A European Union law designed to clean up corporate supply chains has been derailed by some of the bloc’s biggest member states, forcing negotiators back to the drawing board on one of the most consequential pieces of ESG legislation ever attempted.

The Corporate Sustainability Due Diligence Directive would expose companies to legal liability if they fail to address environmental or human rights abuses in their value chains. Parliament and national representatives had reached a provisional agreement in December only for key member countries to withdraw their support on Wednesday.

Lara Wolters, the lawmaker in charge of steering CSDDD through the EU Parliament, said she was “outraged at the political games being played in Council today on due diligence,” in a comment posted on X.

The development represents a “flagrant disregard for the European Parliament,” she said. “Member states need to get their act together because time is running out.”

The fate of CSDDD now hangs in the balance with time running out before EU elections in June. All laws usually need to be finalised around three months beforehand. It’s unclear, however, whether the EU Parliament would accept a substantial rewrite of the text. Wolters said she will hold a press conference later on Wednesday to address the next steps.

Belgium, which holds the EU’s rotating presidency, had been trying to get Italy on side to get CSDDD over the finish line, despite last-minute German objections. Those efforts proved unsuccessful with both Italy and Germany — along with a number of smaller EU countries — citing concerns as to how such a law would affect the competitiveness of European businesses.

France also withdrew its support after insisting CSDDD only apply to much larger businesses than the current text requires, according to a person in the room who asked not to be identified discussing private talks. It’s likely that France’s conditions will be examined closely with a view to taking its concerns into account, the person said.

The outcome of Wednesday’s decision quickly drew condemnation from climate and human-rights activists.

“We now have to consider the state of play and we will see if it’s possible to address the concerns put forward by member states in consultation with the European Parliament,” the Belgian presidency posted on X.

“EU governments’ last-minute sabotaging and postponement of this new rulebook not only disregard the lives, communities, and ecosystems affected by destructive business practices, but also deal a blow to the EU’s credibility as a legislator,” said Uku Lilleväli, sustainable finance policy officer at WWF’s European Policy Office.

“Let’s be clear: the law wouldn’t burden companies with unnecessary red tape; instead, it would secure a level playing field and help firms navigate necessary transitions in an informed and responsible manner,” Lilleväli said.

By John Ainger and Frances Schwartzkopff

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