European Union Regulatory Update: EU Laws’ Long-Arm Makes Engagement with Brussels Essential

Anne-Marie Pecoraro is an Attorney at law/Partner at UGGC law firm, specializing in intellectual property, Media and digital law.

As the European Union gears up for the June elections, the outgoing institutions leave behind a changed regulatory landscape, particularly impacting foreign companies operating within its borders. Several of the major pieces of legislation passed by the bloc over the past five years place new obligations on non-EU companies doing business in the Union. These include the EU Data Act, the EU Artificial Intelligence Act (AI Act), the Digital Markets Act (DMA) and the Digital Services Act (DSA), the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the directive on improving working conditions in platform work (“gig workers”).

In particular, the CSRD and the CSDDD introduce reporting requirements and mandatory due diligence measures regarding human rights and environmental impacts along supply chains. In and of itself, this will already require all companies operating in the EU to navigate complexities in interpretation, implementation, and compliance. In addition, these new texts are Directives. This means that they will set minimum harmonized rules, but also allow Member States to strengthen certain provisions, making it essential for businesses to also understand national implementations.

Against this backdrop, the forthcoming June elections for the European Parliament herald a period of potential change, and opportunities to shape the future regulatory landscape. With the newly elected Parliament and Commission poised to take office in the fall, businesses must anticipate upcoming trends and challenges, and position themselves strategically to engage with those institutions effectively.

2019-2024, a transformational mandate

As the EU navigated a turbulent political and economic climate, characterized by global crises such as the COVID-19 pandemic and conflicts in Ukraine and the Middle East, protecting its economic interests became paramount. This imperative spurred the enactment of a slew of new regulations with far-reaching implications for foreign companies conducting business within the EU, with the potential for high penalties in cases of non-compliance. Negotiated through rigorous deliberations and compromises among various political factions and EU Member States, these regulations have either been implemented across the 27 Member States or are slated for imminent enforcement.

The journey began with the enactment of the EU GDPR (General Data Protection Regulation) in 2016, which imposed stringent rules governing the protection of personal data on foreign companies. This landmark legislation has already yielded penalties against major multinational corporations, including Amazon, Meta, OpenAI, Yahoo!, and TikTok, highlighting the EU’s commitment to upholding data privacy standards.

Throughout the 2019-2024 term, the regulatory landscape continued to evolve with the introduction of pivotal legislations such as the EU Data Act, the AI Act, DMA, DSA, CSRD, CSDDD, and directives aimed at improving working conditions for platform workers. Each of these creates new obligations, whether it be to monitor, or to report on, or even to remedy, the negative externalities flowing from the economic activities of both EU and non-EU businesses.

Increased reporting and accountability for multinationals

Underpinning the regulatory momentum of the past term was a concerted effort to advance the Environment, Social, and Governance agenda, in particular via the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

The CSRD, which came into force in January 2023, mandates comprehensive sustainability disclosures for both EU and non-EU companies, progressively rolled out through 2028. These disclosures encompass environmental, social, and governance dimensions, underscoring the EU’s commitment to transparency and sustainability.

Likewise, the CSDDD, formally adopted on April 24, 2024, outlines mandatory due diligence requirements for companies concerning human rights and environmental impacts along their supply chains. This directive represents a significant milestone in the realm of corporate accountability, building upon national initiatives such as the French Law on Duty of Vigilance to establish comprehensive due diligence obligations along supply chains.

A game changing CSDDD

Applicable to various entities, including EU and non-EU companies meeting specific thresholds, franchisors, licensors, and parent companies, the CSDDD mandates rigorous risk-based human rights and environmental due diligence. Companies must integrate due diligence into their policies, identify and assess adverse impacts, prevent and mitigate potential harms, engage meaningfully with stakeholders, establish notification mechanisms and complaints procedures, and monitor the effectiveness of their measures.

The scope of due diligence obligations extends to adverse impacts within a company’s own operations, subsidiaries, and business partners in their chains of activities. Key to this is the concept of a “chain of activities,” delineating the breadth of due diligence responsibilities concerning business partners.

