Forslag til EUROPA-PARLAMENTETS OG RÅDETS DIREKTIV om virksomhedernes due diligence i forbindelse med bæredygtighed og om ændring af direktiv (EU) 2019/1937

EN EN
EUROPEAN
COMMISSION
Brussels, 23.2.2022
COM(2022) 71 final
2022/0051 (COD)
Proposal for a
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937
(Text with EEA relevance)
{SEC(2022) 95 final} - {SWD(2022) 38 final} - {SWD(2022) 39 final} -
{SWD(2022) 42 final} - {SWD(2022) 43 final}
Offentligt
KOM (2022) 0071 - Forslag til direktiv
Europaudvalget 2022
EN 1 EN
EXPLANATORY MEMORANDUM
1. CONTEXT OF THE PROPOSAL
Reasons for and objectives of the proposal
The behaviour of companies across all sectors of the economy is key to succeed in the
Union’s transition to a climate-neutral and green economy1
in line with the European Green
Deal2
and in delivering on the UN Sustainable Development Goals, including on its human
rights- and environment-related objectives. This requires implementing comprehensive
mitigation processes for adverse human rights and environmental impacts in their value
chains, integrating sustainability into corporate governance and management systems, and
framing business decisions in terms of human rights, climate and environmental impact, as
well as in terms of the company’s resilience in the longer term.
EU companies operate in complex surroundings and, especially large ones, rely on global
value chains. Given the significant number of their suppliers in the Union and in third
countries and the overall complexity of value chains, EU companies, including the large ones,
may encounter difficulties to identify and mitigate risks in their value chains linked to respect
of human rights or environmental impacts. Identifying these adverse impacts in value chains
will become easier if more companies exercise due diligence and thus more data is available
on human rights and environmental adverse impacts.
The connection of the EU economy to millions of workers around the world through global
value chains comes with a responsibility to address adverse impacts on the rights of these
workers. A clear request by Union citizens, in particular in the framework of the Conference
on the Future of Europe, for the EU economy to contribute to address these and other adverse
impacts is reflected in the existing or upcoming national legislation on human rights and
environmental due diligence3
, in the debates ongoing at national level and in the call for
action from the European Parliament and the Council. Both of these institutions have called
on the Commission to propose Union rules for a cross-sector corporate due diligence
obligation.4
In their Joint Declaration on EU Legislative Priorities for 20225
, the European
Parliament, the Council of the European Union and the European Commission have
1
Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing
the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU)
2018/1999 (‘European Climate Law’), which also includes a binding target to cut domestic net
greenhouse gas emissions by at least 55% compared to 1990 levels by 2030.
2
Communication from the Commission on the European Green Deal, COM/2019/640 final.
3
So far France (Loi relative au devoir de vigilance, 2017) and Germany (Sorgfaltspflichtengesetz, 2021)
have introduced a horizontal due diligence law, other Member States (Belgium, the Netherlands,
Luxembourg and Sweden) are planning to do so in the near future, and the Netherlands has introduced a
more targeted law on child labour (Wet zorgplicht kinderarbeidm 2019).
4
European Parliament resolution of 10 March 2021 with recommendations to the Commission on
corporate due diligence and corporate accountability (2020/2129(INL)); Council Conclusions on
Human Rights and Decent Work in Global Supply Chains of 1 December 2020 (13512/20).
5
Joint declaration of the European Parliament, the Council of the European Union and the European
Commission on EU Legislative Priorities for 2022 (OJ C 514I, 21.12.2021, p. 1).
EN 2 EN
committed to deliver on an economy that works for people, including to improve the
regulatory framework on sustainable corporate governance.
Using the existing international voluntary standards on responsible business conduct,6
an
increasing number of EU companies are using value chain due diligence as a tool to
identify risks in their value chain and build resilience to sudden changes in the value chains,
but companies may also face difficulties when considering to use the value chain due
diligence for their activities. Such difficulties can be for instance due to lack of legal clarity
regarding corporate due diligence obligations, complexity of value chains, market pressure,
information deficiencies, and costs. As a consequence, the benefits of due diligence are not
widespread among European companies and across economic sectors.
Mostly large companies have been increasingly deploying due diligence processes as it can
provide them with a competitive advantage.7
This also responds to the increasing market
pressure on companies to act sustainably as it helps them avoid unwanted reputational risks
vis-à-vis consumers and investors that are becoming increasingly aware of sustainability
aspects. However, these processes are based on voluntary standards and do not result in legal
certainty for neither companies nor victims in case harm occurs.
Voluntary action does not appear to have resulted in large scale improvement across sectors
and, as a consequence, negative externalities from EU production and consumption are being
observed both inside and outside the Union. Certain EU companies have been associated with
adverse human rights and environmental impacts, including in their value chains.8
Adverse
impacts include, in particular, human rights issues such as forced labour, child labour,
inadequate workplace health and safety, exploitation of workers, and environmental impacts
such as greenhouse gas emissions, pollution, or biodiversity loss and ecosystem degradation.
6
United Nations’ “Guiding Principles on Business and Human Rights: Implementing the United Nations
‘Protect, Respect and Remedy’ Framework” (2011), available at
https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf.
OECD Guidelines for Multinational Enterprises (2011 update), available at:
https://doi.org/10.1787/9789264115415-en, with set of recommendations on responsible business
conduct, as well as specific OECD Due Diligence Guidance for Responsible Business Conduct (2018)
and OECD sectoral guidance, available at: https://mneguidelines.oecd.org/mneguidelines/.
7
See Impact Assessment accompanying this proposal, p. 15, 23.
8
The Study on due diligence, European Commission, Directorate-General for Justice and Consumers,
Smit, L., Bright, C., et al., Study on due diligence requirements through the supply chain: final report,
Publications Office, 2020, https://data.europa.eu/doi/10.2838/39830, p. 221, indicates that corporate
risk assessment processes continue to focus on the materiality of the risks to the company, despite
international guidance (UNGPs, OECD) which clarifies that the relevant risks for due diligence must
extend beyond the risks of the company to those who are affected (the rights-holders). Negative
corporate impacts as a consequence of globalisation and failure to undertake due diligence, ranging
from environmental disasters (see at https://www.business-humanrights.org/en/blog/brumadinho-dam-
collapse-lessons-in-corporate-due-diligence-and-remedy-for-harm-done/) and land grabbing (see at
https://www.europarl.europa.eu/RegData/etudes/STUD/2016/578007/EXPO_STU(2016)578007_EN.p
df) to serious violations of labour and human rights, (see at
https://www.europarl.europa.eu/RegData/etudes/BRIE/2014/538222/EPRS_BRI(2014)538222_REV1_
EN.pdf) are well documented.
EN 3 EN
In the last years, emerging legal frameworks on corporate due diligence in Member States9
reflect the increasing desire to support companies in their endeavour to perform due diligence
in their value chains and foster business conduct that respects human rights, children’s rights
and the environment. On the other hand, they also bring fragmentation and risk undermining
legal certainty and a level playing field for companies in the single market.
Union legislation on corporate due diligence would advance respect for human rights and
environmental protection, create a level playing field for companies within the Union and
avoid fragmentation resulting from Member States acting on their own. It would also include
third-country companies operating in the Union market, based on a similar turnover criterion.
Against this background, this Directive will set out a horizontal framework to foster the
contribution of businesses operating in the single market to the respect of the human rights
and environment in their own operations and through their value chains, by identifying,
preventing, mitigating and accounting for their adverse human rights, and environmental
impacts, and having adequate governance, management systems and measures in place to this
end.
In particular, this Directive will:
(1) improve corporate governance practices to better integrate risk management
and mitigation processes of human rights and environmental risks and impacts,
including those stemming from value chains, into corporate strategies;
(2) avoid fragmentation of due diligence requirements in the single market and
create legal certainty for businesses and stakeholders as regards expected
behaviour and liability;
(3) increase corporate accountability for adverse impacts, and ensure coherence for
companies regarding obligations under existing and proposed EU initiatives on
responsible business conduct;
(4) improve access to remedies for those affected by adverse human rights and
environmental impacts of corporate behaviour;
(5) being a horizontal instrument focussing on business processes, applying also to
the value chain, this Directive will complement other measures in force or
proposed, which directly address some specific sustainability challenges or
apply in some specific sectors, mostly within the Union.
Consistency with existing policy provisions in the policy area
At EU level, sustainable corporate governance has been mainly fostered indirectly by
imposing reporting requirements in the Non-Financial Reporting Directive (NFRD)10
on
9
See footnote 3.
10
Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial and
diversity information by certain large undertakings and groups (OJ L 330, 15.11.2014, p. 1–9). The
NFRD is therefore an amendment of the Accounting Directive, i.e. of Directive 2013/34/EU on the
annual financial statements, consolidated financial statements and related reports of certain types of
undertakings, amending Directive 2006/43/EC and repealing Council Directives 78/660/EEC and
83/349/EEC (OJ L 182, 29.6.2013).
EN 4 EN
approximately 12 000 companies11
concerning environmental, social and human rights related
risks, impacts, measures (including due diligence) and policies.12
The NFRD had some
positive impact on improvement of responsible business operation, but has not resulted in the
majority of companies taking sufficient account of their adverse impacts in their value
chains.13
The Commission’s recent proposal for a Corporate Sustainability Reporting Directive
(CSRD), revising the NFRD14
, would extend the scope of the companies covered to all large
and all listed companies15
, require the audit (assurance) of reported information and
strengthen the standardisation of reported information by empowering the Commission to
adopt sustainability reporting standards.16
This Directive will complement the current NFRD
and its proposed amendments (proposal for CSRD) by adding a substantive corporate duty for
some companies to perform due diligence to identify, prevent, mitigate and account for
external harm resulting from adverse human rights and environmental impacts in the
company’s own operations, its subsidiaries and in the value chain. Of particular relevance of
the proposal on CSRD is that it mandates disclosure of plans of an undertaking to ensure that
its business model and strategy are compatible with the transition to a sustainable economy
and with the limiting of global warming to 1.5 °C in line with the Paris Agreement. The two
initiatives are closely interrelated and will lead to synergies. First, a proper information
collection for reporting purposes under the proposed CSRD requires setting up processes,
which is closely related to identifying adverse impacts in accordance with the due diligence
duty set up by this Directive. Second, the CSRD will cover the last step of the due diligence
duty, namely the reporting stage, for companies that are also covered by the CSRD. Third,
this Directive will set obligations for companies to have in place the plan ensuring that the
business model and strategy are compatible with the transition to a sustainable economy and
with the limiting of global warming to 1.5 °C in line with the Paris Agreement on which the
11
Large public-interest entities that have more than 500 employees (and the balance sheet total or net
turnover of which exceeds the Accounting Directive’s threshold for large enterprises), including listed
companies, banks and insurance companies. See CEPS’ Study on the Non-Financial Reporting
Directive, prepared for the European Commission to support the review of the NFRD, November 2020,
available at https://op.europa.eu/en/publication-detail/-/publication/1ef8fe0e-98e1-11eb-b85c-
01aa75ed71a1/language-en.
12
See also some provisions of SRD II, i.e. Directive (EU) 2017/828 amending Directive 2007/36/EC as
regards the encouragement of long-term shareholder engagement (OJ L 132, 20.5.2017, p. 1–25).
13
The Impact Assessment accompanying the Commission’s proposal for the Corporate Sustainability
Reporting Directive (SWD/2021/150 final) and the CEPS’ Study on the Non-Financial Reporting
Directive (section 2) found a limited change in corporate policies as a result of the NFRD, consistent
with the perception of main stakeholders who could not identify a clear pattern of change in corporate
behaviour driven by these reporting rules.
14
Proposal for a Directive of the European Parliament and of the Council amending Directive
2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as
regards corporate sustainability reporting (COM/2021/189 final).
15
The sustainability reporting obligation would apply to all large companies as defined by the Accounting
Directive (which the CSRD would amend) and, as of 2026, to companies (including non-EU companies
but excluding all micro enterprises) listed on EU regulated markets.
16
The elaboration of draft sustainability reporting standards started in parallel with the legislative process
in a project task force established by the European Financial Reporting Advisory Group (EFRAG) at
the request of the Commission.
EN 5 EN
CSRD requires to report. Thus, this Directive will lead to companies’ reporting being more
complete and effective. Therefore, complementarity will increase effectiveness of both
measures and drive corporate behavioural change for those companies.
This Directive will also underpin the Sustainable Finance Disclosure Regulation17
(SFDR)
that has recently entered into force and applies to financial market participants (such as
investment fund and portfolio managers, insurance undertakings selling insurance-based
investment products and undertakings providing various pension products) and financial
advisers. Under the SFDR, these undertakings are required to publish, among others, a
statement on their due diligence policies with respect to principal adverse impacts of their
investment decisions on sustainability factors on a comply or explain basis. At the same time,
for companies with more than 500 employees the publication of such a statement is
mandatory, and the Commission is empowered to adopt regulatory technical standards on the
sustainability indicators in relation to the various types of adverse impacts.18
Similarly, this Directive will complement the recent Taxonomy Regulation19
, a transparency
tool that facilitates decisions on investment and helps tackle greenwashing by providing a
categorisation of environmentally sustainable investments in economic activities that also
meet a minimum social safeguard.20
The reporting covers also minimum safeguards
established in Article 18 of the Taxonomy Regulation that refer to procedures companies
should implement to ensure the alignment with the OECD Guidelines for Multinational
Enterprises and the UN Guiding Principles on Business and Human Rights, including the
principles and rights set out in the eight fundamental conventions identified in the Declaration
of the International Labour Organization on Fundamental Principles and Rights at Work and
the International Bill of Human Rights when carrying out an economic activity categorized as
“sustainable”. Like NFRD and the proposal for CSRD, the Taxonomy Regulation does not
impose substantive duties on companies other than public reporting requirements, and
investors can use such information when allocating capital to companies. By requiring
companies to identify their adverse risks in all their operations and value chains, this Directive
may help in providing more detailed information to the investors. It therefore complements
the Taxonomy Regulation as it has the potential to further help investors to allocate capital to
responsible and sustainable companies. Moreover, the Taxonomy Regulation (as providing a
common language for sustainable economic activities for investment purposes) can serve as a
guiding tool for companies to attract sustainable financing for their corrective action plans and
roadmaps.
