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.

The proposed directive and its annex are available here and here, respectively.

For more information on actions addressing human rights and forced labor abuses as well as environmental policies in the European Union, contact our team below

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Photo of David Stepp David Stepp

David Stepp is an experienced trade lawyer who provides multinational companies with strategic advice on global customs and international trade compliance matters. David is a partner in the Los Angeles office of Crowell & Moring.

His practice focuses on advising companies on their…

David Stepp is an experienced trade lawyer who provides multinational companies with strategic advice on global customs and international trade compliance matters. David is a partner in the Los Angeles office of Crowell & Moring.

His practice focuses on advising companies on their e-commerce strategies globally, conducting global customs and international trade audits, and assisting clients on improving, benchmarking, and coordinating compliance programs across borders.

David has over 30 years of experience handling international trade regulatory matters, including those related to tariff classification, valuation, country of origin marking, free trade agreements, and Customs-Trade Partnership Against Terrorism (CTPAT).

Photo of Frances P. Hadfield Frances P. Hadfield

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving…

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving customs compliance, audits, customs enforcement, as well as import penalties.

Frances represents clients before the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit, as well as in proceedings at the administrative level. She advises corporations on both substantive federal and state regulatory issues that involve U.S. Customs and Border Protection, the Federal Trade Commission, Food and Drug Administration, and U.S. Fish & Wildlife in matters pertaining to product admissibility, audits, classification, import restrictions, investigations, marking, licenses, origin, penalties, and tariff preference programs.

Photo of Martín Yerovi Martín Yerovi

Martín Yerovi is an international trade analyst in Crowell & Moring’s Washington, D.C. office. He provides practice support to the International Trade Group on import regulatory matters pending before the Office of the U.S. Trade Representative (USTR) and U.S. Customs and Border Protection…

Martín Yerovi is an international trade analyst in Crowell & Moring’s Washington, D.C. office. He provides practice support to the International Trade Group on import regulatory matters pending before the Office of the U.S. Trade Representative (USTR) and U.S. Customs and Border Protection (CBP). He works closely with attorneys developing courses of action for clients impacted by investigations under Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962. He also supports unfair trade investigations, including antidumping (AD) and countervailing duty (CVD) investigations, sunset reviews, and changed circumstance reviews before the Department of Commerce and the International Trade Commission (ITC).