Publication Date: 2024-05-24 | Regulator: Council of The European Union
Summary
The document is a press release from the Council of the European Union announcing the formal adoption of the corporate sustainability due diligence directive. The directive introduces obligations for large companies regarding the adverse impacts of their activities on human rights and environmental protection. It applies to companies with more than 1,000 employees and a turnover of more than €450 million. The directive requires companies to implement a risk-based system to monitor, prevent, or remedy human rights or environmental damages. Companies must ensure that human rights and environmental obligations are respected throughout their chain of activities. If violations are identified, companies must take appropriate measures to prevent, mitigate, or minimize adverse impacts and can be held liable for damages, requiring them to provide full compensation. The directive also mandates the adoption of a climate transition plan in line with the Paris Agreement. The legislative act will be published in the Official Journal of the European Union and will enter into force after 20 days. Member states will have two years to implement the regulations and administrative procedures to comply with the directive. The timeline for compliance varies based on the size of the companies. Overall, the directive aims to promote a greener economy and social justice by holding companies accountable for their sustainability obligations.
What is the scope of the corporate sustainability due diligence directive?
The scope of the corporate sustainability due diligence directive includes companies that meet the following criteria:
- Companies with more than 1,000 employees
- Companies with a turnover of more than €450 million
The directive applies to a wide range of activities conducted by these companies, including:
- Upstream production of goods
- Provision of services
- Downstream distribution, transport, or storage of products
In other words, the directive encompasses the entire value chain of these companies, from the initial production or service provision to the final distribution or storage of products. It aims to ensure that these companies take responsibility for the adverse impacts of their activities on human rights and environmental protection throughout their operations and supply chains.
What obligations does the corporate sustainability due diligence directive introduce?
The corporate sustainability due diligence directive introduces several obligations for large companies in relation to the adverse impacts of their activities on human rights and environmental protection. These obligations include:
- Monitoring, Prevention, and Remediation: Companies are required to establish and implement a risk-based system to monitor, prevent, or remedy human rights or environmental damages resulting from their activities. This involves conducting assessments, identifying potential risks, and taking appropriate measures to address and mitigate any adverse impacts.
- Respect for Human Rights and Environmental Obligations: The directive mandates that companies ensure the respect for human rights and environmental obligations throughout their chain of activities. This means that companies must not only focus on their own operations but also consider the activities of their subsidiaries and business partners within their supply chains.
- Liability and Compensation: Companies can be held liable for any damages caused by violations of their human rights and environmental obligations. They are required to provide full compensation for any harm resulting from their own operations, as well as those of their subsidiaries and business partners.
- Climate Transition Plan: In addition to the above obligations, companies affected by the directive are also required to adopt and implement a climate transition plan aligned with the goals of the Paris Agreement on climate change. This plan should outline the steps and measures the company will take to contribute to the transition towards a greener economy.
Overall, the directive aims to ensure that large companies take responsibility for the adverse impacts of their activities, promote sustainability, and provide remedies for any harm caused.
What measures should companies take if a violation of human rights or environmental obligations is identified?
If a violation of human rights or environmental obligations is identified, companies affected by the corporate sustainability due diligence directive are required to take appropriate measures to address and rectify the situation. These measures should aim to prevent, mitigate, bring to an end, or minimize the adverse impacts arising from their own operations, as well as those of their subsidiaries and business partners within their chain of activities.
The specific actions that companies should take may vary depending on the nature and severity of the violation. However, some general measures that companies can consider include:
- Immediate Action: Companies should promptly address the violation and take immediate action to halt any ongoing harm or adverse impacts. This may involve ceasing or modifying certain activities, suspending relationships with non-compliant business partners, or implementing emergency measures to prevent further damage.
- Remediation and Compensation: Companies should develop and implement appropriate remediation plans to address the harm caused by the violation. This may include providing compensation to affected individuals or communities, restoring affected environments, or supporting initiatives to mitigate the adverse impacts.
- Process Improvement: Companies should conduct a thorough review of their internal processes, systems, and controls to identify any weaknesses or gaps that contributed to the violation. They should then take steps to improve these processes and prevent similar violations from occurring in the future. This may involve enhancing due diligence procedures, strengthening supplier engagement and monitoring, or implementing robust risk management frameworks.
- Collaboration and Engagement: Companies should actively engage with relevant stakeholders, including affected communities, civil society organizations, and regulatory authorities, to address the violation and seek input on potential solutions. Collaboration and dialogue can help foster transparency, accountability, and trust in the company’s efforts to rectify the situation.
It is important for companies to document and communicate their actions, demonstrating their commitment to addressing the violation and preventing its recurrence. By taking these measures, companies can fulfil their obligations under the directive and work towards ensuring greater respect for human rights and environmental protection throughout their operations and supply chains.
What is the timeline for the implementation of the corporate sustainability due diligence directive?
The implementation timeline for the corporate sustainability due diligence directive is as follows:
- Entry into Force: The directive will enter into force on the twentieth day following its publication in the Official Journal of the European Union. The specific date of entry into force is not mentioned in the provided documents.
- Two-Year Implementation Period: Member states will have a period of two years from the entry into force to implement the necessary regulations and administrative procedures to comply with the directive.
- Timeline for Application: The directive’s application will depend on the size of the companies, as outlined below:
- Companies with more than 5,000 employees and €1,500 million turnover: The directive will apply three years from the entry into force.
- Companies with more than 3,000 employees and €900 million turnover: The directive will apply four years from the entry into force.
- Companies with more than 1,000 employees and €450 million turnover: The directive will apply five years from the entry into force.
It is important to note that the specific entry into force date is not provided in the given documents. Member states and companies affected by the directive should closely monitor official announcements and publications for the exact dates and any further guidance regarding implementation.
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