17
Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on
sustainability‐related disclosures in the financial services sector (OJ L 317, 9.12.2019, p. 1–16).
18
The three European Supervisory Authorities published on 4 February 2021 their Final Report (available
at https://www.esma.europa.eu/press-news/esma-news/three-european-supervisory-authorities-publish-
final-report-and-draft-rts) to the Commission, including the draft regulatory technical standards on
disclosures under the SFDR.
19
Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the
establishment of a framework to facilitate sustainable investment, and amending Regulation (EU)
2019/2088 (OJ L 198, 22.6.2020, p. 13–43).
20
The Taxonomy will be developed gradually. Minimum social safeguards apply to all Taxonomy-
eligible investments.
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This Directive will complement Directive 2011/36/EU on preventing and combating
trafficking in human beings and protecting its victims21
, which constitutes a comprehensive
legal framework to effectively fight all forms of exploitation in the Union by natural and legal
persons, in particular forced labour, sexual exploitation, as well as begging, slavery or
practices similar to slavery, servitude, or the exploitation of criminal activities, or the removal
of organs. It also establishes the liability of legal persons for the offences referred to in that
Directive committed for their benefit by any person who has a leading position within the
legal person or the commission of the offence was possible due to the lack of supervision or
control. Directive 2011/36/EU also provides for sanctions on the legal person held liable.
Furthermore, this Directive will complement the Employers’ Sanctions Directive22
, which
prohibits the employment of irregularly staying third-country nationals, including victims of
trafficking in human beings. The Employers’ Sanctions Directive lays down minimum
standards on sanctions and other measures to be applied in the Member States against
employers who infringe upon the Directive.
This Directive will also complement existing or planned sectoral and product-related value
chain due diligence instruments at EU level due to its cross-sectoral scope and broad range of
sustainability impacts covered:
The so-called Conflict Minerals Regulation23
applies to four specific minerals and metals. It
requires EU companies in the supply chain to ensure they import tin, tungsten, tantalum and
gold from responsible and conflict-free sources only and put in place more specific
mechanisms for conducting due diligence, e.g. an independent third-party audit of supply
chain due diligence. The due diligence provisions of this Directive address also environmental
adverse impacts and will apply to value chains of additional minerals that are not covered in
the Conflict Minerals Regulation but produce human rights, climate and environmental
adverse impacts.
The Commission’s proposal for a Regulation on deforestation-free supply chains24
focuses on
certain commodities and product supply chains. It has a very specific objective, namely to
reduce the impact of EU consumption and production on deforestation and forest degradation
worldwide. Its requirements will, in some areas, be more prescriptive compared to the general
due diligence duties under this Directive. It also includes a prohibition of placing on the
market certain commodities and derived products if the requirement of “legal” and
21
Directive 2011/36/EU of the European Parliament and of the Council of 5 April 2011 on preventing and
combating trafficking in human beings and protecting its victims, and replacing Council Framework
Decision 2002/629/JHA (OJ L 101, 15 April 2011, p.1).
22
Directive 2009/52/EC of the European Parliament and of the Council of 18 June 2009 providing for
minimum standards on sanctions and measures against employers of illegally staying third-country
nationals (OJ L 168, 30. June 2009).
23
Regulation (EU) 2017/821 of the European Parliament and of the Council of 17 May 2017 laying down
supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and
gold originating from conflict-affected and high-risk areas (OJ L 130, 19.5.2017, p. 1–20).
24
Proposal for a Regulation of the European Parliament and of the Council on the making available on the
Union market as well as export from the Union of certain commodities and products associated with
deforestation and forest degradation and repealing Regulation (EU) No 995/2010 (COM(2021) 706
final).
EN 7 EN
“deforestation free” cannot be ascertained through due diligence. This prohibition will apply
to all operators placing the relevant products on the Union market, including EU and non-EU
companies, irrespective of their legal form and size. Therefore, while the overall objectives of
the two initiatives are mutually supportive, their specific objectives are different. This
Directive will complement the Regulation on deforestation-free products by introducing a
value chain due diligence related to activities that are not covered by the Regulation on
deforestation-free products but might be directly or indirectly leading to deforestation.
The Commission’s proposal for a new Batteries Regulation25
has the specific objectives of
reducing environmental, climate and social impacts throughout all stages of the battery life
cycle, strengthening the functioning of the internal market, and ensuring a level playing field
through a common set of rules. It requires economic operators placing industrial or electric
vehicle batteries (including incorporated in vehicles) larger than 2 kWh on the Union market
to establish supply chain due diligence policies. It focusses on those raw materials of which a
significant amount of the global production goes into battery manufacturing and that may
pose social or environmental adverse impacts (cobalt, natural graphite, lithium, and nickel).
The economic operators must submit compliance documentation for third-party verification
by notified bodies and are subject to checks by the national market surveillance authorities.
This Directive will complement the Batteries Regulation by introducing a value chain due
diligence related to raw materials that are not covered in that Regulation but without requiring
certification for placing the products on the EU market.
The future Sustainable Products Initiative (SPI) aims to revise the current Ecodesign
Directive26
and concerns more broadly the sustainability of products placed on the EU market
and the transparency of related information.
This proposal will play an essential role in tackling the use of forced labour the global value
chains. As announced in the Communication on decent work worldwide27
the Commission is
preparing a new legislative proposal that will effectively prohibit the placing on the Union
market of products made by forced labour, including forced child labour. The new initiative
will cover both domestic and imported products and combine a ban with a robust, risk-based
enforcement framework. The new instrument will build on international standards and
complement horizontal and sectoral initiatives, in particular the due diligence obligations as
laid down in this proposal.
This Directive is without prejudice to the application of other requirements in the areas of
human rights, protection of the environment and climate change under other Union legislative
acts. If the provisions of this Directive conflict with a provision of another Union legislative
act pursuing the same objectives and providing for more extensive or more specific
25
Proposal for a Regulation of the European Parliament and of the Council concerning batteries and waste
batteries, repealing Directive 2006/66/EC and amending Regulation (EU) No 2019/1020
(COM/2020/798 final).
26
Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009 establishing
a framework for the setting of ecodesign requirements for energy-related products (OJ L 285,
31.10.2009, p. 10).
27
Communication from the Commission to the European Parliament, the Council and the European
Economic and Social Committee on decent work worldwide for a global just transition and a
sustainable recovery, COM(2022) 66 final.
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obligations, the provisions of the other Union legislative act should prevail to the extent of the
conflict and should apply to those specific obligations
Consistency with other Union policies
This Directive is important to fulfil objectives of various existing and planned Union
measures in the field of the human rights, including labour rights, and environment.
As part of the European Green Deal, the Commission has listed an initiative on sustainable
corporate governance among the deliverables of the Action Plan on a Circular Economy, the
Biodiversity strategy, the Farm to Fork strategy, the Chemicals strategy, Updating the 2020
New Industrial Strategy: Building a stronger Single Market for Europe’s recovery, and the
Strategy for Financing the Transition to a Sustainable Economy.
EU environmental law introduces various environmental requirements for companies,
Member States, or defines goals for the Union28
. However, it generally does not apply to
value chains outside the Union where up to 80-90% of the environmental harm of EU
production may occur29
. The Environmental Liability Directive30
establishes a framework for
environmental liability with regard to prevention and remedying environmental damage based
on the “polluter pays” principle for companies’ own operations. It does not cover companies’
value chains. The civil liability related to adverse environmental impacts of this Directive will
be complementary to the Environmental Liability Directive.
This Directive will complement EU climate legislation, including the European Climate Law,
setting in stone the Union’s climate ambition, with the intermediate target of reducing net
greenhouse gas emissions by at least 55% by 2030, to set Europe on a responsible path to
becoming climate-neutral by 2050. Most specifically, this Directive will complement the “Fit
for 55” Package31
and its various key actions, such as setting more ambitious energy
efficiency and renewable energy targets for Member States by 2030 or the upgrading of the
EU Emissions Trading System32
, which needs to be underpinned by a wider transformation of
production processes to achieve climate neutrality by 2050 across the economy and
throughout value chains. The “Fit for 55” Package will only indirectly apply to some non-EU
28
For example it introduces limitations on the release of some pollutants, defines EU goals (such as the
European Climate Law) or sets targets for Member States (such as for energy efficiency), defines
obligations for Member States (e.g. on protection of natural habitats), establishes minimum content in
authorisation procedures for some economic activities (e.g. Environmental Impact Assessment), etc.
29
See e.g. Jungmichel, Norbert, Christina Schampel and Daniel Weiss (2017): Atlas on Environmental
Impacts - Supply Chains – Environmental Impacts and Hot Spots in the Supply Chain, Adephi/Systain,
available at https://www.adelphi.de/en/system/files/mediathek/bilder/Umweltatlas%20Lieferkette%20-
%20adelphi-Systain-englisch.pdf.
30
Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on
environmental liability with regard to the prevention and remedying of environmental damage (OJ L
143, 30.4.2004, p. 56–75).
31
The “Fit for 55” Package is a series of proposals adopted by the Commission on 14 July 2021 aiming to
make the EU's climate, energy, land use, transport and taxation policies fit for reducing net greenhouse
gas emissions by at least 55% by 2030, compared to 1990 levels.
32
Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC
establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU)
2015/1814 concerning the establishment and operation of a market stability reserve for the Union
greenhouse gas emission trading scheme and Regulation (EU) 2015/757 (COM/2021/551 final).
EN 9 EN
value chains of EU companies through the Carbon Border Adjustment Mechanism (CBAM)33
which aims at preventing “carbon leakage”34
by imposing a carbon adjustment price for
selected imported products not subject to the carbon price deriving from the EU Emission
Trading System.
Existing EU health and safety, and fundamental rights legislation targets very specific adverse
impacts (such as violations of the right to privacy and data protection, discrimination, specific
health aspects related to dangerous substances, threats to health and safety of workers,
violations of rights of the child, etc.) within the Union35
but does not apply in all cases to
companies’ value chains outside the Union.
The initiative is in line with the EU Action Plan on Human Rights and Democracy 2020-
202436
, which includes a commitment for the Union and Member States to strengthen their
engagement to actively promote the implementation of international standards on responsible
business conduct such as the UN Guiding Principles on Business and Human Rights and the
OECD Guidelines on Multinational Enterprises and Due Diligence. It is consistent with the
EU Strategy on the Rights of the Child37
which commits the Union to a zero tolerance
approach against child labour and to ensure that supply chains of EU companies are free of
child labour. In the EU Strategy on Combatting Trafficking in Human Beings 2021- 202538
the Commission committed to put forward a legislative proposal on sustainable corporate
governance to foster long-term sustainable and responsible corporate behaviour. The initiative
also contributes to the goals of the Commission’s Communication on decent work
worldwide39
, which is adopted together with this proposal.
This Directive will contribute to the European Pillar of Social Rights as both promote rights
such as fair working conditions40
. It will – beyond its external angle – deal with the violation
of international labour standards when they occur in the Union (e.g. forced labour cases in
33
Proposal for a Regulation of the European Parliament and of the Council establishing a carbon border
adjustment mechanism (COM(2021) 564 final).
34
“Carbon leakage” resulting from the increased EU climate ambition could lead to increase total global
emissions. The CBAM carbon adjustment price on selected types of imported products in the iron steel,
aluminium, cement, electricity, fertilizers sectors would level the playing field between EU and
imported products.
35
Under EU law, every EU worker has certain minimum rights relating to protection against
discrimination based on sex, race, religion, age, disability and sexual orientation, labour law (part-time
work, fixed-term contracts, working hours, informing and consulting employees). A summary is
available at https://eur-
lex.europa.eu/summary/chapter/employment_and_social_policy.html?root_default=SUM_1_CODED%
3D17&locale=en.
36
Joint Communication to the European Parliament and the Council on the EU Action Plan on Human
Rights and Democracy 2020-2024 (JOIN/2020/5 final).
37
Communication from the Commission on the EU strategy on the rights of the child (COM/2021/142
final).
38
Communication from the Commission on the EU Strategy on Combatting Trafficking in Human Beings
2021- 2025 (COM(2021) 171 final).
39
(COM(2022)66 final).
40
E.g. Pillar 10 of European Pillar of Social Rights on healthy, safe and well-adapted work environment
and Article 7(b) International Covenant on Economic, Social and Cultural Rights (see annex of this
Directive) on just and favourable conditions at work including safe and healthy working conditions.
EN 10 EN
agriculture). Therefore, internally it would also reinforce the protection of workers in the
Union alongside the existing social acquis and contribute to preventing and tackling abuses
within and across Member States.
Thus, this Directive will complement the EU’s regulatory environment that currently does not
include an Union-wide transparent and predictable framework that helps EU companies in all
sectors of the economy to assess and manage sustainability risks and impacts with respect to
the core human rights and environmental risks, including across their value chains.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
Legal basis
The proposal is based on Article 50 and Article 114 of the Treaty on the Functioning of the
European Union (TFEU).
Article 50(1) TFEU and in particular Article 50(2)(g) TFEU provide for the EU competence
to act in order to attain freedom of establishment as regards a particular activity, in particular
“by coordinating to the necessary extent the safeguards which, for the protection of the
interests of members and others, are required by Member States of companies or forms within
the meaning of the second paragraph of Article 54 TFEU with a view to making such
safeguards equivalent throughout the Union”. An example of this can be coordination
measures concerning the protection of interests of companies’ shareholders and other
stakeholders with a view to making such protection equivalent throughout the Union, where
disparities between national rules are such as to obstruct freedom of establishment41
. Recourse
to this provision is possible if the aim is to prevent the emergence of current or future
obstacles to the freedom of establishment resulting from the divergent development of
national laws. The emergence of such obstacles must be likely and the measure in question
must be designed to prevent them.42
This proposal regulates sustainability due diligence obligations of companies and at the same
time covers – to the extent linked to that due diligence – corporate directors’ duties and
corporate management systems to implement due diligence. Thus, the proposal concerns
processes and measures for the protection of the interests of members and stakeholders of the
companies. Several Member States have recently introduced legislation on sustainability due
diligence,43
while others are in the process of legislating or considering action44
. Also, an
increasing number of Member States have recently been regulating the matter by requiring
directors to take into account the company’s external impacts45
, prioritize the interests of
41
It is recalled that as regards corporate governance measures, the EU has already legislated based on the
same legal basis, e.g. Shareholders Rights Directives I and II.
