The European Commission has announced the adoption of a proposal for a corporate due diligence directive that will oblige companies to ensure sustainable and responsible behaviour exists throughout supply chains.
The proposal, called Corporate Sustainability Due Diligence, was adopted on 23 February 2022 and will set new rules to ensure that businesses address any adverse impacts of their actions, including in their value chains inside and outside Europe. EU companies will have to make sure that their suppliers are not using forced or child labour, that there is inadequate workplace health and safety with no exploitation of workers, and that there are no environmental offences like greenhouse gas emissions, pollution, or biodiversity loss and ecosystem degradation.
The Commission proposal will only become EU law after negotiations with the European Parliament and EU governments and will apply to firms that employ more than 500 people with a net turnover of more than 150 million euros. The threshold will be lower for firms in high-impact sectors like clothes, shoes, animals, wood, food and beverages, oil, gas, coal, metals and metal ores, construction materials, fuels or chemicals. It has been estimated that the proposal would apply to 13,000 EU firms and around 4,000 companies from outside the EU who operate there.
The aim of the Directive is to foster sustainable and responsible corporate behaviour and ensure human rights and environmental considerations are adopted throughout a companies’ operations and corporate governance. The core elements of this duty are identifying, bringing to an end, preventing, mitigating and accounting for negative human rights and environmental impacts in the company’s own operations, their subsidiaries and their value chains. In addition to this, large companies will need to have a plan to ensure that their business strategy is compatible with limiting global warming in line with the Paris Agreement.
The Directive also introduces duties for the directors of those companies obligated, including setting up and overseeing the implementation of the due diligence processes and integrating due diligence into the corporate strategy. Directors must take into account the human rights, climate change and environmental consequences of their decisions.