On February 23, 2022, the European Commission adopted a new proposal for a directive on corporate sustainability due diligence. The proposed directive specifically focuses on corporate responsibility in global supply chains with regards to human rights – such as child and forced labor – and the environment. This proposed directive comes nearly a year after the European Parliament in March 2021 called on the Commission to submit a legislative proposal on value chain due diligence. On December 3, 2020, the Council also called on the Commission to present a similar proposal. As for next steps, the proposal will be presented to the European Parliament and the Council for their approval. If and when adopted, the 27 Member States of the EU will have two years to implement the directive into national law.
The new rules of the proposed directive establish obligations for companies with regards to the impact their own operations, the operations of their subsidiaries, and the value chain operations carried out by related companies have on human rights and the environment. The scope of the new rules applies to two groups. Group 1 includes EU companies with more than 500 employees (on average) that generated a worldwide turnover of more than EUR 150 million as well as non-EU companies that generated a net turnover of more than EUR 150 million in the Union in the last financial year. Group 2 includes EU companies with more than 250 employees (on average) that generated a net worldwide turnover of more than EUR 40 million as well as non-EU companies that generated a net turnover of more than EUR 40 million but less than EUR 150 million in the Union in the last financial that operate in the following sectors:
- Manufacture and wholesale of textiles, leather and related products;
- Agriculture, forestry, fisheries, including manufacturing and wholesale trade in this sector; and
- Extraction of mineral resources, regardless from where they are extracted, as well as the manufacturing and wholesale of mineral resources;
Articles 5 through 11 of the directive establish that Member States of the EU will ensure that the companies within the scope of the proposed directive conduct proper human rights and environmental due diligence by:
- Integrating due diligence operations into their company policies in accordance with Article 5;
- Identifying actual or potential adverse impacts in accordance with Article 6;
- Establishing measures to prevent and mitigate potential adverse impacts as well as end actual adverse impacts in accordance with Articles 7 and 8;
- Establishing and continuously maintaining a complaint procedure in accordance with Article 9;
- Monitoring the effectiveness of their due diligence polices in accordance with Article 10; and
- Publicly communicating on due diligence in accordance with Article 11.
With regards to efforts to combat climate change, the directive states that Group 1 companies will need to adopt “a plan to ensure that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement.” The directive also establishes that Member States will need to designate one or more supervisory authorities to supervise compliance with the Articles of the directive and that the Commission will establish a European Network of Supervisory Authorities, composed of the representatives of the Member State supervisory authorities.
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