Corporate Sustainability Due Diligence

The behaviour of companies across all sectors of the economy is key to success in the European Union’s (EU) sustainability objectives as Union companies, especially large ones, rely on global value chains. Despite this, companies' progress in integrating sustainability, and in particular human rights and environmental due diligence, into corporate governance processes remains slow. To address these challenges, in March 2021, the European Parliament (EP) called on the European Commission (EC) to submit a legislative proposal on mandatory value chain due diligence. Similarly, on 3 December 2020, the Council requested the EC to submit a proposal for an EU legal framework on sustainable corporate governance, including cross-sector corporate due diligence along global value chains. In this context, the EC has published the Proposal for a Directive on corporate sustainability due diligence.

Executive summary

The EC has published the Proposal for a Directive on corporate sustainability due diligence. This Directive will set out a framework to foster the contribution of businesses operating in the single market to the respect of the human rights and environment in their own operations and through their value chains, by identifying, preventing, mitigating and accounting for their adverse human rights, and environmental impacts, and having adequate governance and management systems in place to this end.

Main content

This Technical Note summarizes the main aspects of the Directive proposal:

• Companies in scope. The due diligence Directive will apply to those companies within the Union which have more than 500 employee and more than 150 million euros in net turnover worldwide (group 1). On the other hand, it covers companies operating in sectors defined in the Directive itself as having high impact, which do not meet previous thresholds, but have more than 250 employees and a net turnover of more than 40 million euros provided that at least 50% of this net turnover was generated in one or more of those high-impact sectors (group 2). It also applies to companies from third countries.
• Perimeter. The proposal would introduce obligations for companies regarding actual and potential human rights adverse impacts and actual and potential environmental adverse impacts, with respect to own operations and operations of their subsidiaries, and the value chain operations carried out by entities with whom the company has an established business relationship.
• Due diligence guidance. Companies shall carry out several actions in order to conduct human rights and environmental due diligence:
  • Integrate due diligence into their corporate policies.
  • Identify actual or potential adverse impacts arising from their own operations or those of their subsidiaries, to prevent them and make every effort to eliminate them.
  • Monitor the effectiveness of the due diligence policy and measures, based on qualitative and quantitative indicators and at least every 12 months.
  • Publicly communicating on due diligence.
  • Establish complaints procedure to hear cases from potentially affected persons or its representatives. Also, companies shall be liable for damages caused by adverse impact that could have not been prevented, mitigated or brought to an end.

Next Steps

The proposal will be presented to the EP and the Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law and communicate the relevant texts to the EC.

Download the technical note by clicking here.