Provisional agreement on corporate sustainability due diligence directive: text still to be examined by the Legal Affairs Committee and approved by the European Parliament sitting as a whole and by the European Council.
On 14 December 2023, the European Council and the European Parliament reached a provisional agreement on the text of the “Corporate sustainability due diligence directive”, concerning the promotion of conduct, by companies and entities that use human capital and production processes, that is sustainable and responsible, respectful of human rights and the environment. Before the agreement can become law it needs to be examined by the Legal Affairs Committee, approved by the European Parliament sitting as a whole and by the European Council.
The Directive will apply to three groups of companies:
- (i) EU companies with more than 500 employees and a worldwide net turnover of more than EUR 150 million in the last financial year;
- (ii) EU companies with more than 250 employees and a worldwide turnover of more than EUR 40 million, provided that at least 50% of this turnover was generated in a “high impact” sector (such as textile production, various agricultural activities and the extraction of mineral resources);
- (iii) non-EU companies that generated a net turnover of more than EUR 150 million in the EU in the last financial year or that have a net turnover of more than EUR 40 million in the EU, provided that at least 50% of the net turnover was obtained in an EU country.
The companies concerned will have to identify the current or potential negative impacts of their activities on human rights and the environment. For this purpose, they need to prepare adequate governance systems and measures, as well as analysis models (due diligence) relating to the impact of their activities (from their products and services), from their subsidiaries and business relationships, also linked to the value chain in which the companies participate.
Therefore, companies subject to the above-mentioned obligations may be forced to change or supplement policies already in force or even to prepare new ones to adapt to the obligations of the legislation in question.
It will therefore be necessary to have mechanisms to carry out due diligence on industrial and commercial partners. In particular, the policies of the legal entities through which the business is carried out, of contractors or subcontractors or of any other legal entity with whom commercial agreements or financing, insurance or reinsurance have been concluded or that in any event carry out commercial activities related to the products or services offered, must be assessed.
The due diligence procedure must necessarily be preceded by the collection of information considered significant to assess respect for human rights and the correct application of the legislation also regarding slavery, child labour, health and safety conditions at work and worker exploitation. This due diligence may also be carried out through the implementation of consultation processes with groups of workers belonging to the company (the direct recipient of the legislation) as well as other companies belonging to the subsidiaries and the entire value chain.
Companies shall therefore identify procedures for recording and describing the negative impacts that emerge from the due diligence, which includes the preparation of specific codes of conduct that also include the necessary disciplinary protection mechanisms.
The legislation also requires that Member States “ensure that companies take appropriate measures to prevent, (…) or where prevention is not possible or not immediately possible, adequately mitigate potential adverse human rights impacts and adverse environmental impacts that have been, or should have been, identified” (Article 7, paragraph 1 of the Directive, proposal of February 2022).
In particular, if the nature or complexity of the necessary prevention measures requires it, the companies concerned must prepare and implement a “prevention action plan” that provides reasonable and clearly defined timelines for action, as well as qualitative and quantitative indicators for measuring improvement (Article 7, paragraph 2 of the Directive, proposed in February 2022).
Read the full version at Norme e Tributi Plus Diritto of Il Sole 24 Ore.