42
See e.g. Case C 380/03 Germany v Parliament and Council [2006] ECR I-11573, paragraph 38 and the
case-law cited.
43
See footnote 3. As regards EEA countries, Norway has adopted due diligence legislation.
44
Austria, Belgium, Denmark, Finland, Italy, Luxembourg, the Netherlands (regarding broader legislation
on responsible business conduct). There are civil society campaigns in favour of introducing due
diligence legislation ongoing in Ireland, Spain and Sweden. Annex 8 of the Impact Assessment
accompanying this proposal provides a detailed overview on Member State/EEA laws and initiatives.
45
French Loi Pacte.
EN 11 EN
stakeholders in their decisions46
, or adopt a policy statement on the company’s human rights
strategy47
. New and emerging laws on due diligence are considerably different in the Union
despite the intention of all the Member States to build on existing international standards (UN
Guiding Principles on Business and Human Rights OECD Responsible Business Conduct
standards) and thus lead to diverging requirements. Certain Member States have adopted, or
are likely to adopt, legislation that is limited to specific sustainability concerns in value
chains.48
Personal scope, substantive due diligence requirements, enforcement regimes and
related directors’ duties diverge and may do so even more in the future.49
Other Member
States can be expected to decide not to legislate in this field. Significantly different
requirements among Member States thus create fragmentation of the internal market. This
fragmentation is likely to increase over time.
This fragmentation also risks leading to an uneven playing field for companies within the
internal market. First, companies and their directors – in particular of those which have cross-
border value chains – are already subject to differing requirements and will likely be subject
to even more differing requirements depending on where their registered seat is located. This
creates distortions of competition. Besides, depending on how they structure their operations
in the internal market, some companies may simultaneously fall within the scope of two or
more different national legal frameworks dealing with sustainable corporate governance.50
This could lead to duplication of requirements, difficulties in complying, lack of legal
certainty for companies, and even mutually incompatible parallel legal requirements.
Inversely, some companies may not fall within the scope of any national framework for the
mere reason that they do not have links relevant under national law with the jurisdiction of a
Member State that has due diligence rules in place and thereby gaining an advantage over
their competitors.
The proposed act is designed to prevent and remove such obstacles to free movement and
distortions of competition by harmonising the requirements for companies to carry out due
diligence in their own operation, subsidiaries and value chains and related directors’ duties.
They will lead to a level playing field where companies of similar size and their directors are
subject to the same requirements for integrating sustainable corporate governance and
corporate due diligence measures in their internal management systems and thereby protecting
the interests of the company’s stakeholders in a similar way. Harmonised conditions would be
beneficial for cross-border establishment including company operations and also investments,
since it would facilitate comparison of corporate sustainability requirements and make
engagement easier and thus less costly.
46
For example the Netherlands.
47
See the German Sorgfaltspflichtengesetz).
48
For instance, the Dutch law referred to above sets up horizontal mandatory due diligence for child
labour concerns through the whole value chain. In Austria, a political party referred a draft bill on social
responsibility regarding forced and child labour in the garment sector.
49
The French Loi relative au devoir de vigilance and the German Sorgfaltspflichtengesetz differ
considerably in terms of personal scope material requirements and enforcement regime.
50
For instance, pursuant to the German Sorgfaltspflichtengesetz, any company with a branch office and at
least 3000 employees in Germany (1000 as from 2024) fall within the scope of the law.
EN 12 EN
Article 50 TFEU is lex specialis for measures adopted in order to attain freedom of
establishment. Among the proposed measures, those concerning companies’ corporate
governance fall under this legal basis, in particular integrating due diligence into companies’
policies, measures on companies’ plan to ensure that the business model and strategy are
compatible with the transition to a sustainable economy and with the limiting of global
warming to 1.5 °C in line with the Paris Agreement, and related remuneration measures, as
well as provisions on directors’ duty of care, and directors’ duties concerning setting up and
overseeing due diligence.
In order to address the described internal market barriers comprehensively, Article 50 TFEU
is here combined with the general provision of Article 114 TFEU. Article 114 TFEU provides
for the adoption of measures for the approximation of the provisions laid down by law,
regulation or administrative action in Member States which have as their object the
establishment and functioning of the internal market. The Union legislature may have
recourse to Article 114 TFEU in particular where disparities between national rules are such
as to obstruct the fundamental freedoms or create distortions of competition and thus have a
direct effect on the functioning of the internal market.
As set out above, the differences between national rules on sustainable corporate governance
and due diligence obligations have a direct impact on the functioning of the internal market,
and that impact is likely to increase in the future. Beyond the matters regulated in Article 50
TFEU, this act concerns other areas of the establishment and functioning of the internal
market. Notably, in the absence of action by the Union legislator, the production and
movement of goods and services would be skewed to the benefit of jurisdictions with no due
diligence regimes or with less demanding regimes, or companies established in such
jurisdictions, substantially impacting the flow of goods and services. Moreover, companies
supplying goods or services, in particular SMEs, will be confronted with diverging rules and
expectations from customers located in different Member States. For instance, whilst one
Member State law may require the supplier to carry out third-party audits, another Member
State may require the same supplier to participate in a recognised industry schemes and multi-
stakeholder initiatives. One Member State may require the company to carry out due diligence
in relation to established business relationships whilst the other Member State may cover the
direct suppliers only. This would lead to a multiplication of different partially incompatible
requirements distorting the free flow of goods and services in the Union.
It is foreseeable that these distortions and impacts would become more serious with time as
more and more Member States will adopt diverging national laws or may even lead to a race
to the bottom in forthcoming due diligence legislations.
Distortions are also relevant for civil liability in case of harm caused in a company’s value
chain. Some national legal frameworks on due diligence include an express civil liability
regime linked to the failure to execute due diligence, while others expressly exclude a specific
civil liability regime.51
A number of companies have been brought before courts for causing
51
The French Loi relative au devoir de vigilance includes a provision on civil liability. The German
Sorgfaltspflichtengesetz clarifies that a violation of an obligation under the law does not give rise to any
civil liability while general liability rules remain unaffected. Moreover national civil liability
legislations are not harmonized.
EN 13 EN
or failing to prevent adverse impacts at the level of their subsidiaries or value chains. Such
cases are decided based on differing rules today. In the absence of common rules, divergent
national liability regimes may lead to different outcomes depending on whether there is
ownership control (as regards subsidiaries) or factual control (either through direct contracts
or where control could be exercised by the company through contractual cascading or other
leverage in indirect business relationships). This fragmentation would lead to distortions of
competition in the internal market as a company located in one Member State would be
subject to damages claims due to harm caused in its value chain whilst a company with the
same value chain would be exempt from this financial and reputational risk because of
diverging national rules.
The proposed civil liability regime would clarify which rules apply in case harm occurs in a
company’s own operation, at the level of its subsidiaries and at the level of direct and indirect
business relations in the value chain. In addition, the proposed provision on applicable law
serves the purpose of ensuring application of the harmonised rules, including on civil liability,
also in cases where otherwise the law applicable to such claim is not the law of a Member
State. It will therefore be essential to ensure the necessary level-playing field.
Subsidiarity
First, Member States’ legislation alone in the area is unlikely to be sufficient and efficient. As
regards specific transboundary problems, such as pollution, climate change, biodiversity etc.
individual action is hampered in case of inaction by other Member States. The achievement of
international commitments such as the goals of the UNFCCC52
’s Paris Agreement on climate
change, the Convention on Biological Diversity, as well as other multilateral environmental
agreements by individual Member State action alone is unlikely. Furthermore, risks resulting
from adverse human rights and environment impacts present in companies’ value chains have
often cross-border effects (e.g. pollution, transnational supply and value chains).
Second, many companies are operating EU-wide or globally; value chains expand to other
Union Member States and increasingly to third countries. Institutional investors which invest
across the borders own a large part (38%53
) of the total market capitalisation of large
European listed companies, therefore many companies have cross-border ownership and their
operations are influenced by regulations in some countries or lack of action in others. This is
one of the reasons why frontrunner companies arguably are reluctant to do a further steps in
addressing sustainability issues including those in the value chains today54
and ask for a cross-
border level playing field.
Third, companies operating across the internal market and beyond need legal certainty and a
level-playing field for their sustainable growth. Some Member States have recently
introduced legislation on due diligence55
, while others are in the process of legislating or
52
United Nations Framework Convention on Climate Change
53
This number comes from the Impact Assessment of the Shareholders Rights Directive II.
54
E.g. food producer Danone has recently been forced to cut costs by investors on grounds of lack of
short-term profitability, see article Can Anglo-Saxon activist investors whip Danone into shape?,
available at https://www.economist.com/business/2021/02/20/can-anglo-saxon-activist-investors-whip-
danone-into-shape.
55
See footnote 3.
EN 14 EN
considering action56
. Existing Member State rules and those under preparation already have,
and would further lead to diverging requirements, which risks being inefficient and leading to
an uneven playing field. There are considerable indirect effects of diverging due diligence
laws on the suppliers that supply to different companies falling under different laws, as the
obligations are in practice translated into contractual clauses. If due diligence requirements
are significantly different among Member States, this creates legal uncertainty, fragmentation
of the Single market, additional costs and complexity for companies and their investors
operating across borders as well as other stakeholders. EU action can avoid this and therefore
has added value.
Finally, compared to individual action by Member States, EU intervention can ensure a strong
European voice in policy developments at the global level57
.
Proportionality
The burden on companies stemming from compliance costs, has been adapted to the size,
resources available, and the risk profile. Companies will only have to take appropriate
measures that are commensurate with the degree of severity and the likelihood of the adverse
impact, and reasonably available to the company, taking into account the circumstances of the
specific case, including characteristics of the economic sector and of the specific business
relationship and the company’s influence thereof, and the need to ensure prioritisation of
action. For that purpose the material and personal scope, and the enforcement provisions were
restricted as further explained below.
As regards the “personal scope” of the due diligence obligations (i.e. which business
categories are covered), small and medium sized enterprises (SMEs) that include micro
companies and overall account for around 99 % of all companies in the Union, are excluded
from the due diligence duty. For this category of companies, the financial and administrative
burden of setting up and implementing a due diligence process would be relatively high. For
the most part, they do not have pre-existing due diligence mechanisms in place, they have no
know-how, specialised personnel, and the cost of carrying out due diligence would impact
them disproportionately. They will, however, be exposed to some of the costs and burden
through business relationships with companies in scope as large companies are expected to
pass on demands to their suppliers. Hence, supporting measures will be necessary to help
SMEs build operational and financial capacity. Companies whose business partner is an SME,
are also required to support them in fulfilling the due diligence requirements, in case such
requirements would jeopardize the viability of the SME. Moreover, the value chain of the
financial sector does not cover SMEs that are receiving loan, credit, financing, insurance or
reinsurance. At the same time, exposure of an individual SME to adverse sustainability
impacts will as a general rule be lower than the exposure of larger companies. Therefore, very
56
See footnote 44.
57
In 2014, the UN Human Rights Council decided to establish an open-ended intergovernmental working
group (OEIGWG) on transnational corporations and other business enterprises with respect to human
rights, whose mandate shall be to elaborate an international legally binding instrument (LBI) to
regulate, in international human rights law, the activities of transnational corporations and other
business enterprises. In 2021, the OEIGWG released a third revised draft LBI on business activities and
human rights, including due diligence measures and corporate liability for human rights abuses.
EN 15 EN
large companies58
will be within the scope of the full due diligence obligation, also because
many of them already have certain processes in place e.g. because of reporting obligations. In
particular, the selected turnover criteria will filter those having the largest impact on the
Union economy. Moreover, this Directive lays down measures to limit the passing on of the
burden from those large companies to the smaller suppliers in the value chain and to use fair,
reasonable, non-discriminatory and proportionate requirements vis-a-vis SMEs.
As far as companies with lower turnover and less employees59
are concerned, the due
diligence obligation is limited to those companies active in particularly high-impact sectors
that are at the same time covered by existing sectoral OECD guidance60
. Moreover, despite
the fact that OECD guidance covers the financial sector, it is not included in the high- impact
sectors due to its specificities. This limitation aims to create a balance between the interest in
achieving the goals of the Directive and the interest in minimising the financial and
administrative burden on companies. The due diligence obligation for these companies will be
simplified as they would only focus on severe adverse impacts that are relevant for their
sector. Moreover, the due diligence obligation will apply to them only 2 years after the end of
the transposition period for this Directive allowing to establish the necessary processes and
procedures and benefit from industry cooperation, technological developments, standards, etc.
that are likely to be prompted by the earlier implementation date for larger companies.
To the extent that this Directive also covers third-country companies, the criteria used for
defining the scope of EU and non-EU companies covered are not the same, but ensure that
third country companies are not more likely to fall within the scope. For them, a net turnover
threshold is used (EUR 150 million for group 1 and EUR 40 million for group 2), but all of
this turnover needs to be generated in the Union. EU companies, in turn, have to have a net
turnover of EUR 150 million generated worldwide and have to fulfil an employee criterion as
well (above 500 employees in group 1 and above 250 employees in group 2). Such difference
in the criteria used is justified for the following reasons:
– The EU turnover criterion for third-country companies creates a link to the EU.
Including only turnover generated in the Union is justified since such a threshold,
appropriately calibrated, creates a territorial connection between the third-country
companies and the Union by the effects that the activities of these companies may
have on the EU internal market, which is sufficient for the Union law to apply to
third-country companies.
– Also, the Country-by-Country Reporting Directive – an amendment to the
Accounting Directive – has already established the methods for calculating net
turnover for non-EU companies, while such methodology does not exist for
58
Large limited liability companies with more than 500 employees and a net turnover of more than EUR
150 million.
59
Large limited liability companies with more than 250 employees and a net turnover of more than EUR
40 million but not simultaneously exceeding both the 500 employee and the net turnover EUR
150 million net turnover thresholds, as well as third-country companies of a comparable legal form with
a net EU turnover of EUR 40 to 150 million.
60
The OECD developed such sectoral guidance in order to promote the effective observance of OECD
Guidelines on Multinational Enterprises. See the list of sectoral guidance documents at:
http://mneguidelines.oecd.org/sectors/.
