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Corporate Sustainability Due Diligence

TA-9-2023-0209 · P9_TA(2023)0209 · PE738.450

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Parliament's amended version of the proposed Corporate Sustainability Due Diligence Directive requires companies to conduct risk-based human rights and environmental due diligence across their operations, subsidiaries and value chains. It lowers the employee and turnover thresholds for companies in scope, removes the high-impact sector list, and adds rules on prioritisation, remediation, meaningful engagement with affected stakeholders, and notification and grievance mechanisms. It requires companies to adopt a transition plan aligned with limiting global warming to 1.5°C and climate neutrality by 2050, and to link part of directors' variable remuneration to the transition plan for companies with more than 1000 employees. It sets civil liability for companies that fail to comply with due diligence obligations and cause or contribute to an adverse impact, with a limitation period of at least ten years and rules allowing trade unions and civil society organisations to bring actions. It requires Member States to designate supervisory authorities with powers to investigate and sanction, including pecuniary sanctions of not less than 5% of net worldwide turnover, and to set up single helpdesks and support for SMEs.

Key points

  1. Companies must conduct risk-based human rights and environmental due diligence covering their own operations, their subsidiaries and entities in their value chain with which they have a business relationship.
  2. The Directive applies to EU companies with more than 250 employees and a net worldwide turnover above EUR 40 million, and to ultimate parent companies of groups with 500 employees and turnover above EUR 150 million.
  3. It also applies to third-country companies generating a net turnover of more than EUR 150 million in the Union, of which at least EUR 40 million was generated in the Union.
  4. Companies must integrate due diligence into their policies, identify and assess adverse impacts, prevent or mitigate potential impacts, bring actual impacts to an end, and remediate where they caused or contributed to harm.
  5. Companies may prioritise measures based on the severity and likelihood of impacts, and must carry out meaningful engagement with affected stakeholders, including information and consultation.
  6. Companies must provide publicly available notification and non-judicial grievance mechanisms, protect those who submit grievances from retaliation, and give them timely follow-up.
  7. Companies must continuously verify and monitor the adequacy and effectiveness of their actions, retain documentation for at least 10 years, and report annually on their website if not covered by the Corporate Sustainability Reporting Directive.
  8. Companies must adopt and implement a transition plan aligned with limiting global warming to 1.5°C and climate neutrality by 2050, including time-bound targets for scope 1, 2 and, where relevant, 3 emissions.
  9. Companies with more than 1000 employees must have a policy ensuring that part of directors' variable remuneration is linked to the company's transition plan, approved by the Annual General Meeting.
  10. Member States must designate independent supervisory authorities with powers to investigate, conduct on-site inspections, order remedial action, and impose sanctions including pecuniary sanctions of not less than 5% of net worldwide turnover.
  11. Companies can be held civilly liable for damages if they failed to comply with due diligence obligations and thereby caused or contributed to an adverse impact; the limitation period is at least ten years.
  12. Member States must set up single helpdesks, provide information and support to companies and stakeholders, and financially support SMEs; the Commission must issue guidance and model contractual clauses.

Who is affected

  • Large EU companies and ultimate parent companies of large groups, which must conduct due diligence and may face liability and sanctions.
  • Third-country companies with significant turnover in the Union, which fall within the scope and must appoint an authorised representative.
  • Small and medium-sized enterprises, which are not in scope but may be impacted as contractors and can receive support and protection.
  • Regulated financial undertakings, for which the value chain covers clients directly receiving financial services and excludes households, natural persons and SMEs.
  • Affected stakeholders, including workers, communities and indigenous peoples, who gain rights to engagement, grievance mechanisms and access to justice.

Figures and deadlines

  • More than 250 employees and net worldwide turnover above EUR 40 million: thresholds for EU companies in scope.
  • 500 employees and net worldwide turnover above EUR 150 million: thresholds for ultimate parent companies of groups.
  • EUR 150 million net turnover in the Union, of which at least EUR 40 million generated in the Union: thresholds for third-country companies.
  • At least 10 years: period for which companies must retain documentation demonstrating compliance.
  • At least ten years: limitation period for bringing civil liability claims for damages.
  • Not less than 5% of net worldwide turnover: maximum limit of pecuniary sanctions.
  • More than 1000 employees on average: threshold for companies required to link directors' variable remuneration to the transition plan.
  • 1.5°C and 2050: global warming limit and climate neutrality target in the transition plan.