EU Makes History with Landmark Due Diligence Directive for Human Rights and Environment

After extensive negotiations, the EU institutions have reached a groundbreaking agreement on the Corporate Sustainability Due Diligence Directive (CSDDD). This is a significant step forward in holding companies accountable for their environmental and human rights impacts throughout their entire supply chains.

What this means for businesses

The directive will require large companies operating in the EU to:

• Conduct thorough due diligence: This involves identifying, preventing, and mitigating negative human rights and environmental impacts across their own operations, subsidiaries, and business partners.
• Actively prevent harm: Companies must take steps to address potential issues. If a business partner's practices cannot be brought into compliance, the directive may require ending the relationship.
• Embrace climate action: Companies will need to develop and implement a climate transition plan aligned with the Paris Agreement's 1.5°C target.

Ensuring compliance

EU member states will have new enforcement powers to address non-compliance. This includes:

• Public exposure: Companies could be "named and shamed" for failing to comply.
• Legal action: Injunctive measures and fines of up to 5% of a company's global turnover can be imposed.
• Contractual consequences: Compliance with the directive may become a factor in awarding public contracts.
• Civil liability: Victims harmed by a company's failure to comply may be able to seek compensation.

Who is affected?

The directive will apply to:

• EU companies with over 500 employees and a global turnover exceeding €150 million.
• Non-EU companies generating a €300 million turnover within the EU.
• Lower thresholds are set for higher-risk sectors like textiles, footwear, food, and mining.

The financial sector and next steps

The financial sector's investment and lending activities are currently excluded, but a review is planned within a few years.

The directive is expected to come into effect next spring after final adoption by the Parliament and Council. This momentum is inspiring similar legislation in the UK, with a proposed bill aiming for an even stricter due diligence framework.

The WorldCC strongly encourages companies to act now. This directive signifies a paradigm shift towards greater corporate responsibility. By reviewing and strengthening third-party risk management systems, businesses can stay ahead of the curve and ensure a smooth transition under the new regulations.