Legal & Regulatory News

​European Commission publishes proposal for new Corporate Sustainability Due Diligence Directive

On 23 February 2022, the European Commission (the Commission) published its proposal for a Corporate Sustainability Due Diligence Directive (the Proposed Directive), which would introduce new sustainability due diligence obligations on large EU companies, mid-size EU companies in 'high-impact' sectors, and certain non-EU companies with significant EU activity.

The Proposed Directive is intended to address potential adverse human rights and environmental impacts in relation to in-scope companies' own operations, as well as the operations of their subsidiaries, and value-chain operations carried out by entities with whom such companies have established a business relationship.

The proposals under the Proposed Directive include, but are not limited to, a requirement for Member States to ensure that companies:

• integrate due diligence into all corporate policies and have a separate due diligence policy (to be updated annually);
• take appropriate measures to identify actual or potential adverse human rights impacts and environmental impacts in their own operations, those of their subsidiaries and in their value-chains; and
• establish and maintain a complaints procedure in relation to legitimate concerns about potential or actual adverse impacts, including within their value-chain.

In order to achieve a meaningful contribution to the sustainability transition, it is intended that due diligence under the Proposed Directive should be carried out with reference to all adverse human rights and environmental impacts identified in the Annex to the Proposed Directive.

In relation to climate change, the Proposed Directive would also require Member States to ensure that in-scope companies adopt a plan to ensure that their business model and strategy 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. Furthermore, it would introduce directors' duties to set up and oversee the implementation of due diligence and to integrate it into the corporate strategy, and, where there is variable remuneration, directors are to be incentivised to contribute to combating climate change by reference to this corporate plan.

Under the Proposed Directive, national administrative authorities appointed by Member States would be responsible for supervising these new rules and may impose fines in case of non-compliance. In addition, victims would have the opportunity to take legal action for damages that could have been avoided with appropriate due diligence measures.

The Proposed Directive will be presented to the European Parliament and the Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law and communicate the relevant texts to the Commission.

Click here to view the Proposed Directive.

Click here to view the Annex.