EN 16 EN
calculating the number of employees of third-country companies. The experience
with the French law regulating due diligence shows that, in the absence of a common
definition of an employee61
, the number of employees (worldwide) is difficult to
calculate, which hinders the identification of which third-country companies are
covered by the scope, preventing effective enforcement of the rules.
– Using both employee and turnover criteria for EU companies would ensure better
alignment with the proposal for a Corporate Sustainability reporting Directive which
should be used for the reporting of due diligence measures and policy for EU
companies.
– While the Directive will cover about 13 000 EU companies62
, based on the
estimations of the Commission, it will only cover about 4 000 third-country
companies63
. The fact that EU companies will only be covered if they also reach the
minimum limit on the number of employees is very unlikely to change the conditions
of competition in the EU internal market: the two size criteria applicable to EU
companies, even if cumulative, will result in still covering relatively smaller
companies compared to non-EU companies due to the fact that, in their case, the
entire worldwide net turnover of the company is to be taken into account.
Finally, large third-country companies having a high turnover in the Union have the capacity
to implement due diligence and will benefit from the advantages coming with due diligence
also in their operations elsewhere. In all other aspects, third-country companies are covered
by the due diligence rules the same way as their EU counterparts (for example as regards the
regime applicable to companies operating in high-impact sectors and identical phase in period
for those companies). The harmonisation of the duties of directors is limited to EU companies
only, thus third-country companies will have more restricted obligations.
The “material scope” is focused and structured mainly upon the corporate due diligence
obligation and covers human rights and those environmental adverse impacts that can be
clearly defined in selected international conventions. Directors’ duties proposed ensure a
close link with the due diligence obligations and are thus necessary for the due diligence to be
effective. Directors’ duties also include the clarification of how directors are expected to
comply with the duty of care to act in the best interest of the company.
Effective enforcement of the due diligence duty is key to achieving the objectives of the
initiative. This Directive will provide for a combination of sanctions and civil liability.
As regards private enforcement through civil liability, a different approach is used regarding
the company`s own operations and its subsidiaries on the one hand and regarding business
relations on the other hand. In particular, civil liability concerns only established business
relationships with which a company expects to have a lasting relationship, in view of its
61
For the Union see for example Article 5 of the Commission Recommendation of 6 May 2003
concerning the definition of micro, small and medium-sized companies (2003/361/EC) (OJ L 124,
20.5.2003, p. 36).
62
In group 1: 9 400 companies, in group 2: 3 400 companies.
63
In group 1: 2 600 companies, in group 2: 1 400 companies. The methodology used for calculating the
number of third-country companies is explained in the accompanying Staff Working Document.
EN 17 EN
intensity or duration and which does not represent a negligible or merely ancillary part of the
company`s value chain. The company should not be liable for failing to prevent or cease harm
at the level of indirect business relationships if it used contractual cascading and assurance
and put in place measures to verify compliance with it, unless it was unreasonable, in the
circumstances of the case, to expect that the action actually taken, including as regards
verifying compliance, would be adequate to prevent, mitigate, bring to an end or minimise the
extent of the adverse impact. In addition, in the assessment of the existence and extent of
liability, due account is to be taken of the company’s efforts, insofar as they relate directly to
the damage in question, to comply with any remedial action required of them by a supervisory
authority, any investments made and any targeted support provided as well as any
collaboration with other entities to address adverse impacts in its value chains.
This approach to civil liability will also limit the risk of excessive litigation.
The measures related to public enforcement of the due diligence duty do not go beyond what
is necessary. This Directive clarifies that any sanction imposed due to non-compliance with
the due diligence obligations has to be proportionate. If the public authorities that investigate
the company’s compliance with this Directive identify a failure to comply they should first
grant the company an appropriate period of time to take remedial action. The Directive
outlines a limited number of sanctions that should apply in all Member States but leaves it to
the Member States to ensure a proportionate enforcement process, in line with their national
law. When pecuniary sanctions are imposed, they shall be based on the company’s turnover to
ensure their proportionate level.
Furthermore, this Directive does not entail unnecessary costs for the Union, national
governments, regional or local authorities. The Directive will leave it up to the Member States
how to organise enforcement. Supervision can be carried out by existing authorities. To
reduce the costs (for instance when supervising third-country companies active in various
Member States) and improve the supervision, coordination, investigation and exchange of
information the Commission will set up a European Network of Supervisory Authorities.
This Directive allows for company cooperation, use of industrial schemes and multi-
stakeholder initiatives to reduce the cost of compliance for the companies with this Directive.
Choice of the instrument
The proposed instrument is a Directive, since Article 50 TFEU is the legal basis for company
law legislation regarding the protection of the interests of companies’ members and others
with a view to making such protection equivalent throughout the Union. Article 50 TFEU
requires the European Parliament and the Council to act by means of directives.
The Commission shall adopt delegated acts laying down the criteria for the reporting by third
country companies on due diligence.
In order to provide support to companies and to Member State authorities on how companies
should fulfil their due diligence obligations, the Commission, where necessary in consultation
with relevant European bodies, international bodies having expertise in due diligence
implementation, and others, may issue guidelines. Guidelines may also be used to outline
non-binding model contractual clauses that companies can use when cascading the obligation
in their value chain.
In addition, the Commission may put in place other supporting measures building on existing
EU actions and tools to support due diligence implementation within the Union and in third
countries, including facilitation of joint stakeholder initiatives to help companies fulfil their
obligations and support SMEs impacted by this Directive in other ways. This may be further
complemented by EU development cooperation instruments to support third country
EN 18 EN
governments and upstream economic operators in third countries addressing adverse human
rights and environmental impacts of their operations and upstream business relationships.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER
CONSULTATIONS AND IMPACT ASSESSMENTS
Stakeholder consultations
In line with the better regulation guidelines, several consultation activities have taken place:
– The inception impact assessment (roadmap), which received 114 feedbacks;
– The open public consultation64
, which received 473 461 responses and 122.785
citizen signatures, the vast majority of which were submitted through campaigns
using pre-filled questionnaires, and 149 position papers;
– A dedicated consultation of social partners;
– A number of stakeholder workshops and meetings, e.g. meeting of the Informal
Company Law Expert Group, mainly composed of company law legal academics
(ICLEG), meeting with Member State representatives in the Company Law Expert
Group (CLEG); and
– Conferences and meetings with business associations, individual businesses,
including Small and Medium-sized Enterprises (SMEs) representatives, civil society,
including non-governmental and not-for-profit organisations, as well as international
organisations, such as OECD.
Overall, the consultation activities showed that there is generally a wide acknowledgement
among stakeholders of the need for an EU legal framework for due diligence.65
In particular,
large companies across the board asked for greater harmonisation in the area of due diligence
to improve legal certainty and create a level playing field. Citizens and civil society
associations perceived the current regulatory framework as ineffective to ensure corporate
accountability for negative impacts on the human rights and environment.
A vast majority of respondents to the open public consultation, including most participating
Member States, were in favour of a horizontal approach to due diligence over a sector-specific
or thematic approach66
. Companies indicated that they feared the risk of competitive
disadvantages vis-à-vis third-country companies that do not have the same duties.
Accordingly, most respondents agreed that due diligence rules should also apply to third-
64
Summary of the open public consultation for the initiative on sustainable corporate governance,
available at https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12548-Sustainable-
corporate-governance/public-consultation_en.
65
For instance, in response to the open public consultation, NGOs supported the need for action with
95.9%, companies with 68.4% (large companies with 75.5%, SMEs with 58.7 %) and business
associations with 59.6 %.
66
While 97.2% of NGOs preferred a horizontal approach, overall companies did so with 86.8%, including
SMEs (81.8%), as well as business association (85.3%). This is true also for Member States
respondents.
EN 19 EN
country companies which are not established in the EU but carry out activities of a certain
scale in the EU67
.
Regarding an enforcement mechanism accompanying a mandatory due diligence duty, all
stakeholder groups responding to the open public consultation indicated by a majority that
supervision by competent national authorities with a mechanism of EU
cooperation/coordination is the most suited option.68
A majority of respondents in all stakeholder groups considered binding rules with targets to
be the option entailing the most costs, but also the most benefits overall. Although most
respondents saw the positive impact on third countries, a subset of respondents fear a potential
negative impact of due diligence rules on third countries if companies investing in third
countries with weak human rights, including social and labour, and environmental protection,
would have to withdraw from these countries.
Detailed information on the consultation strategy and conclusions of the stakeholder
consultations can be found in Annex 2 of the impact assessment report.
Collection and use of expertise
To support the analysis of the different options, the Commission awarded support contracts to
external experts for a study on due diligence requirements through the supply chain69
and for
a study on directors’ duties and sustainable corporate governance70
. These experts worked in
close cooperation with the Commission throughout the different phases of the study.
Besides these support studies, additional expertise was identified through literature research
and through the stakeholder consultation responses.
Alongside the above-mentioned support studies, expert group meetings, and stakeholder
consultations, the Commission also paid close attention to the relevant European Parliament
resolution and to the Council Conclusions. The European Parliament resolution of 10 March
2021 provided recommendations to the Commission on corporate due diligence and corporate
accountability, calling upon the Commission to propose EU rules for a comprehensive
corporate due diligence obligation. The Council Conclusions on Human Rights and Decent
Work in Global Supply Chains of 1 December 2020 called upon the Commission to table a
proposal for an EU legal framework on sustainable corporate governance, including cross-
sector corporate due diligence obligations along global value chains.
Impact assessment
The analysis in the impact assessment addressed in a broad sense the problem arising from the
need to reinforce sustainability in corporate governance and management systems, with two
67
97 % of respondents agreed to this statement (NGOs 96.1%, business associations 96.5%, companies
93.8%, including SMEs 86.4%). All Member State respondents agree with this statement as well.
68
It was followed by the option of judicial enforcement with liability (49%) and supervision by competent
national authorities based on complaints about non-compliance with effective sanctions (44%).
69
See reference in footnote 8.
70
European Commission, Directorate-General for Justice and Consumers, Study on directors’ duties and
sustainable corporate governance: final report, Publications Office, 2020,
https://data.europa.eu/doi/10.2838/472901. https://data.europa.eu/doi/10.2838/472901.
EN 20 EN
dimensions: (1) stakeholder interests and stakeholder-related (sustainability) risks to
companies are not sufficiently taken into account in corporate risk management systems and
decisions; (2) companies do not sufficiently mitigate their adverse human rights and
environmental impacts, do not have adequate governance, management systems and measures
to mitigate their harmful impacts.
After consideration of different policy options mainly in the areas of corporate due diligence
duty and directors’ duties, the impact assessment proposed a preferred package of policy
options across three elements: corporate due diligence, directors’ duties and remuneration,
which complement each other.
The draft impact assessment was submitted to the Commission’s Regulatory Scrutiny Board
on 9 April 2021. Following the negative opinion by the Board, a revised impact assessment
was submitted to the Board for a second opinion on 8 November 2021. While noting the
significant revision of the report in response to the Board`s first opinion, the Board
nevertheless issued a second negative opinion on 26 November 202171
, which underlined the
need for political guidance on whether, and under which conditions, the sustainable corporate
governance initiative could proceed further. The Board maintained its negative opinion
because it considered that the impact assessment report did not sufficiently (1) address the
problem description and provide convincing evidence that EU businesses, in particular SMEs,
do not already sufficiently reflect sustainability aspects or do not have sufficient incentives to
do so; (2) present a scope of policy options and identify or fully assess key policy choices; (3)
assess the impacts in a complete, balanced and neutral way and reflect uncertainty related to
the realisation of benefits, and (4) demonstrate the proportionality of the preferred option.
Therefore, in order to address the comments of the Board’s second negative opinion, the
impact assessment is complemented by a staff working document on the follow-up of the
Board’s opinion that provides additional clarifications and evidence on the areas where the
Board had provided specific suggestions of improvements.
According to the Commission’s Better Regulation rules a positive opinion from the
Regulatory Scrutiny board is required for a file to proceed to the adoption stage. However, the
Vice President for Inter-Institutional Relations and Foresight can allow for the continuation of
the preparations for an initiative that has been subject to a second negative opinion by the
Regulatory Scrutiny Board. It is important to flag that the opinions of the Regulatory scrutiny
Board are an assessment of the quality of the impact assessment and not an assessment of the
related legislative proposal.
The Commission, also in the light of the agreement by the Vice-President for Inter-
Institutional Relations and Foresight, has considered it opportune to proceed with the
initiative for the following reasons:
– the political importance of this initiative for the Commission’s political priority of
“An economy that works for people”, including within the context of the Sustainable
Finance package and the European Green Deal and
71
SEC(2022)95
EN 21 EN
– the urgency of action in the field of value chain due diligence as contribution to the
sustainability transition, and to address the risk of the increasing Single market
fragmentation, as well as the view that
– the additional clarification and evidence provided satisfactorily addressed the
shortcomings of the impact assessment identified by the Regulatory Scrutiny Board
and were considered in the adapted legal proposal.
With regard to its importance and urgency, the Commission also took note that the initiative
was included in the Joint Political Priorities for 2022 by the European Parliament, the Council
and the Commission.
After careful analysis of the Board’s findings and considering the reflections on the additional
clarifications and evidence provided, the Commission considers that the proposal, which has
been significantly revised as compared to the package of policy options put forward by the
impact assessment, allows still to decisively move forward towards the overall objective to
better exploit the potential of the single market to contribute to the transition to a sustainable
economy and to foster long-term sustainable and responsible corporate behaviour. The
Directive is more focused and targeted compared to the preferred option outlined in the draft
impact assessment. The core of it is the due diligence obligation, while significantly reducing
directors’ duties by linking them closely to the due diligence obligation. In addition, the scope
of due diligence is adapted. A detailed description of the adaptations made to the preferred
option package of the impact assessment can be found in the accompanying Staff Working
Document that presents the follow-up to the opinion of the Regulatory Scrutiny Board and
additional information.
In short, the “personal scope” i.e. which business categories are covered has been
significantly reduced following reflections triggered by the Board’s comments on the problem
description, in particular with regard to SMEs, and on the proportionality of the preferred
option. Concretely, SMEs have been completely excluded, from the scope, and the coverage
of high-impact sectors has been shifted only to companies having more than 250 employees
and more than EUR 40 million worldwide net turnover (while large companies which
simultaneously exceed both the 500 employee and the EUR 150 million worldwide net
turnover limits are covered by the scope irrespective of their sectors of economic activities.
