EU: Proposal for a Directive on Corporate Sustainability Due Diligence

 

The European Commission has adopted a proposal for a Directive on corporate sustainability due diligence.

The proposal’s aim is to foster sustainable and responsible corporate behaviour throughout global value chains. Companies play a key role in building a sustainable economy and society, therefore they will be required to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss.

For businesses these new rules will bring legal certainty and a level playing field. For consumers and investors they will provide more transparency. The new EU rules will advance the green transition and protect human rights in Europe and beyond.

Affected are EU-based companies with an average of more than 500 employees and a worldwide net turnover of more than 150 million euros in the financial year. as well as with

certain restrictions, companies with an average of more than 250 employees and more than EUR 40 million in worldwide net sales in the financial year preceding the last financial year, but no more than EUR 150 million in net sales and 500 employees.

In order to conduct appropriate human rights and environmental due diligence on their operations, their subsidiaries and their value chains, companies are required to integrate due diligence into their corporate policies to identify, prevent and mitigate the related risks. In addition, companies are required to set up and maintain appropriate grievance procedures, monitor the effectiveness of the measures taken, and publicly report on their due diligence.

Affected companies will be required to neutralize or minimize the extent of the adverse impacts, including by paying damages to affected individuals and financial compensation to affected communities. The response must be proportionate to the importance and magnitude of the adverse impact and the contribution of the entity’s behavior to the adverse impact.

The directive obliges the member states to draw up corresponding statutory sanctions. The penalties are intended to punish violations by companies that do not take the necessary measures. The proposed sanctions must be effective, proportionate and dissuasive.