As reported by the European Parliament on 5 December 2023, the negotiators of the Parliament and the Council agreed on new rules to oblige companies to integrate their human rights and environmental impacts into their management systems. The new directive on corporate sustainability due diligence, informally agreed by EU co-legislators, requires companies to reduce their negative impacts on human rights and the environment, such as child labour, slavery, labour exploitation, pollution, deforestation, excessive water consumption or damage to ecosystems.
They must integrate so-called "due diligence" into their policies and risk management systems, including a description of their approach, procedures and code of conduct. Companies must also adopt a plan to ensure that their business model is consistent with limiting global warming to 1.5°C. MEPs have ensured that the management of companies with more than 1,000 employees will receive financial benefits for implementing the plan. The legislation applies to EU companies and parent companies with more than 500 employees and a global turnover of more than 150 million euros.
The obligations also apply to companies with more than 250 employees and a turnover of more than 40 million euros if at least 20 million euros are generated in one of the following sectors: Manufacture and wholesale of textiles, clothing and footwear, agriculture including forestry and fishing, manufacture of food and trade in agricultural raw materials, extraction and wholesale of mineral resources or manufacture of related products and construction. It also applies to non-EU companies and parent companies with a corresponding turnover in the EU.
Companies will be required to identify, assess, prevent, mitigate, end and remedy their negative impacts and those of their upstream and downstream partners on people and the planet, including production, supply, transport and storage, design and distribution. To this end, they must make investments, obtain contractual assurances from partners, improve their business plan or support their small and medium-sized enterprise partners.
MEPs ensured that companies must also engage with those affected by their actions, introduce a complaints mechanism, provide information on their due diligence obligations and regularly review their effectiveness. MEPs also ensured that EU governments are obliged to set up practical portals that deal with companies' due diligence obligations and provide information on content and criteria, relevant Commission guidelines and information for those affected.
Each EU country will designate a supervisory authority to monitor whether companies fulfil these obligations. These bodies will share best practice and co-operate at EU level within the European Network of Supervisory Authorities set up by the Commission. They will be able to initiate inspections and investigations and impose sanctions on non-compliant companies. This includes naming and shaming and imposing fines of up to 5% of global net turnover. MEPs have negotiated that companies are liable for breaches of their due diligence obligations and that their victims have the right to compensation. Finally, to incentivise companies, MEPs ensured that compliance with due diligence obligations can be used as part of the award criteria for public contracts and concessions.
Next steps: The agreed draft legislation still needs to be formally approved by the Legal Affairs Committee and the European Parliament as a whole, as well as the Council (EU governments), before it can enter into force.
Is your company affected? Take precautions now in good time: The trade-e-bility management consultancy will work with the responsible employees in your company to set up a sustainability management system in small steps so that you are prepared for the new requirements by the time they are introduced. Christopher Blauth and Jens Haasler will behappy to answer your questions. You can simply request a non-binding orientation meeting at beratung@trade-e-bility.de.