The high-impact sectors are directly defined in the text, thus also reflecting on the Board’s
comments as regards legislative technique. The definition of high-impact sectors has been
limited to sectors with high risk of adverse impacts and for which OECD guidance exists. For
midcap companies in high-impact sectors, the rules will start to apply after a transition period
of two years to allow for a longer adaptation period. In addition, the due diligence obligations
of these companies are limited only to severe impacts relevant for their sector.
To reach the objectives of the initiative effectively, the scope of this proposal extends to
companies from third countries. Only such non-EU companies are covered which have a
direct link to the Union market, and which meet the similar turnover threshold as EU
companies but within Union market. Furthermore, they will face the same obligations
regarding due diligence as the respective EU companies.
The Directive also indicates that accessible and practical support is necessary for companies,
in particular SMEs in the value chain, to prepare for the obligations (or the consequent
demands the may be passed on to them indirectly). This could include practical guidance and
supporting tools such as hotlines, databases or training, as well as the setup of an observatory
to help companies with the implementation of the Directive. Moreover, the review clause
makes explicit reference to the personal scope of the Directive (i.e. coverage of business
categories), which should be reviewed in light of the practical experiences with the
EN 22 EN
application of the legislation. Other mitigation measures to reduce indirect impact on the
SMEs are part of the obligations of companies in the scope of this Directive.
As regards the material scope (i.e. what is covered), a cross-cutting instrument covering
human rights and environmental impacts has been retained. This reflects the strong consensus
amongst stakeholder groups that a horizontal framework is necessary to address the identified
problems.
Furthermore, the Board commented that the impact assessment is not sufficiently clear about
the need to regulate directors’ duties on top of due diligence requirements. The Commission
therefore decided to address this issue by deviating from the preferred options’ package in the
impact assessment and focussing on the directors’ duties element, in light also of the existing
international standards72
, on due diligence and duty of care. This encompasses directors’
duties relating to the setting up and overseeing the implementation of corporate due diligence
processes and measures, establishing code of conduct for this purpose as well as integrating
due diligence into the corporate strategy. In order to fully reflect the role of directors in light
of the corporate due diligence obligations, the directors’ general duty of care for the company,
which is present in the company law of all Member States, is also being clarified providing
that when fulfilling their duty to act in the best interest of the company, directors should take
into account the sustainability matters of the proposal for a corporate sustainability reporting
Directive, including, where applicable, human rights, climate change and environmental
consequences, including in the short, medium and long term horizons. Further reaching
specific directors’ duties that had been put forward in the impact assessment are not retained.
This will ensure that the proposal delivers on its objective while remaining proportionate.
With regard to comments of the Board, this Explanatory Memorandum as well as the recitals
of the legislative proposal contain comprehensive explanations of the policy choices made.
While the impact assessment submitted to the Board and the Board’s opinion have been
published unchanged, a separate accompanying Staff Working Document has been prepared
to provide additional evidence and clarifications that follows up on the Board’s remarks
including as regards evidence. This document addresses in particular the following:
1. Problem description:
– the scale and evolution of the environmental and sustainability problems directly
linked to the apparent absence or insufficient use of corporate sustainability
management practices by EU companies to be tackled by this Directive and the
added value of the Directive in relation to the comprehensive package of measures to
promote sustainability under the Green Deal;
– why the market and competitive dynamics together with the further evolution of
companies’ corporate strategies and risk management systems are considered
insufficient and as regards the assumed causal link between using corporate
sustainability tools and their practical effect in tackling the problems;
2. Impacts of the preferred option:
72
See footnote 6.
EN 23 EN
– issues related to third countries, integrating observations (i) on expected
developments in third countries (including taking into account EU and international
trade and development support measures), (ii) on impacts on third countries and on
suppliers in third countries;
– the enforcement mechanism, further expanding on the added value of a two-pillar
enforcement system that builds on administrative enforcement and civil liability;
– impacts on competition and competitiveness.
Regulatory fitness and simplification
Small and medium-sized enterprises, including micro enterprises are not included in the scope
and indirect effects on them will be mitigated through supporting measures and guidelines at
Union and Member State level as well in business to business relations with the use of model
contractual clauses and by proportionality requirements for the larger business partner.
Fundamental rights
As explained in the impact assessment and based on existing evidence, mandatory due
diligence requirements can have significant benefits for the protection and promotion of
fundamental rights.
4. BUDGETARY IMPLICATIONS
There are no direct implications to the Union budget.
5. OTHER ELEMENTS
Implementation plans and monitoring, evaluation and reporting arrangements
The Commission will set up a European Network of Supervisory Authorities to help with the
implementation of this Directive. Such Network will be composed by the representatives of
the supervisory authorities designated by the Member States and where necessary joined by
other Union agencies with relevant expertise in the areas covered by this Directive, to ensure
compliance by the companies of their due diligence obligations, in order to facilitate and
ensure the coordination and convergence of regulatory, investigative, sanctioning and
supervisory practices, and the sharing of information among these supervisory authorities.
After seven years following the end of the transposition period, the Commission shall report
on the implementation of this Directive, including, among other aspects, its effectiveness. The
report shall be accompanied, if appropriate, by a legislative proposal.
In order to provide clarity and support to companies and Member States with the
implementation of the directive, the Commission will issue guidance, where necessary.
Explanatory documents
To ensure the proper implementation of this Directive, the explanatory document, e.g. in the
form of correlation tables would be necessary.
Detailed explanation of the specific provisions of the proposal
Article 1 sets out the subject matter of the Directive, i.e. laying down rules on obligations of
due diligence by companies regarding actual and potential human rights and environmental
adverse impacts, with respect to their own operations, the operations of their subsidiaries, and
the value chain operations carried out by established business relationships; the provision also
EN 24 EN
specifies that this Directive establishes rules on liability for violations of the due diligence
obligation.
Article 2 establishes the personal scope of application of the Directive and sets out the criteria
based on which a Member State is competent to regulate matters covered in this Directive.
Article 3 contains definitions for the purpose of this Directive.
Article 4 requires Member States to ensure that companies conduct human rights and
environmental due diligence by complying with the specific requirements listed in Articles 5
to 11 of the Directive.
Article 5 requires Member States to ensure that companies integrate due diligence into all
corporate policies and have in place a due diligence policy that is updated annually. The
provision specifies that this policy should include a description of the company’s approach to
due diligence, of a code of conduct to be followed by the company’s employees and
subsidiaries, of the processes put in place to implement due diligence.
Article 6 establishes the obligation for Member States to ensure that companies take
appropriate measures to identify actual or potential adverse human rights and environmental
impacts in their own operations, in their subsidiaries and at the level of their established direct
or indirect business relationships in their value chain.
Article 7 sets out the requirement for Member States to ensure that companies take
appropriate measures to prevent potential adverse impacts identified pursuant to Article 6, or
to adequately mitigate those impacts, where prevention is not possible or requires gradual
implementation.
Article 8 establishes the obligation for Member States to ensure that companies take
appropriate measures to bring to an end actual adverse human rights and environmental
impacts that they had or could have identified pursuant to Article 6. Where an adverse impact
that has occurred at the level of established direct or indirect established business
relationships cannot be brought to an end, Member States should ensure that companies
minimise the extent of the impact.
Article 9 sets out the obligation for Member States to ensure that companies provide for the
possibility to submit complaints to the company in case of legitimate concerns regarding those
potential or actual adverse impacts, including in the company’s value chain. Companies are
required to grant this possibility to persons who are affected or have reasonable grounds to
believe that they might be affected by an adverse impact, to trade unions and other workers’
representatives representing individuals working in the value chain concerned, and to civil
society organisations active in the area concerned.
Article 10 introduces the obligation for Member States to require companies to periodically
assess the implementation of their due diligence measures in order to verify that adverse
impacts are properly identified and that preventive or corrective measures are implemented,
and to determine the extent to which adverse impacts have been prevented or brought to an
end or their extent minimised.
Article 11 establishes the obligation for Member States to ensure that companies that are not
subject to reporting requirements under Directive 2013/34/EU report on the matters covered
by this Directive and publish an annual statement on their website.
Article 12 sets out the obligation for the Commission to adopt guidance about non-binding
model contract clauses to help companies comply with Article 7(2), point (b), and Article 8(3)
point (c).
EN 25 EN
Article 13 sets out the possibility for the Commission, in order to provide support to
companies or to Member State authorities on how companies should fulfil their due diligence
obligations, to issue guidelines, for specific sectors or specific adverse impacts, in
consultation with the European Union Agency for Fundamental Rights, the European
Environment Agency, and where appropriate with international bodies having expertise in due
diligence.
Article 14 requires the Member States and Commission to provide accompanying measures to
companies in the scope of this Directive actors and to actors along global value chains that are
indirectly impacted by the obligations of the Directive. Such support can range from the
operation of dedicated websites, portals or platforms to financial support to SMEs, and
facilitation of joint stakeholder initiatives. This provision further clarifies that companies may
rely on industry schemes and multi-stakeholder initiatives to support the implementation of
due diligence and that the Commission, in collaboration with Member States, may issue
guidance for assessing the fitness of such schemes.
Article 15 requires the Member States ensure that certain companies adopt a plan to ensure
that the business model and strategy of the company are compatible with the transition to a
sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris
Agreement.
Article 16 introduces the requirement for companies formed in accordance with the legislation
of a third country and falling within the scope of application of the present Directive pursuant
to Article 2(2), to designate a sufficiently mandated authorised representative in the Union to
be addressed by Member States’ competent authorities, on all issues necessary for the receipt
of, compliance with and enforcement of legal acts issued in relation to this Directive.
Article 17 sets out the requirement for Member States to designate one or more national
supervisory authorities in order to ensure compliance by companies with their due diligence
obligations and their obligation under Article 15(1) and (2) and to exercise the powers of
enforcement of those obligations in accordance with Article 18.
Article 18 sets out the appropriate powers and resources of the supervisory authorities
designated by the Member States to carry out their tasks of supervision and enforcement.
Article 19 establishes the requirement for Member States to ensure that any natural or legal
person that has reasons to believe, on the basis of objective circumstances, that a company
does not appropriately comply with the provisions of this Directive, is entitled to submit
substantiated concerns, in particular in the Member State of his or her habitual residence,
registered office, place of work or place of the alleged infringement, to the supervisory
authorities.
Article 20 sets out that Member States shall lay down rules on sanctions applicable to
infringements of the national provisions adopted pursuant to this Directive, and shall take all
measures necessary to ensure that they are implemented. The sanctions shall be effective,
dissuasive and proportionate. Member States shall ensure that decision of the supervisory
authorities containing sanctions related to the breach of the provisions of this directive should
be published.
Article 21 introduces a European Network of Supervisory Authorities composed by the
representatives of the supervisory national authorities referred to in Article 16, with the aim to
facilitate and ensure the coordination and alignment of regulatory, investigative, sanctioning
and supervisory practices, and the sharing of information among these supervisory authorities.
Article 22 sets out the requirement for Member States to lay down rules governing the civil
liability of the company for damages arising due to its failure to comply with the due
EN 26 EN
diligence obligations under specific conditions. It also introduces the obligation for Member
States to ensure that the liability provided for in paragraphs 1 to 3 of this Article is not denied
on the sole ground that the law applicable to such claims is not the law of a Member State.
Article 23 establishes the application of Directive (EU) 2019/1937 of the European
Parliament and of the Council of 23 October 2019 on the protection of persons who report
breaches of Union law, to the reporting of all breaches of this Directive and the protection of
persons reporting such breaches.
Article 23 clarifies conditions of public support for companies.
Article 25 clarifies directors’ duty of care.
Article 26 lays down the duty for directors of EU companies to set up and oversee the
implementation of corporate sustainability due diligence processes and measures and to adapt
the corporate strategy to due diligence.
Article 27 amends the Annex of Directive (EU) No 2019/1937.
Article 28 sets out the rules concerning delegated acts.
Article 29 contains a provision on the review of this Directive.
Article 30 contains provisions on the transposition of the Directive.
Article 31 sets the date of when this Directive enters into force.
Article 32 sets out the addressees of this Directive.
The lists contained in the Annex specify the adverse environmental impacts and adverse
human rights impacts relevant for this Directive, to cover the violation of rights and
prohibitions including the international human rights agreements (Part I Section 1), human
rights and fundamental freedoms conventions (Part I Section 2), and the violation of
internationally recognised objectives and prohibitions included in the environmental
conventions (Part II).
EN 27 EN
2022/0051 (COD)
Proposal for a
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular
Article 50(1) and (2)(g) and Article 114 thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Having regard to the opinion of the European Economic and Social Committee73
,
Acting in accordance with the ordinary legislative procedure,
Whereas:
(1) The Union is founded on the respect for human dignity, freedom, democracy, equality,
the rule of law and respect for human rights as enshrined in the EU Charter of
Fundamental Rights. Those core values that have inspired the Union’s own creation, as
well as the universality and indivisibility of human rights, and respect for the principles
of the United Nations Charter and international law, should guide the Union’s action on
the international scene. Such action includes fostering the sustainable economic, social
and environmental development of developing countries.
(2) A high level of protection and improvement of the quality of the environment and
promoting European core values are among the priorities of the Union, as set out in the
Commission’s Communication on A European Green Deal74
. These objectives require the
involvement not only of the public authorities but also of private actors, in particular
companies.
73
OJ C , , p. .
74
Communication from the Commission to the European Parliament the European Council, the Council, the
European Economic and Social Committee and the Committee of the Region “The European Green Deal”
(COM/2019/640 final).
EN 28 EN
(3) In its Communication on a Strong Social Europe for Just Transition75
, the Commission
committed to upgrading Europe’s social market economy to achieve a just transition to
sustainability. This Directive will also contribute to the European Pillar of Social Rights,
which promotes rights ensuring fair working conditions. It forms part of the EU policies
and strategies relating to the promotion of decent work worldwide, including in global
value chains, as referred to in the Commission Communication on decent work
worldwide76
.
