Corporate sustainability due diligence

KEY POINTS

The directive:

• applies to EU and non-EU companies that meet one of the following conditions:
  • had over 1,000 employees and a net worldwide (for EU companies) or a net EU turnover (for non-EU companies) of over €450 million in the latest financial year;
  • did not reach those thresholds, but is the ultimate parent company of a group that did;
  • entered into franchising and licensing agreements with royalties of more than €22.5 million and net turnover of more than €80 million worldwide / in the EU (either alone or as ultimate parent company of a group).

Due diligence

Companies must conduct risk-based human rights and environmental due diligence by:

• integrating, in consultation with employees and their representatives, the following due diligence measures into their policies and risk management systems:
  • a description of their long-term approach,
  • a code of conduct containing rules and principles for the company and its subsidiaries and business partners,
  • a presentation of the processes put in place, including compliance verification;
• updating due diligence policies swiftly after a significant development and at least every 24 months;
• identifying actual or potential negative human rights and environmental impacts in their own operations and those of their subsidiaries and in their chains of activities, in addition to prioritising addressing impacts based on severity and likelihood;
• preventing and mitigating potential problems, bringing actual ones to an end and minimising their damage;
• providing remediation¹ for actual adverse impacts;
• engaging with the relevant stakeholders at various stages of the due diligence process;
• establishing accessible and publicly available notification and complaints procedures, including appropriate follow-up, where individuals and organisations may raise concerns anonymously and confidentially in accordance with national law;
• monitoring regularly (at least every 12 months) the effectiveness of their due diligence policy throughout their operations, those of their subsidiaries and in their chains of activities;
• communicating publicly on their due diligence by publishing an annual statement (in line with Directive (EU) 2022/2464 (the corporate sustainability reporting directive)) on their website and making it available to the European single access point;
• keeping all documentation on their due diligence compliance for at least five years.

They must adopt and put into effect a climate change transition plan containing:

• five-year time-bound targets between 2030 and 2050;
• descriptions of measures to reach the targets;
• details of the investment and funding involved;
• explanations of the roles administrative, management and supervisory bodies play.

Non-EU companies must appoint an authorised representative as a contact point for national supervisory authorities.

Information support

The European Commission:

• in consultation with EU Member States, stakeholders and others and in order to help companies, national authorities and stakeholders meet their legislative obligations, published the following:
  • guidance on voluntary model contractual clauses, by 26 January 2027,
  • general guidance on how to conduct due diligence, focusing on the identification process, the prioritisation of impacts, adaptation of purchasing practices, remediation, stakeholder engagement and responsible disengagement,
  • practical guidance on the climate transition plan,
  • information on risk factors,
  • information on data, information sources and digital tools,
  • information on sharing resources and information for the purpose of compliance,
  • information for stakeholders and their representatives on how to engage throughout the due diligence process,
  • information on fitness criteria for industry schemes and multi-stakeholder initiatives and third-party verification,
  • general and sector-tailored guidelines for specific human rights and environmental problems;
• establishes a single helpdesk for companies seeking information, guidance and support.

Member States individually or jointly operate websites, platforms or portals to provide information and support to companies, especially small and medium-sized enterprises.

Supervision

Member States:

• designate one or more supervisory authorities with the powers to:
  • receive and act within a reasonable time on any substantiated concerns raised,
  • require companies to provide information,
  • carry out investigations,
  • order a company to stop breaking the law,
  • impose penalties or interim measures;
• ensure a company can be held liable for any damage, provided that:
  • the company intentionally or negligently failed to respect the law,
  • the damage occurred as a result of that failure (however, a company cannot be held civilly liable if the damage was caused by its business partners alone);
• lay down penalties for companies breaking the law.

The Commission establishes a European Network of Supervisory Authorities to facilitate cooperation between national bodies and the coordination and alignment the various workstreams in their field of competence.

Other rules

The directive amends:

• Directive (EU) 2019/1937 on whistleblowing;
• Regulation (EU) 2023/2859 establishing a European single access point.

The Commission:

• may adopt delegated acts to amend the Annex on rights and prohibitions in international human rights and environmental treaties and conventions;
• will submit a report to the European Parliament and the Council of the European Union no later than 26 July 2026 on whether additional sustainability due diligence requirements should be introduced for regulated financial undertakings with respect to the provision of financial services and investment activities, and thereafter an implementation report every five years.