On 23rd February 2022 the European Commission released a long-awaited proposal for a Directive on Corporate Sustainability Due Diligence.
The Directive aims to help protect human rights and the environment.
A number of national human rights due diligence laws have been passed in recent years, and the Directive should ensure consistent obligations across the Union. It will therefore ‘level the playing field’ by ensuring that all eligible companies conduct human rights due diligence in the EU. [1]
The Directive is yet to be adopted by the European Parliament and the Member States, so the measures detailed below are subject to change.
The Scope
If adopted, the Directive will apply to:
- All EU limited liability companies with 500+ employees and a net turnover of EUR 150 million+.
- All EU limited liability companies with 250+ employees and a net turnover of EUR 40 million+, where at least 50% of the net turnover was generated in a sector that the EU lists as high-risk.
- Non-EU companies with a net turnover within the EU of EUR 150 million+.
- Non-EU companies with a worldwide net turnover of EUR 40 million+, where at least 50% of the net turnover was generated in a sector that the EU lists as high-risk.
The European Commission estimates that 13,000 EU companies and 4,000 non-EU companies will fall in scope of the Directive.
Small and medium size companies are not included in the scope of the Directive, but may still be impacted if they operate in the value chains of those affected companies.
Due Diligence Obligations
Companies that fall under the scope of the Directive will be required to fulfil several significant human rights due diligence obligations. Companies will be required to:
- Integrate due diligence practices into their corporate policies. The board of directors will be responsible for updating the company’s due diligence policies and codes of conduct. The directors will also be required to consider the consequences of all their business activities on human rights, sustainability, and the environment.
- Take appropriate action to identify the actual and potential adverse impacts of their operations, subsidiaries and value chain.
- Prevent or adequately mitigate adverse human rights and environmental impacts. Where possible, companies will need to bring the actual adverse impacts to an end.
- Monitor the effectiveness of any due diligence measures put in place.
- Companies will be required to establish and maintain a complaint procedure. This procedure must be accessible to anyone with grounds to believe that the company is contributing to an adverse human rights impact. This may include trade unions, workers’ representatives, and civil society organisations. Once a complaint has been lodged, the complainant should receive feedback from the company.
- Finally, a company will be required to publicly communicate and report on their compliance and due diligence progress. Companies will have to publish a due diligence statement by the 30th April, to cover the company’s performance over the previous calendar year.
Hard Law
If adopted, the Directive will be transposed into national law by member states within two years.
A further two-year transitional period would follow to accommodate the smaller companies operating in high-risk sectors.
The Directive is the latest and most substantive in a growing list of regulations that impose obligations on companies to conduct human rights due diligence.
Enforcement
A failure to comply with the requirements could result in fines for non-compliance. Companies could also be prevented from entering into business with a company that has been found to cause external harm.
Member States will be required to ensure that companies that apply for public support can certify that no sanctions have been imposed on them for a failure to comply with the Directive.
Finally, the Directive will introduce a civil liability regime to allow victims to sue companies for damages that could have been avoided, had proper due diligence measures been in place.
Please feel free to contact RightsDD if you have any questions regarding the proposed Directive and how it may affect your company.
References
[1] EU Directive