(4) The behaviour of companies across all sectors of the economy is key to success in the
Union’s sustainability objectives as Union companies, especially large ones, rely on
global value chains. It is also in the interest of companies to protect human rights and the
environment, in particular given the rising concern of consumers and investors regarding
these topics. Several initiatives fostering enterprises which support value-oriented
transformation already exist on Union77
, as well as national78
level.
(5) Existing international standards on responsible business conduct specify that companies
should protect human rights and set out how they should address the protection of the
environment across their operations and value chains. The United Nations Guiding
Principles on Business and Human Rights79
recognise the responsibility of companies to
exercise human rights due diligence by identifying, preventing and mitigating the adverse
impacts of their operations on human rights and by accounting for how they address those
impacts. Those Guiding Principles state that businesses should avoid infringing human
rights and should address adverse human rights impacts that they have caused,
contributed to or are linked with in their own operations, subsidiaries and through their
direct and indirect business relationships.
(6) The concept of human rights due diligence was specified and further developed in the
OECD Guidelines for Multinational Enterprises80
which extended the application of due
diligence to environmental and governance topics. The OECD Guidance on Responsible
75
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions – A Strong Social Europe for Just Transitions
(COM/2020/14 final).
76
Communication from the Commission to the European Parliament, the Council and the European
Economic and Social Committee on decent work worldwide for a global just transition and a sustainable
recovery, COM(2022) 66 final.
77
‘Enterprise Models and the EU agenda’, CEPS Policy Insights, No PI2021-02/ January 2021.
78
E.g. https://www.economie.gouv.fr/entreprises/societe-mission
79
United Nations’ “Guiding Principles on Business and Human Rights: Implementing the United Nations
‘Protect, Respect and Remedy’ Framework”, 2011, available at
https://www.ohchr.org/documents/publications/guidingprinciplesbusinesshr_en.pdf.
80
OECD Guidelines for Multinational Enterprises, 2011 updated edition, available at
http://mneguidelines.oecd.org/guidelines/.
EN 29 EN
Business Conduct and sectoral guidance81
are internationally recognised frameworks
setting out practical due diligence steps to help companies identify, prevent, mitigate and
account for how they address actual and potential impacts in their operations, value
chains and other business relationships. The concept of due diligence is also embedded in
the recommendations of the International Labour Organisation (ILO) Tripartite
Declaration of Principles concerning Multinational Enterprises and Social Policy.82
(7) The United Nations’ Sustainable Development Goals83
, adopted by all United Nations
Member States in 2015, include the objectives to promote sustained, inclusive and
sustainable economic growth. The Union has set itself the objective to deliver on the UN
Sustainable Development Goals. The private sector contributes to those aims.
(8) International agreements under the United Nations Framework Convention on Climate
Change, to which the Union and the Member States are parties, such as the Paris
Agreement84
and the recent Glasgow Climate Pact85
, set out precise avenues to address
climate change and keep global warming within 1.5 C degrees. Besides specific actions
being expected from all signatory Parties, the role of the private sector, in particular its
investment strategies, is considered central to achieve these objectives.
(9) In the European Climate Law86
, the Union also legally committed to becoming climate-
neutral by 2050 and to reducing emissions by at least 55% by 2030. Both these
commitments require changing the way in which companies produce and procure. The
Commission’s 2030 Climate Target Plan87
models various degrees of emission reductions
required from different economic sectors, though all need to see considerable reductions
under all scenarios for the Union to meet its climate objectives. The Plan also underlines
that “changes in corporate governance rules and practices, including on sustainable
finance, will make company owners and managers prioritise sustainability objectives in
their actions and strategies.” The 2019 Communication on the European Green Deal88
81
OECD Guidance on Responsible Business Conduct, 2018, and sector-specific guidance, available at
https://www.oecd.org/investment/due-diligence-guidance-for-responsible-business-conduct.htm.
82
The International Labour Organisation’s “Tripartite Declaration of Principles concerning Multinational
Enterprises and Social Policy, Fifth Edition, 2017, available at:
https://www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm.
83
https://www.un.org/ga/search/view_doc.asp?symbol=A/RES/70/1&Lang=E.
84
https://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agreement.pdf.
85
Glasgow Climate Pact, adopted on 13 November 2021 at COP26 in Glasgow,
https://unfccc.int/sites/default/files/resource/cma2021_L16_adv.pdf.https://unfccc.int/sites/default/files/reso
urce/cma2021_L16_adv.pdf.
86
Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the
framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU)
2018/1999 (‘European Climate Law’) PE/27/2021/REV/1 (OJ L 243, 9.7.2021, p. 1).
87
SWD/2020/176 final.
88
COM/2019/640 final.
EN 30 EN
sets out that all Union actions and policies should pull together to help the Union achieve
a successful and just transition towards a sustainable future. It also sets out that
sustainability should be further embedded into the corporate governance framework.
(10) According to the Commission Communication on forging a climate-resilient Europe89
presenting the Union Strategy on Adaptation to climate change, new investment and
policy decisions should be climate-informed and future-proof, including for larger
businesses managing value chains. This Directive should be consistent with that Strategy.
Similarly, there should be consistency with the Commission Directive […] amending
Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches,
and environmental, social and governance risks (Capital Requirements Directive)90
,
which sets out clear requirements for banks’ governance rules including knowledge about
environmental, social and governance risks at board of directors level.
(11) The Action Plan on a Circular Economy91
, the Biodiversity strategy92
, the Farm to Fork
strategy93
and the Chemicals strategy94
and Updating the 2020 New Industrial Strategy:
Building a stronger Single Market for Europe’s recovery95
, Industry 5.096
and the
European Pillar of Social Rights Action Plan97
and the 2021 Trade Policy Review98
list
an initiative on sustainable corporate governance among their elements.
89
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions on Forging a climate-resilient Europe – the new
EU Strategy on Adaptation to Climate Change (COM/2021/82 final), available at https://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=COM:2021:82:FIN.
90
OJ C […], […], p. […].
91
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions on A new Circular Economy Action Plan For a
cleaner and more competitive Europe (COM/2020/98 final).
92
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions on the EU Biodiversity Strategy for 2030
Bringing nature back into our lives (COM/2020/380 final).
93
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions on A Farm to Fork Strategy for a fair, healthy and
environmentally-friendly food system (COM/2020/381 final).
94
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions on the Chemicals Strategy for Sustainability
Towards a Toxic-Free Environment (COM/2020/667 final).
95
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions on Updating the 2020 New Industrial Strategy:
Building a stronger Single Market for Europe’s recovery (COM/2021/350 final).
96
Industry 5.0; https://ec.europa.eu/info/research-and-innovation/research-area/industrial-research-and-
innovation/industry-50_en
97
https://op.europa.eu/webpub/empl/european-pillar-of-social-rights/en/
EN 31 EN
(12) This Directive is in coherence with the EU Action Plan on Human Rights and Democracy
2020-202499
. This Action Plan defines as a priority to strengthen the Union’s engagement
to actively promote the global implementation of the United Nations Guiding Principles
on Business and Human Rights and other relevant international guidelines such as the
OECD Guidelines for Multinational Enterprises, including by advancing relevant due
diligence standards.
(13) The European Parliament, in its resolution of 10 March 2021 calls upon the Commission
to propose Union rules for a comprehensive corporate due diligence obligation100
. The
Council Conclusions on Human Rights and Decent Work in Global Supply Chains of
1 December 2020 called upon the Commission to table a proposal for a Union legal
framework on sustainable corporate governance, including cross-sector corporate due
diligence obligations along global supply chains.101
The European Parliament also calls
for clarifying directors` duties in its own initiative report adopted on 2 December 2020 on
sustainable corporate governance. In their Joint Declaration on EU Legislative Priorities
for 2022102
, the European Parliament, the Council of the European Union and the
Commission have committed, to deliver on an economy that works for people, and to
improve the regulatory framework on sustainable corporate governance.
(14) This Directive aims to ensure that companies active in the internal market contribute to
sustainable development and the sustainability transition of economies and societies
through the identification, prevention and mitigation, bringing to an end and minimisation
of potential or actual adverse human rights and environmental impacts connected with
companies’ own operations, subsidiaries and value chains.
(15) Companies should take appropriate steps to set up and carry out due diligence measures,
with respect to their own operations, their subsidiaries, as well as their established direct
and indirect business relationships throughout their value chains in accordance with the
provisions of this Directive. This Directive should not require companies to guarantee, in
all circumstances, that adverse impacts will never occur or that they will be stopped. For
98
Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions, Trade Policy Review – An Open, Sustainable
and Assertive Trade Policy (COM/2021/66/final).
99
Joint Communication to the European Parliament and the Council on the EU Action Plan on Human Rights
and Democracy 2020-2024 (JOIN/2020/5 final).
100
European Parliament resolution of 10 March 2021 with recommendations to the Commission on corporate
due diligence and corporate accountability (2020/2129(INL)), P9_TA(2021)0073, available at
https://oeil.secure.europarl.europa.eu/oeil/popups/ficheprocedure.do?lang=en&reference=2020/2129(INL).
101
Council Conclusions on Human Rights and Decent Work in Global Supply Chains, 1 December 2020
(13512/20).
102
Joint declaration of the European Parliament, the Council of the European Union and the European
Commission on EU Legislative Priorities for 2022, available at
https://ec.europa.eu/info/sites/default/files/joint_declaration_2022.pdf.
EN 32 EN
example with respect to business relationships where the adverse impact results from
State intervention, the company might not be in a position to arrive at such results.
Therefore, the main obligations in this Directive should be ‘obligations of means’. The
company should take the appropriate measures which can reasonably be expected to
result in prevention or minimisation of the adverse impact under the circumstances of the
specific case. Account should be taken of the specificities of the company’s value chain,
sector or geographical area in which its value chain partners operate, the company’s
power to influence its direct and indirect business relationships, and whether the company
could increase its power of influence.
(16) The due diligence process set out in this Directive should cover the six steps defined by
the OECD Due Diligence Guidance for Responsible Business Conduct, which include
due diligence measures for companies to identify and address adverse human rights and
environmental impacts. This encompasses the following steps: (1) integrating due
diligence into policies and management systems, (2) identifying and assessing adverse
human rights and environmental impacts, (3) preventing, ceasing or minimising actual
and potential adverse human rights, and environmental impacts, (4) assessing the
effectiveness of measures, (5) communicating, (6) providing remediation.
(17) Adverse human rights and environmental impact occur in companies’ own operations,
subsidiaries, products, and in their value chains, in particular at the level of raw material
sourcing, manufacturing, or at the level of product or waste disposal. In order for the due
diligence to have a meaningful impact, it should cover human rights and environmental
adverse impacts generated throughout the life-cycle of production and use and disposal of
product or provision of services, at the level of own operations, subsidiaries and in value
chains.
(18) The value chain should cover activities related to the production of a good or provision of
services by a company, including the development of the product or the service and the
use and disposal of the product as well as the related activities of established business
relationships of the company. It should encompass upstream established direct and
indirect business relationships that design, extract, manufacture, transport, store and
supply raw material, products, parts of products, or provide services to the company that
are necessary to carry out the company’s activities, and also downstream relationships,
including established direct and indirect business relationships, that use or receive
products, parts of products or services from the company up to the end of life of the
product, including inter alia the distribution of the product to retailers, the transport and
storage of the product, dismantling of the product, its recycling, composting or
landfilling.
(19) As regards regulated financial undertakings providing loan, credit, or other financial
services, “value chain” with respect to the provision of such services should be limited to
the activities of the clients receiving such services, and the subsidiaries thereof whose
activities are linked to the contract in question. Clients that are households and natural
persons not acting in a professional or business capacity, as well as small and medium
sized undertakings, should not be considered to be part of the value chain. The activities
of the companies or other legal entities that are included in the value chain of that client
should not be covered.
EN 33 EN
(20) In order to allow companies to properly identify the adverse impacts in their value chain
and to make it possible for them to exercise appropriate leverage, the due diligence
obligations should be limited in this Directive to established business relationships. For
the purpose of this Directive, established business relationships should mean such direct
and indirect business relationships which are, or which are expected to be lasting, in view
of their intensity and duration and which do not represent a negligible or ancillary part of
the value chain. The nature of business relationships as “established” should be
reassessed periodically, and at least every 12 months. If the direct business relationship of
a company is established, then all linked indirect business relationships should also be
considered as established regarding that company.
(21) Under this Directive, EU companies with more than 500 employees on average and a
worldwide net turnover exceeding EUR 150 million in the financial year preceding the
last financial year should be required to comply with due diligence. As regards companies
which do not fulfil those criteria, but which had more than 250 employees on average and
more than EUR 40 million worldwide net turnover in the financial year preceding the last
financial year and which operate in one or more high-impact sectors, due diligence should
apply 2 years after the end of the transposition period of this directive, in order to provide
for a longer adaptation period. In order to ensure a proportionate burden, companies
operating in such high-impact sectors should be required to comply with more targeted
due diligence focusing on severe adverse impacts. Temporary agency workers, including
those posted under Article 1(3), point (c), of Directive 96/71/EC, as amended by
Directive 2018/957/EU of the European Parliament and of the Council103
, should be
included in the calculation of the number of employees in the user company. Posted
workers under Article 1(3), points (a) and (b), of Directive 96/71/EC, as amended by
Directive 2018/957/EU, should only be included in the calculation of the number of
employees of the sending company.
(22) In order to reflect the priority areas of international action aimed at tackling human rights
and environmental issues, the selection of high-impact sectors for the purposes of this
Directive should be based on existing sectoral OECD due diligence guidance. The
following sectors should be regarded as high-impact for the purposes of this Directive:
the manufacture of textiles, leather and related products (including footwear), and the
wholesale trade of textiles, clothing and footwear; agriculture, forestry, fisheries
(including aquaculture), the manufacture of food products, and the wholesale trade of
agricultural raw materials, live animals, wood, food, and beverages; the extraction of
mineral resources regardless of where they are extracted from (including crude
petroleum, natural gas, coal, lignite, metals and metal ores, as well as all other, non-
103
Directive (EU) 2018/957 of the European Parliament and of the Council of 28 June 2018 amending
Directive 96/71/EC concerning the posting of workers in the framework of the provision of services (OJ L
173, 9.7.2018, p. 16).
