D takes effect. For instance, only 178 of the companies in the S&P 500 have policies or statements mentioning human rights as of Nov. 27, according to data from MyLogIQ.