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DRAFT REPORT (COM(2022)0071 – C90050/2022 – 2022/0051(COD))

On the proposal for a directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937

JURI-PR-738450

Committee on Legal Affairs · Rapporteur: Lara Wolters

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This is the Committee on Legal Affairs' draft report on the proposed directive on Corporate Sustainability Due Diligence. It proposes amendments to the Commission proposal, widening due diligence duties to cover human rights, environmental and good governance impacts across companies' own operations, products, services, subsidiaries and value chains. It lowers the employee and turnover thresholds for companies in scope, adds publicly listed companies and new high-impact sectors, and extends the rules to third-country companies with significant EU turnover. It sets out duties to identify, prevent, mitigate, bring to an end and remedy adverse impacts, to establish complaints mechanisms, to monitor and verify measures, to consult affected stakeholders, and to adopt a climate transition plan. It requires Member States to provide for civil liability, access to evidence, long limitation periods and injunctive measures, and to designate independent supervisory authorities with powers to investigate and sanction. It clarifies directors' duties to integrate sustainability matters and links a significant portion of variable remuneration to sustainability targets, including greenhouse gas emission reduction targets.

Committee position. The rapporteur proposes to amend the Commission proposal by widening due diligence to human rights, environmental and good governance impacts, lowering thresholds, adding sectors, strengthening prevention, remediation, complaints, monitoring, climate plans, civil liability and supervisory enforcement.

Key points

  1. The draft report amends the Commission proposal to require due diligence on human rights, environmental and good governance impacts across companies' own operations, products, services, subsidiaries and value chains.
  2. It lowers the main thresholds to more than 250 employees and EUR 40 million worldwide net turnover, and adds a category of more than 50 employees and EUR 8 million turnover for high-impact sectors or publicly listed companies.
  3. It extends the rules to third-country companies with EU net turnover above EUR 40 million, or above EUR 8 million in high-impact sectors, including royalties from vertical agreements.
  4. It adds new high-impact sectors, including construction, financial services, and information and communication technologies.
  5. It requires companies to identify and assess adverse impacts through a broad scoping exercise and in-depth assessments of prioritised operations, subsidiaries and business relationships.
  6. It requires companies to prevent and mitigate potential adverse impacts, including through prevention action plans, contractual provisions, investments, support for SMEs and collaboration with other entities.
  7. It requires companies to bring actual adverse impacts to an end, mitigate their extent, adopt corrective action plans, and remedy impacts they caused or contributed to, including through compensation, restitution or public apologies.
  8. It makes suspension or termination of business relationships a last resort, requiring companies to first assess whether disengagement would cause greater harm, and to provide reasonable notice and keep the decision under review.
  9. It requires companies to establish or participate in effective complaints mechanisms accessible to trade unions, workers' representatives, civil society organisations and human rights defenders, with protection from retaliation.
  10. It requires companies to monitor and verify the adequacy and effectiveness of their actions at least every 12 months, retain documentation for 5 years, and consult affected stakeholders throughout the process.
  11. It requires companies to adopt and implement a climate transition plan aligned with limiting global warming to 1.5 °C, with emission reduction targets for 2030 reviewed every five years up to 2050.
  12. It requires Member States to provide for civil liability, disclosure of evidence, a limitation period of at least ten years, injunctive measures and measures to keep proceedings affordable, and to designate independent supervisory authorities with investigation and sanction powers.

Who is affected

  • Large EU companies and third-country companies meeting the thresholds, which must conduct due diligence across their value chains.
  • Small and medium-sized enterprises in value chains, which Member States must support financially and with training and user-friendly portals.
  • Directors of companies in scope, who become responsible for due diligence and climate plans and whose variable remuneration is linked to sustainability targets.
  • Affected stakeholders, including workers, trade unions, civil society organisations and human rights defenders, who gain consultation and complaint rights.
  • Member States, which must designate supervisory authorities, provide civil liability rules and support access to justice.

Figures and deadlines

  • More than 250 employees and EUR 40 million worldwide net turnover for the main scope threshold.
  • More than 50 employees and EUR 8 million worldwide net turnover for high-impact sectors or publicly listed companies.
  • At least 30% of net turnover generated in high-impact sectors for the lower threshold.
  • EUR 40 million EU net turnover for third-country companies, or EUR 8 million in high-impact sectors.
  • Due diligence applies 2 years after the end of the transposition period for certain companies.
  • Monitoring and verification at least every 12 months.
  • Documentation retained for 5 years.
  • Limitation period for damages actions of at least ten years.

Legal basis: Article 294(2), Article 50(1) and (2)(g) and Article 114 of the Treaty on the Functioning of the European Union.