The proposed Directive will oblige companies within scope to monitor their chain of activities to identify and mitigate adverse human rights and environmental impacts arising from their operations, their subsidiaries and their chain of activities.
The Corporate Sustainability Due Diligence proposal is currently being negotiated at the EU level, with a final Directive not expected before the end of 2023. The following information reflects the position as agreed by ministers in December 2022 and it is expected that the proposal will evolve as negotiations progress.
The proposal will apply to large EU and non-EU companies that meet employee count or average net turnover thresholds for the previous financial year. SMEs are not directly within scope but may be indirectly affected if involved in the chain of activities of larger companies. A phased-in approach to compliance is expected.
Due diligence measures
In-scope companies will be required to conduct human rights and environmental due diligence to identify actual or potential adverse impacts, and prevent, mitigate and minimise the extent of such impacts within their own operations, their subsidiaries and their chain of activities.
Enforcement and civil liability
Each member state will designate one or more national supervisory authorities to ensure compliance by in-scope companies with their obligations. These supervisory authorities will have the power to request information and carry out investigations related to compliance. In-scope companies will be held liable for situations where the company, its subsidiaries or direct business partners failed in their due diligence obligations, provided their conduct was intentional or negligent and caused an adverse impact which caused damage to a person or to the environment.
In-scope companies will be required to establish a complaints procedure to address complaints from individuals affected by or have reasonable grounds to believe they may be affected by an adverse impact arising from the company operations, including the company’s chain of activities, as well as other stakeholders such as trade unions and civil society organisations.
Combating climate change
In-scope companies will be required to adopt a plan to ensure that their business model and strategy is compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement.
The European Commission’s proposal for a Directive on Corporate Sustainability Due Diligence, published in February 2022