Trade unions play a crucial role in the implementation of the CSDDD, with the ability to submit complaints, be informed about company procedures for handling complaints, and, in some cases, bring actions to enforce the rights of injured parties.

Failure to comply with due diligence obligations carries significant consequences, including civil liability and fines of up to 5% of a company’s net worldwide turnover. Member states will designate supervisory authorities responsible for monitoring, investigating, and penalizing non-compliant companies.

Following the adoption of the CSDDD, EU Member States now have two years to integrate its provisions into their national laws. Countries like France and Germany with existing domestic regulations will need to adjust their laws to meet EU standards. Strong lobbying efforts are expected during implementation, as Member States have the option to adopt stricter measures, albeit within certain limits. Each Member State will appoint a supervisory authority responsible for overseeing compliance and imposing penalties, making it essential to monitor the establishment of these authorities across the EU.

The June elections

In the wake of the impending European parliamentary elections, the bloc finds itself on the brink of a significant political transformation that could have far-reaching consequences for its governance and policy landscape. Projections suggest a notable surge in support for hard-right political parties, which threatens to disrupt the longstanding dominance of centrist blocs like the European People’s Party (EPP) and Socialists & Democrats (S&D) within the European Parliament. This anticipated rightward shift reflects broader societal trends, with voters increasingly prioritizing issues related to economic competitiveness and identity politics.

With the composition of the European Parliament at risk of undergoing upheaval, traditional coalitions face unprecedented pressure to adapt to the changing landscape. The potential increase in representation for hard-right parties is likely to challenge the established power structures, potentially reshaping the balance of influence and decision-making processes within the EU legislative body. This shift could have significant implications for the formulation and implementation of key policies, as well as for the overall direction of the European project.

Simultaneously, the anticipated realignment in Parliament is expected to reverberate in the composition of the European Commission, the EU’s executive arm. The fate of Ursula von der Leyen’s presidency hangs in the balance, as dissatisfaction mounts over her handling of contentious issues such as the Israel-Hamas war and trade with China. The expected razor-thin majority of the grand coalition will likely complicate her re-election prospects, amplifying the uncertainty surrounding her candidacy in the face of internal dissent within the EPP.

The next mandate

On June 27-28, immediately following the June vote, the European Council will present a roadmap for the next mandate. That roadmap should provide precious clues as to the EU institutions’ general direction of travel for the next 5 years.

In the fall, candidates vying for Commissioner positions will have to navigate a complex web of parliamentary hearings and negotiations. These proceedings will scrutinize their plans to address pressing issues ranging from economic recovery and political instability to the ongoing migration crisis. The outcome of these hearings will play a pivotal role in shaping the composition and priorities of the new Commission, with implications for the direction of EU policies and initiatives in the coming years.

Amidst the shifting political landscape, calls for a reassessment of existing climate legislation are likely to gain traction, as member states increasingly prioritize European competitiveness and strategic autonomy. This reevaluation may lead to the watering down or revision of certain environmental regulations, marking a departure from the priorities of the outgoing Commission. Furthermore, the anticipated changes in the Parliament’s composition and priorities will necessitate a recalibration of the EU’s policy agenda to align with evolving national political landscapes across Europe.

Conclusion

As the European Institutions’ term concludes, businesses confront a dynamic regulatory environment shaped by landmark legislations. From the EU Data Act’s adoption to the imminent enforcement of the CSDDD, companies must navigate a multifaceted framework transcending national borders. With the June elections looming, evolving political dynamics will influence the trajectory of regulatory developments in the EU. Leveraging existing regulations and anticipating forthcoming changes will be vital for strategic campaigns seeking to adapt to the evolving landscape.

In anticipation of the post-election era, proactive engagement with stakeholders and vigilant monitoring of legislative developments are paramount. The potential realignment of political forces underscores the need for adaptability and foresight in responding to emerging regulatory trends. By staying abreast of evolving standards and engaging in proactive compliance measures, businesses can position themselves to thrive amidst the changing regulatory dynamics of the EU.