Corporate Sustainability Due Diligence Directive agreed

Corporate Social Responsibility © Can Stock Photo Mazirama

(18 December 2023) The European Parliament and the Council of Ministers reached agreement on the Directive on Corporate Sustainability Due Diligence, 14 December 2023. This Directive demands accountability for companies and their supply chains in the EU and beyond. It helps securing decent and safe working conditions around the world. Companies will have to be transparent about the impact of their operations on human rights and the environment. ETUC sees the Directive as a step in the right direction. It:

  • Gives an important role to trade unions and workers representatives in due diligence strategies and plan of business.
  • Ensure many more EU and non-EU companies will be hold accountable for their operations, including small and medium-sized enterprises as part of the supply chains.
  • Ensure business civil liability, remediations for victims, strong non regression and review clauses provide reassurances that human rights violation by businesses is a no go.

The text needs to be voted now for approval in the European Parliament.

The Financial sector is however excluded. A later review will have to establish if this sector will be covered.

For the ETUC press release

For a previous article and the work of EPSU on Corporate Social Responsibility.

The statement of the European Parliament underlines the Rules applicable to big companies and those in high-risk sectors.

The legislation will apply to EU companies and parent companies over 500 employees and a worldwide turnover higher than 150 million euro. The obligations will also apply to companies with over 250 employees and with a turnover of more than 40 million euro if at least 20 million are generated in one of the following sectors: manufacture and wholesale trade of textiles, clothing and footwear, agriculture including forestry and fisheries, manufacture of food and trade of raw agricultural materials, extraction and wholesale trade of mineral resources or manufacture of related products and construction. It will also apply to non-EU companies and parent companies with equivalent turnover in the EU.

Companies will have to identify, assess, prevent, mitigate, bring to an end to and remedy their negative impact and that of their upstream and downstream partners, including production, supply, transport and storage, design and distribution on people and the planet. To do so, they will be required to make investments, seek contractual assurances from the partners, improve their business plan or provide support to their partners from small and medium-sized enterprises.

The Council position gives some details on the penalties.

“For companies that fail to pay fines imposed on them in the event of violation of the directive, the provisional agreement includes several injunction measures, and takes into consideration the turnover of the company to impose pecuniary penalties (i.e. a minimum maximum of 5% of the company’s net turnover). The deal includes the obligation for companies to carry out meaningful engagement including a dialogue and consultation with affected stakeholders, as one of the measures of the due diligence process.” It further clarifies that respect for corporate sustainability due diligence can be an important criterium when awarding public contracts through public procurement.

The Council stresses further the obligations for companies, described in an Annex I. “It is a list of specific rights and prohibitions which constitutes an adverse human rights impact when they are abused or violated. The list makes references to international instruments that have been ratified by all member states and that set sufficiently clear standards that can be observed by companies.

The compromise adds new elements to the obligations and instruments listed in the Annex as regards human rights, particularly for vulnerable groups and core International Labour Organisation (ILO) Conventions, which can be added to the list, by delegated acts, once they have been ratified by all member states. The provisional agreement also introduces in the annex references to other UN conventions the International covenant on civil and political rights or the International covenant on economic, social and cultural rights, or the Convention on the rights of the child. Likewise, the compromise clarifies the nature of environmental impacts covered by this directive as any measurable environmental degradation, such as harmful soil change, water or air pollution, harmful emissions or excessive water consumption or other impacts on natural resources.