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A Quick Look into the Proposal of the European Union Directive on Corporate Sustainability Due Diligence

The Draft European Union (EU) Directive On Corporate Sustainability Due Diligence (Draft Directive) which was adopted by the EU commission on 23 February 2023 aims to establish a corporate sustainability due diligence duty to address negative human rights and environmental impacts. The Draft Directive covers all EU companies with 500+ employees and EUR 150 million in net turnover worldwide or EU companies operating in high impact sectors (textiles, agriculture & food, mining), with more than 250 employees and a net turnover of EUR 40 million+ worldwide or non-EU companies reaching the mentioned thresholds by turnovers generated in the EU. Small and medium-sized enterprises are not directly within the scope of the Draft Directive.

Human Rights Due Diligence (HRDD) obligations require companies to:

  • Integrate HRDD into their policies 
  • Identify actual or potential adverse impacts 
  • Prevent and mitigate potential adverse impacts 
  • Bring actual adverse impacts to an end 
  • Establish and maintain a complaints procedure 
  • Monitor effectiveness of HRDD policy and measures 
  • Publicly communicate on HRDD

HRDD obligations target the companies’ own operations or those of their subsidiaries, direct and indirect partners, and where related to their value chains, from their ‘established business relationships’. 

  • In addition to sanctions, references are made to civil liability for damages arising due to the failure to comply with HRDD obligations. However, a potential escape clause is included for the activities of an indirect partner with whom the company was in an established business relationship, by way of contractually referring to verification of third parties. 
  • A new type of duty of care is regulated for company directors concerning sustainability, human rights, climate and environment related aspects of their decisions. 
  • Supervisory authorities will be established under domestic laws to check and monitor compliance with the Draft Directive. 
  • The European Network of Supervisory Authorities will be established by the Commission for cooperation between supervisory authorities and coordination of their practices.