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Lawmakers in the European Parliament have approved a renegotiated draft of the EU’s supply chain ESG legislation, a version that is set to exclude thousands of previously in-scope companies.

The corporate supply chain due diligence directive (CSDDD) will see firms held accountable for human rights and environmental abuses in their supply chains, enabling those affected on a global level to sue companies involved.

The draft law stalled at a member states’ vote in late February after Germany, France and Italy abstained.

But the latest version was endorsed by the EU’s committee of permanent representatives last week after the text was altered to reduce the number of companies included, cutting it down by almost two-thirds, according to NGO Global Witness.

The European Parliament’s legal affairs committee also voted the bill through yesterday, with 20 votes for and four votes against.

Campaign groups have voiced muted support for the fresh draft rather than having no law at all, but criticise it for weakening the original.

Friends of the Earth Europe says the text has “further watered down a political agreement that already fell short of providing justice to victims of corporate abuses and obliging companies to drastically cut their greenhouse gas emissions”.

“We welcome it – but it is far from being good enough,” adds Paul de Clerck, economic justice campaigner at Friends of the Earth Europe.

“National governments now need to use CSDDD as a springboard for European leadership in defending justice over profit.”

Opposition to the draft law has been driven by states including Germany, which already has a supply chain due diligence law in place, and pro-business lobby groups, which fear the directive will put businesses under extra bureaucratic strain and open up liability risks.

“The emergence of binding legislation in several member states has given rise to the need for a level playing field for companies in order to avoid fragmentation and to provide legal certainty for businesses operating in the internal market,” the draft law says, but adds this should not prevent members “from introducing more stringent national provisions”.

Phil Bloomer, executive director at the Business and Human Rights Resource Centre, says: “That a qualified majority was reached despite Germany’s disappointing abstention shows there is widespread recognition of the directive’s historic potential for human rights in business.”

Laura Ayre, partner at Pinsent Masons, notes that despite the reduced scope, those in the supply chain of bigger businesses “will still need to comply with the requirements as if they were subject to the rules directly, as the obligations will flow down through the supply chains”.

In December, a provisional deal was struck between the Council and Parliament that would have seen EU companies with at least 500 employees and a net worldwide annual turnover of over €150mn included.

Non-EU companies generating more than €150mn net turnover in the EU would also have been included, as would companies in high-impact sectors – such as textiles and agriculture – with at least 250 employees and €40mn net turnover two years later.

The December draft would also have strengthened companies’ obligations to put in place a transition plan to mitigate climate change.

According to the current draft, firms with 5,000 employees and €1.5bn turnover will be included after three years.

Firms with 3,000 employees and €900mn turnover are in scope after four years, and those with 1,000 employees and €450mn turnover after five years, as well as non-EU companies that generate at least €450mn in the bloc.

Climate transition plans remain mandatory, but firms will no longer need to embed them into businesses strategies via financial incentives for directors. On civil liability, member states will be able to provide “reasonable conditions” under which those affected can bring claims.

And while the new draft still covers a company’s upstream business partners, including the extraction of raw materials, and downstream activities such as transport and distribution, waste disposal is no longer included.

This has been criticised by campaign groups as a failure to tackle waste in sectors like the fashion industry, where 85% of all textiles end up as rubbish every year, according to the World Economic Forum.

Aurelie Skrobik, corporate accountability campaigner at Global Witness, says the revised draft is “a shadow of what it should have been – and what negotiators agreed in December”.

“It’s a relief that we have a law at all – and a testament to the fact that the demand for it is loud and strong. But after years of hard-fought negotiations and compromises, this is an affront by national governments, who don’t seem to think that preventing abuses like child labour is a priority,” Skrobik says.

The CSDDD still requires formal approval from the European Parliament in order to be pushed through, with a vote scheduled for April 24 in a Strasbourg plenary session.

Once the text has been approved by the Parliament, member states have two years to transpose it into national legislation.