Directive on Due Diligence in Supply Chains

EU Commission adopts proposal for big companies.

Foto: Symbol (EC AV Service)

The European Commission has adopted a proposal for a directive on corporate sustainability due diligence. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains.

Intense debate in the European Parliament is soon to be expected, as well as strong opposition from the employers’ federations.

In a first step, the proposal put forward by the European Commission focuses on large EU enterprises (limited liability companies with 500+ employees and worldwide net turnover in excess of € 150 million) and, in a second phase, on other EU limited liability companies operating in defined high-impact sectors, which have more than 250 employees and more than € 40 million in net turnover worldwide.

Non-EU companies active in the EU with the same level of turnover generated in the EU are also included in the proposal.

Small and medium-sized enterprises do not fall directly within the scope of this proposal.

With this directive, the EU wants companies to take action by protecting human rights and fostering sustainable development, such as by limiting global warming. It is also crucial for the directive to contain terms that define an involvement and responsibility on the part of company directors, and to ensure that due diligence becomes part of the whole functioning of businesses. Member States may impose fines in case of non-compliance, and victims will have the opportunity to take legal action for damages.

In order to comply with the corporate due diligence duty, these companies need to:

  • integrate due diligence into their policies;
  • identify actual or potential adverse impacts on human rights and the environment;
  • prevent or mitigate potential impacts;
  • bring to an end or minimise actual impacts;
  • establish and maintain a complaints procedure;
  • monitor the effectiveness of the due diligence policy and measures; and
  • publicly communicate on due diligence.