EN 34 EN
metallic minerals and quarry products), the manufacture of basic metal products, other
non-metallic mineral products and fabricated metal products (except machinery and
equipment), and the wholesale trade of mineral resources, basic and intermediate mineral
products (including metals and metal ores, construction materials, fuels, chemicals and
other intermediate products). As regards the financial sector, due to its specificities, in
particular as regards the value chain and the services offered, even if it is covered by
sector-specific OECD guidance, it should not form part of the high-impact sectors
covered by this Directive. At the same time, in this sector, the broader coverage of actual
and potential adverse impacts should be ensured by also including very large companies
in the scope that are regulated financial undertakings, even if they do not have a legal
form with limited liability.
(23) In order to achieve fully the objectives of this Directive addressing human rights and
adverse environmental impacts with respect to companies’ operations, subsidiaries and
value chains, third-country companies with significant operations in the EU should also
be covered. More specifically, the Directive should apply to third-country companies
which generated a net turnover of at least EUR 150 million in the Union in the financial
year preceding the last financial year or a net turnover of more than EUR 40 million but
less than EUR 150 million in the financial year preceding the last financial year in one or
more of the high-impact sectors, as of 2 years after the end of the transposition period of
this Directive.
(24) For defining the scope of application in relation to non-EU companies the described
turnover criterion should be chosen as it creates a territorial connection between the third-
country companies and the Union territory. Turnover is a proxy for the effects that the
activities of those companies could have on the internal market. In accordance with
international law, such effects justify the application of Union law to third-country
companies. To ensure identification of the relevant turnover of companies concerned, the
methods for calculating net turnover for non-EU companies as laid down in Directive
(EU) 2013/34 as amended by Directive (EU) 2021/2101 should be used. To ensure
effective enforcement of this Directive, an employee threshold should, in turn, not be
applied to determine which third-country companies fall under this Directive, as the
notion of “employees” retained for the purposes of this Directive is based on Union law
and could not be easily transposed outside of the Union. In the absence of a clear and
consistent methodology, including in accounting frameworks, to determine the employees
of third-country companies, such employee threshold would therefore create legal
uncertainty and would be difficult to apply for supervisory authorities. The definition of
turnover should be based on Directive 2013/34/EU which has already established the
methods for calculating net turnover for non-Union companies, as turnover and revenue
definitions are similar in international accounting frameworks too. With a view to
ensuring that the supervisory authority knows which third country companies generate
the required turnover in the Union to fall under the scope of this Directive, this Directive
should require that a supervisory authority in the Member State where the third country
company’s authorised representative is domiciled or established and, where it is different,
a supervisory authority in the Member State in which the company generated most of its
net turnover in the Union in the financial year preceding the last financial year are
informed that the company is a company falling under the scope of this Directive.
EN 35 EN
(25) In order to achieve a meaningful contribution to the sustainability transition, due
diligence under this Directive should be carried out with respect to adverse human rights
impact on protected persons resulting from the violation of one of the rights and
prohibitions as enshrined in the international conventions as listed in the Annex to this
Directive. In order to ensure a comprehensive coverage of human rights, a violation of a
prohibition or right not specifically listed in that Annex which directly impairs a legal
interest protected in those conventions should also form part of the adverse human rights
impact covered by this Directive, provided that the company concerned could have
reasonably established the risk of such impairment and any appropriate measures to be
taken in order to comply with the due diligence obligations under this Directive, taking
into account all relevant circumstances of their operations, such as the sector and
operational context. Due diligence should further encompass adverse environmental
impacts resulting from the violation of one of the prohibitions and obligations pursuant to
the international environmental conventions listed in the Annex to this Directive.
(26) Companies have guidance at their disposal that illustrates how their activities may impact
human rights and which corporate behaviour is prohibited in accordance with
internationally recognised human rights. Such guidance is included for instance in The
United Nations Guiding Principles Reporting Framework104
and the United Nations
Guiding Principles Interpretative Guide105
. Using relevant international guidelines and
standards as a reference, the Commission should be able to issue additional guidance that
will serve as a practical tool for companies.
(27) In order to conduct appropriate human rights, and environmental due diligence with
respect to their operations, their subsidiaries, and their value chains, companies covered
by this Directive should integrate due diligence into corporate policies, identify, prevent
and mitigate as well as bring to an end and minimise the extent of potential and actual
adverse human rights and environmental impacts, establish and maintain a complaints
procedure, monitor the effectiveness of the taken measures in accordance with the
requirements that are set up in this Directive and communicate publicly on their due
diligence. In order to ensure clarity for companies, in particular the steps of preventing
and mitigating potential adverse impacts and of bringing to an end, or when this is not
possible, minimising actual adverse impacts should be clearly distinguished in this
Directive.
(28) In order to ensure that due diligence forms part of companies’ corporate policies, and in
line with the relevant international framework, companies should integrate due diligence
into all their corporate policies and have in place a due diligence policy. The due
104
https://www.ungpreporting.org/wp-content/uploads/UNGPReportingFramework_withguidance2017.pdf.
105
https://www.ohchr.org/Documents/Issues/Business/RtRInterpretativeGuide.pdf.https://www.ohchr.org/Doc
uments/Issues/Business/RtRInterpretativeGuide.pdf.
EN 36 EN
diligence policy should contain a description of the company’s approach, including in the
long term, to due diligence, a code of conduct describing the rules and principles to be
followed by the company’s employees and subsidiaries; a description of the processes put
in place to implement due diligence, including the measures taken to verify compliance
with the code of conduct and to extend its application to established business
relationships. The code of conduct should apply in all relevant corporate functions and
operations, including procurement and purchasing decisions. Companies should also
update their due diligence policy annually.
(29) To comply with due diligence obligations, companies need to take appropriate measures
with respect to identification, prevention and bringing to an end adverse impacts. An
‘appropriate measure’ should mean a measure that is capable of achieving the objectives
of due diligence, commensurate with the degree of severity and the likelihood of the
adverse impact, and reasonably available to the company, taking into account the
circumstances of the specific case, including characteristics of the economic sector and of
the specific business relationship and the company’s influence thereof, and the need to
ensure prioritisation of action. In this context, in line with international frameworks, the
company’s influence over a business relationship should include, on the one hand its
ability to persuade the business relationship to take action to bring to an end or prevent
adverse impacts (for example through ownership or factual control, market power, pre-
qualification requirements, linking business incentives to human rights and
environmental performance, etc.) and, on the other hand, the degree of influence or
leverage that the company could reasonably exercise, for example through cooperation
with the business partner in question or engagement with another company which is the
direct business partner of the business relationship associated with adverse impact.
(30) Under the due diligence obligations set out by this Directive, a company should identify
actual or potential adverse human rights and environmental impacts. In order to allow for
a comprehensive identification of adverse impacts, such identification should be based on
quantitative and qualitative information. For instance, as regards adverse environmental
impacts, the company should obtain information about baseline conditions at higher risk
sites or facilities in value chains. Identification of adverse impacts should include
assessing the human rights, and environmental context in a dynamic way and in regular
intervals: prior to a new activity or relationship, prior to major decisions or changes in the
operation; in response to or anticipation of changes in the operating environment; and
periodically, at least every 12 months, throughout the life of an activity or relationship.
Regulated financial undertakings providing loan, credit, or other financial services should
identify the adverse impacts only at the inception of the contract. When identifying
adverse impacts, companies should also identify and assess the impact of a business
relationship’s business model and strategies, including trading, procurement and pricing
practices. Where the company cannot prevent, bring to an end or minimize all its adverse
impacts at the same time, it should be able to prioritize its action, provided it takes the
measures reasonably available to the company, taking into account the specific
circumstances.
EN 37 EN
(31) In order to avoid undue burden on the smaller companies operating in high-impact sectors
which are covered by this Directive, those companies should only be obliged to identify
those actual or potential severe adverse impacts that are relevant to the respective sector.
(32) In line with international standards, prevention and mitigation as well as bringing to an
end and minimisation of adverse impacts should take into account the interests of those
adversely impacted. In order to enable continuous engagement with the value chain
business partner instead of termination of business relations (disengagement) and
possibly exacerbating adverse impacts, this Directive should ensure that disengagement is
a last-resort action, in line with the Union`s policy of zero-tolerance on child labour.
Terminating a business relationship in which child labour was found could expose the
child to even more severe adverse human rights impacts. This should therefore be taken
into account when deciding on the appropriate action to take.
(33) Under the due diligence obligations set out by this Directive, if a company identifies
potential adverse human rights or environmental impacts, it should take appropriate
measures to prevent and adequately mitigate them. To provide companies with legal
clarity and certainty, this Directive should set out the actions companies should be
expected to take for prevention and mitigation of potential adverse impacts where
relevant depending on the circumstances.
(34) So as to comply with the prevention and mitigation obligation under this Directive,
companies should be required to take the following actions, where relevant. Where
necessary due to the complexity of prevention measures, companies should develop and
implement a prevention action plan. Companies should seek to obtain contractual
assurances from a direct partner with whom they have an established business
relationship that it will ensure compliance with the code of conduct or the prevention
action plan, including by seeking corresponding contractual assurances from its partners
to the extent that their activities are part of the companies’ value chain. The contractual
assurances should be accompanied by appropriate measures to verify compliance. To
ensure comprehensive prevention of actual and potential adverse impacts, companies
should also make investments which aim to prevent adverse impacts, provide targeted
and proportionate support for an SME with which they have an established business
relationship such as financing, for example, through direct financing, low-interest loans,
guarantees of continued sourcing, and assistance in securing financing, to help implement
the code of conduct or prevention action plan, or technical guidance such as in the form
of training, management systems upgrading, and collaborate with other companies.
(35) In order to reflect the full range of options for the company in cases where potential
impacts could not be addressed by the described prevention or minimisation measures,
this Directive should also refer to the possibility for the company to seek to conclude a
contract with the indirect business partner, with a view to achieving compliance with the
company’s code of conduct or a prevention action plan, and conduct appropriate
measures to verify compliance of the indirect business relationship with the contract.
(36) In order to ensure that prevention and mitigation of potential adverse impacts is effective,
companies should prioritize engagement with business relationships in the value chain,
instead of terminating the business relationship, as a last resort action after attempting at
preventing and mitigating adverse potential impacts without success. However, the
EN 38 EN
Directive should also, for cases where potential adverse impacts could not be addressed
by the described prevention or mitigation measures, refer to the obligation for companies
to refrain from entering into new or extending existing relations with the partner in
question and, where the law governing their relations so entitles them to, to either
temporarily suspend commercial relationships with the partner in question, while
pursuing prevention and minimisation efforts, if there is reasonable expectation that these
efforts are to succeed in the short-term; or to terminate the business relationship with
respect to the activities concerned if the potential adverse impact is severe. In order to
allow companies to fulfil that obligation, Member States should provide for the
availability of an option to terminate the business relationship in contracts governed by
their laws. It is possible that prevention of adverse impacts at the level of indirect
business relationships requires collaboration with another company, for example a
company which has a direct contractual relationship with the supplier. In some instances,
such collaboration could be the only realistic way of preventing adverse impacts, in
particular, where the indirect business relationship is not ready to enter into a contract
with the company. In these instances, the company should collaborate with the entity
which can most effectively prevent or mitigate adverse impacts at the level of the indirect
business relationship while respecting competition law.
(37) As regards direct and indirect business relationships, industry cooperation, industry
schemes and multi-stakeholder initiatives can help create additional leverage to identify,
mitigate, and prevent adverse impacts. Therefore it should be possible for companies to
rely on such initiatives to support the implementation of their due diligence obligations
laid down in this Directive to the extent that such schemes and initiatives are appropriate
to support the fulfilment of those obligations. Companies could assess, at their own
initiative, the alignment of these schemes and initiatives with the obligations under this
Directive. In order to ensure full information on such initiatives, the Directive should also
refer to the possibility for the Commission and the Member States to facilitate the
dissemination of information on such schemes or initiatives and their outcomes. The
Commission, in collaboration with Member States, may issue guidance for assessing the
fitness of industry schemes and multi-stakeholder initiatives.
(38) Under the due diligence obligations set out by this Directive, if a company identifies
actual human rights or environmental adverse impacts, it should take appropriate
measures to bring those to an end. It can be expected that a company is able to bring to an
end actual adverse impacts in their own operations and in subsidiaries. However, it
should be clarified that, as regards established business relationships, where adverse
impacts cannot be brought to an end, companies should minimise the extent of such
impacts. Minimisation of the extent of adverse impacts should require an outcome that is
the closest possible to bringing the adverse impact to an end. To provide companies with
legal clarity and certainty, this Directive should define which actions companies should
be required to take for bringing actual human rights and environmental adverse impacts
to an end and minimisation of their extent, where relevant depending on the
circumstances.
(39) So as to comply with the obligation of bringing to an end and minimising the extent of
actual adverse impacts under this Directive, companies should be required to take the
EN 39 EN
following actions, where relevant. They should neutralise the adverse impact or minimise
its extent, with an action proportionate to the significance and scale of the adverse impact
and to the contribution of the company’s conduct to the adverse impact. Where necessary
due to the fact that the adverse impact cannot be immediately brought to an end,
companies should develop and implement a corrective action plan with reasonable and
clearly defined timelines for action and qualitative and quantitative indicators for
measuring improvement. Companies should also seek to obtain contractual assurances
from a direct business partner with whom they have an established business relationship
that they will ensure compliance with the company’s code of conduct and, as necessary, a
prevention action plan, including by seeking corresponding contractual assurances from
its partners, to the extent that their activities are part of the company’s value chain. The
contractual assurances should be accompanied by the appropriate measures to verify
compliance. Finally, companies should also make investments aiming at ceasing or
minimising the extent of adverse impact, provide targeted and proportionate support for
an SMEs with which they have an established business relationship and collaborate with
other entities, including, where relevant, to increase the company’s ability to bring the
adverse impact to an end.
(40) In order to reflect the full range of options for the company in cases where actual impacts
could not be addressed by the described measures, this Directive should also refer to the
possibility for the company to seek to conclude a contract with the indirect business
partner, with a view to achieving compliance with the company’s code of conduct or a
corrective action plan, and conduct appropriate measures to verify compliance of the
indirect business relationship with the contract.
