On 25 July 2024, the Directive on corporate sustainability due diligence (Directive 2024/1760) entered into force. The aim of this Directive is to foster sustainable and responsible corporate behaviour in companies’ operations and across their global value chains. The new rules will ensure that companies in scope identify and address adverse human rights and environmental impacts of their actions inside and outside Europe.
Although only large companies may be directly impacted, the indirect impact may be felt by smaller businesses and SMEs who might be part of the value chain and therefore be required to demonstrate that their operations are also compliant.
While the Directive requires implementation by 26 July 2026 for some companies, the full implementation is 2029. Even though this appears to be a long lead time, businesses will have to start with identification and analysis of their value chain, and start understanding what the requirements are to perform relevant due diligence. This is potentially complex and requires a disciplined project approach and expert know-how on how to perform research to satisfy the due diligence requirements.
Areas that will require rigorous due diligence research will likely include business partners and other stakeholders, human rights and trafficking posture of the participants in your value chain, the environmental impact of theses participants. This will require transparency and a sound approach to third party assessments.
What you need to know about the Corporate Sustainability Due Diligence Directive
This Directive introduces a corporate due diligence responsibility. The key components of this responsibility include identifying and addressing potential and actual adverse impacts on human rights and the environment within the company's own operations, its subsidiaries, and, where relevant to their value chains, those of their business partners. Furthermore, the Directive requires large companies to develop and implement a transition plan for climate change mitigation, aligned with the 2050 climate neutrality goal of the Paris Agreement, along with intermediate targets set by the European Climate Law.
Who is impacted by the due diligence requirements?
Companies
Large EU limited liability companies & partnerships:
+/- 6,000 companies with more than 1000 employees and greater than EUR 450 million turnover (net) worldwide.
Large non–EU companies:
+/- 900 companies with greater than EUR 450 million turnover (net) in EU.
The Directive contains provisions to facilitate compliance and limit the burden on companies, both in scope and in the value chain.
SMEs
Micro companies and SMEs are not covered by the proposed rules. However, the Directive provides supporting and protective measures for SMEs, which could be indirectly affected as business partners in value chains.
What are the anticipated costs for companies to implement due diligence rules?
Companies will incur the following costs:
Expenses related to establishing and maintaining the due diligence process.
Transition costs, including investments and expenditures necessary to adapt a company’s operations and value chains to meet the due diligence requirements, if needed.
How will the new rules be enforced?
Enforcement of the corporate sustainability due diligence rules will involve:
Administrative supervision: Member States will appoint an authority responsible for overseeing and enforcing the rules, which may include issuing injunctive orders and imposing effective, proportionate, and dissuasive penalties, such as fines. At the European level, the Commission will establish a European Network of Supervisory Authorities to bring together representatives from national bodies to ensure a coordinated enforcement approach.
Civil liability: Member States will guarantee that victims can receive compensation for damages resulting from a company’s intentional or negligent failure to carry out due diligence.
Timing of the new laws
Member States have to transpose the Directive into national law and communicate the relevant texts to the Commission by 26 July 2026. One year later, the rules will start to apply to the first group of companies, following a staggered approach (with full application on 26 July 2029).
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