Last Thursday, June 1st, after the proposal made since last year, the European Parliament gave the “green light” to the new Directive called Corporate Sustainable Due Diligence Directive – concerning companies’ duty of care with regard to sustainability and amending Directive (EU) 2019/1937 – which aims to promote the mitigation of negative effects on human rights and the environment in their value chains.
But what are the key notes for understanding the scope of the new Directive?
This Directive arises from the European Parliament and Council’s call to the Commission to propose standards for corporate due diligence after studies were published on the negative effects along corporate value chains in terms of forced labour, child labour, and inadequate health and safety in the workplace.
With regard to its Article 1, this Directive lays down rules concerning the obligations of companies with respect to potential or actual negative effects on human rights and the environment with respect to their own operations, the operations of their subsidiaries and the operations in the value chain carried out by entities with which the company has an established business relationship and the liability for breaches of the above obligations. These relationships are reassessed at least every 12 months.
Which companies are covered?
i) EU companies with more than 500 employees and an overall turnover exceeding 150 million euros;
ii) EU companies with more than 250 employees and an overall turnover of more than 40 million euros, with 50% generated in a high-risk sector[1];
iii) Third-country companies generating a turnover of more than 150 million euros in the EU market in the financial year preceding the last financial year;
iv) Third-country companies that generated turnover of more than 40 million euros in the EU market, with 50% generated in a high-risk sector.
What are the Member States in charge of ensuring?
Member States are now required to ensure that companies exercise due diligence in their human rights and environmental policies, including:
a) Identifying the potential or actual negative effects of their own operations or the operations of their subsidiaries;
b) Preventing, or if this is not possible, mitigating the potential negative effects, having as possible measures, e.g., the adoption of a prevention action plan with reasonable and clearly defined action deadlines and qualitative and quantitative indicators to measure the improvements;
c) Establishing and maintaining a complaints procedure whenever they have legitimate concerns about potential or actual negative effects on human and environmental rights;
d) Ensuring that companies conduct periodic assessments of their own operations and measures, their subsidiaries and, where associated with the company’s value chains, their established business relationships, in order to assess the effectiveness of identifying, preventing, mitigating, ending and minimizing the extent of negative effects on human rights and the environment.
e) Publicly communicating information about the duty of care that companies have.
In addition, one or more supervisory authorities will have to be designated, as per art. 17, to supervise compliance with the obligations set out in the adopted national provisions, with the power to request information and conduct investigations related to compliance with the obligations.
f) Publicly disclosing information on corporate due diligence.
What are the potentially applicable sanctions?
In this point, the Directive takes a general approach to the penalties to be applied. It stipulates that Member States must lay down rules on national sanctions applicable after transposition of the Directive and take all measures necessary to ensure that they are implemented. However, these must be effective, proportionate and dissuasive and must take into account the efforts made by the undertaking to comply with any remedial actions required of it by a supervisory authority.
As the legislation has not yet been officially published, we will keep an eye out for changes in the national legislation.
Maria Beatriz Silva @ DCM | Littler
_____________________________________________________________________________
[1] The Directive considers as relevant the sectors of manufacturing or wholesaling of textiles, leather and related products, including foodstuffs and beverages, agriculture, forestry and fishing, and extractive industries