(41) In order to ensure that bringing actual adverse impacts to an end or minimising them is
effective, companies should prioritize engagement with business relationships in the
value chain, instead of terminating the business relationship, as a last resort action after
attempting at bringing actual adverse impacts to an end or minimising them without
success. However, this Directive should also, for cases where actual adverse impacts
could not be brought to an end or adequately mitigated by the described measures, refer
to the obligation for companies to refrain from entering into new or extending existing
relations with the partner in question and, where the law governing their relations so
entitles them to, to either temporarily suspend commercial relationships with the partner
in question, while pursuing efforts to bring to an end or minimise the extent of the
adverse impact, or terminate the business relationship with respect to the activities
concerned, if the adverse impact is considered severe. In order to allow companies to
fulfil that obligation, Member States should provide for the availability of an option to
terminate the business relationship in contracts governed by their laws.
(42) Companies should provide the possibility for persons and organisations to submit
complaints directly to them in case of legitimate concerns regarding actual or potential
human rights and environmental adverse impacts. Organisations who could submit such
complaints should include trade unions and other workers’ representatives representing
individuals working in the value chain concerned and civil society organisations active in
the areas related to the value chain concerned where they have knowledge about a
potential or actual adverse impact. Companies should establish a procedure for dealing
EN 40 EN
with those complaints and inform workers, trade unions and other workers’
representatives, where relevant, about such processes. Recourse to the complaints and
remediation mechanism should not prevent the complainant from having recourse to
judicial remedies. In accordance with international standards, complaints should be
entitled to request from the company appropriate follow-up on the complaint and to meet
with the company’s representatives at an appropriate level to discuss potential or actual
severe adverse impacts that are the subject matter of the complaint. This access should
not lead to unreasonable solicitations of companies.
(43) Companies should monitor the implementation and effectiveness of their due diligence
measures. They should carry out periodic assessments of their own operations, those of
their subsidiaries and, where related to the value chains of the company, those of their
established business relationships, to monitor the effectiveness of the identification,
prevention, minimisation, bringing to an end and mitigation of human rights and
environmental adverse impacts. Such assessments should verify that adverse impacts are
properly identified, due diligence measures are implemented and adverse impacts have
actually been prevented or brought to an end. In order to ensure that such assessments are
up-to-date, they should be carried out at least every 12 months and be revised in-between
if there are reasonable grounds to believe that significant new risks of adverse impact
could have arisen.
(44) Like in the existing international standards set by the United Nations Guiding Principles
on Business and Human Rights and the OECD framework, it forms part of the due
diligence requirement to communicate externally relevant information on due diligence
policies, processes and activities conducted to identify and address actual or potential
adverse impacts, including the findings and outcomes of those activities. The proposal to
amend Directive 2013/34/EU as regards corporate sustainability reporting sets out
relevant reporting obligations for the companies covered by this directive. In order to
avoid duplicating reporting obligations, this Directive should therefore not introduce any
new reporting obligations in addition to those under Directive 2013/34/EU for the
companies covered by that Directive as well as the reporting standards that should be
developed under it. As regards companies that are within the scope of this Directive, but
do not fall under Directive 2013/34/EU, in order to comply with their obligation of
communicating as part of the due diligence under this Directive, they should publish on
their website an annual statement in a language customary in the sphere of international
business.
(45) In order to facilitate companies’ compliance with their due diligence requirements
through their value chain and limiting shifting compliance burden on SME business
partners, the Commission should provide guidance on model contractual clauses.
(46) In order to provide support and practical tools to companies or to Member State
authorities on how companies should fulfil their due diligence obligations, the
Commission, using relevant international guidelines and standards as a reference, and in
consultation with Member States and stakeholders, the European Union Agency for
Fundamental Rights, the European Environment Agency, and where appropriate with
international bodies having expertise in due diligence, should have the possibility to issue
guidelines, including for specific sectors or specific adverse impacts.
EN 41 EN
(47) Although SMEs are not included in the scope of this Directive, they could be impacted by
its provisions as contractors or subcontractors to the companies which are in the scope.
The aim is nevertheless to mitigate financial or administrative burden on SMEs, many of
which are already struggling in the context of the global economic and sanitary crisis. In
order to support SMEs, Member States should set up and operate, either individually or
jointly, dedicated websites, portals or platforms, and Member States could also
financially support SMEs and help them build capacity. Such support should also be
made accessible, and where necessary adapted and extended to upstream economic
operators in third countries. Companies whose business partner is an SME, are also
encouraged to support them to comply with due diligence measures, in case such
requirements would jeopardize the viability of the SME and use fair, reasonable, non-
discriminatory and proportionate requirements vis-a-vis the SMEs.
(48) In order to complement Member State support to SMEs, the Commission may build on
existing EU tools, projects and other actions helping with the due diligence
implementation in the EU and in third countries. It may set up new support measures that
provide help to companies, including SMEs on due diligence requirements, including an
observatory for value chain transparency and the facilitation of joint stakeholder
initiatives.
(49) The Commission and Member States should continue to work in partnership with third
countries to support upstream economic operators build the capacity to effectively
prevent and mitigate adverse human rights and environmental impacts of their operations
and business relationships, paying specific attention to the challenges faced by
smallholders. They should use their neighbourhood, development and international
cooperation instruments to support third country governments and upstream economic
operators in third countries addressing adverse human rights and environmental impacts
of their operations and upstream business relationships. This could include working with
partner country governments, the local private sector and stakeholders on addressing the
root causes of adverse human rights and environmental impacts.
(50) In order to ensure that this Directive effectively contributes to combating climate change,
companies should adopt a plan to ensure that the business model and strategy of the
company are compatible with the transition to a sustainable economy and with the
limiting of global warming to 1.5 °C in line with the Paris Agreement. In case climate is
or should have been identified as a principal risk for or a principal impact of the
company’s operations, the company should include emissions reduction objectives in its
plan.
(51) With a view to ensure that such emission reduction plan is properly implemented and
embedded in the financial incentives of directors, the plan should be duly taken into
account when setting directors’ variable remuneration, if variable remuneration is linked
to the contribution of a director to the company’s business strategy and long-term
interests and sustainability.
(52) In order to allow for the effective oversight of and, where necessary, enforcement of this
Directive in relation to those companies that are not governed by the law of a Member
State, those companies should designate a sufficiently mandated authorised representative
in the Union and provide information relating to their authorised representatives. It
EN 42 EN
should be possible for the authorised representative to also function as point of contact,
provided the relevant requirements of this Directive are complied with.
(53) In order to ensure the monitoring of the correct implementation of companies’ due
diligence obligations and ensure the proper enforcement of this Directive, Member States
should designate one or more national supervisory authorities. These supervisory
authorities should be of a public nature, independent from the companies falling within
the scope of this Directive or other market interests, and free of conflicts of interest. In
accordance with national law, Member States should ensure appropriate financing of the
competent authority. They should be entitled to carry out investigations, on their own
initiative or based on complaints or substantiated concerns raised under this Directive.
Where competent authorities under sectoral legislation exist, Member States could
identify those as responsible for the application of this Directive in their areas of
competence. They could designate authorities for the supervision of regulated financial
undertaking also as supervisory authorities for the purposes of this Directive.
(54) In order to ensure effective enforcement of national measures implementing this
Directive, Member States should provide for dissuasive, proportionate and effective
sanctions for infringements of those measures. In order for such sanction regime to be
effective, administrative sanctions to be imposed by the national supervisory authorities
should include pecuniary sanctions. Where the legal system of a Member State does not
provide for administrative sanctions as foreseen in this Directive, the rules on
administrative sanctions should be applied in such a way that the sanction is initiated by
the competent supervisory authority and imposed by the judicial authority. Therefore, it is
necessary that those Member States ensure that the application of the rules and sanctions
has an equivalent effect to the administrative sanctions imposed by the competent
supervisory authorities.
(55) In order to ensure consistent application and enforcement of national provisions adopted
pursuant to this Directive, national supervisory authorities should cooperate and
coordinate their action. For that purpose a European Network of Supervisory Authorities
should be set up by the Commission and the supervisory authorities should assist each
other in performing their tasks and provide mutual assistance.
(56) In order to ensure effective compensation of victims of adverse impacts, Member States
should be required to lay down rules governing the civil liability of companies for
damages arising due to its failure to comply with the due diligence process. The company
should be liable for damages if they failed to comply with the obligations to prevent and
mitigate potential adverse impacts or to bring actual impacts to an end and minimise their
extent, and as a result of this failure an adverse impact that should have been identified,
prevented, mitigated, brought to an end or its extent minimised through the appropriate
measures occurred and led to damage.
(57) As regards damages occurring at the level of established indirect business relationships,
the liability of the company should be subject to specific conditions. The company should
not be liable if it carried out specific due diligence measures. However, it should not be
exonerated from liability through implementing such measures in case it was
unreasonable to expect that the action actually taken, including as regards verifying
compliance, would be adequate to prevent, mitigate, bring to an end or minimise the
EN 43 EN
adverse impact. In addition, in the assessment of the existence and extent of liability, due
account is to be taken of the company’s efforts, insofar as they relate directly to the
damage in question, to comply with any remedial action required of them by a
supervisory authority, any investments made and any targeted support provided as well as
any collaboration with other entities to address adverse impacts in its value chains.
(58) The liability regime does not regulate who should prove that the company’s action was
reasonably adequate under the circumstances of the case, therefore this question is left to
national law.
(59) As regards civil liability rules, the civil liability of a company for damages arising due to
its failure to carry out adequate due diligence should be without prejudice to civil liability
of its subsidiaries or the respective civil liability of direct and indirect business partners in
the value chain. Also, the civil liability rules under this Directive should be without
prejudice to Union or national rules on civil liability related to adverse human rights
impacts or to adverse environmental impacts that provide for liability in situations not
covered by or providing for stricter liability than this Directive.
(60) As regards civil liability arising from adverse environmental impacts, persons who suffer
damage can claim compensation under this Directive even where they overlap with
human rights claims.
(61) In order to ensure that victims of human rights and environmental harms can bring an
action for damages and claim compensation for damages arising due to a company’s
failure to comply with the due diligence obligations stemming from this Directive, even
where the law applicable to such claims is not the law of a Member State, as could be for
instance be the case in accordance with international private law rules when the damage
occurs in a third country, this Directive should require Member States to ensure that the
liability provided for in provisions of national law transposing this Article is of overriding
mandatory application in cases where the law applicable to claims to that effect is not the
law of a Member State.
(62) The civil liability regime under this Directive should be without prejudice to the
Environmental Liability Directive 2004/35/EC. This Directive should not prevent
Member States from imposing further, more stringent obligations on companies or from
otherwise taking further measures having the same objectives as that Directive.
(63) In all Member States’ national laws, directors owe a duty of care to the company. In order
to ensure that this general duty is understood and applied in a manner which is coherent
and consistent with the due diligence obligations introduced by this Directive and that
directors systematically take into account sustainability matters in their decisions, this
Directive should clarify, in a harmonised manner, the general duty of care of directors to
act in the best interest of the company, by laying down that directors take into account the
sustainability matters as referred to in Directive 2013/34/EU, including, where applicable,
human rights, climate change and environmental consequences, including in the short,
medium and long term horizons. Such clarification does not require changing existing
national corporate structures.
(64) Responsibility for due diligence should be assigned to the company’s directors, in line
with the international due diligence frameworks. Directors should therefore be
EN 44 EN
responsible for putting in place and overseeing the due diligence actions as laid down in
this Directive and for adopting the company’s due diligence policy, taking into account
the input of stakeholders and civil society organisations and integrating due diligence into
corporate management systems. Directors should also adapt the corporate strategy to
actual and potential impacts identified and any due diligence measures taken.
(65) Persons who work for companies subject to due diligence obligations under this Directive
or who are in contact with such companies in the context of their work-related activities
can play a key role in exposing breaches of the rules of this Directive. They can thus
contribute to preventing and deterring such breaches and strengthening the enforcement
of this Directive. Directive (EU) 2019/1937 of the European Parliament and of the
Council106
should therefore apply to the reporting of all breaches of this Directive and to
the protection of persons reporting such breaches.
(66) In order to specify the information that companies not subject to reporting requirements
under the provisions on corporate sustainability reporting under Directive 2013/34/EU
should be communicating on the matters covered by this Directive, the power to adopt
acts in accordance with Article 290 of the Treaty on the Functioning of the European
Union should be delegated to the Commission in respect of determining additional rules
concerning the content and criteria of such reporting, specifying information on the
description of due diligence, potential and actual impacts and actions taken on those. It is
of particular importance that the Commission carry out appropriate consultations during
its preparatory work, including at expert level, and that those consultations be conducted
in accordance with the principles laid down in the Interinstitutional Agreement of 13
April 2016 on Better Law-Making107
. In particular, to ensure equal participation in the
preparation of delegated acts, the European Parliament and the Council receive all
documents at the same time as Member States' experts, and their experts systematically
have access to meetings of Commission expert groups dealing with the preparation of
delegated acts.
(67) This Directive should be applied in compliance with Union data protection law and the
right to the protection of privacy and personal data as enshrined in Articles 7 and 8 of the
Charter of Fundamental Rights of the European Union. Any processing of personal data
under this Directive is to be undertaken in accordance with Regulation (EU) 2016/679 of
the European Parliament and of the Council108
, including the requirements of purpose
limitation, data minimisation and storage limitation.
106
Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the
protection of persons who report breaches of Union law (OJ L 305, 26.11.2019, p. 17).
107
OJ L 123, 12.5.2016, p. 1.
108
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the
protection of natural persons with regard to the processing of personal data and on the free movement of
EN 45 EN
(68) The European Data Protection Supervisor was consulted in accordance with Article 28(2)
of Regulation (EU) 2018/1725 of the European Parliament and of the Council109
and
delivered an opinion on … 2022.
(69) This Directive is without prejudice to obligations in the areas of human rights, protection
of the environment and climate change under other Union legislative acts. If the
provisions of this Directive conflict with a provision of another Union legislative act
pursuing the same objectives and providing for more extensive or more specific
obligations, the provisions of the other Union legislative act should prevail to the extent
of the conflict and shall apply to those specific obligations.
(70) The Commission should assess and report whether new sectors should be added to the list
of high-impact sectors covered by this Directive, in order to align it to guidance from the
Organisation for Economic Cooperation and Development or in light of clear evidence on
labour exploitation, human rights violations or newly emerging environmental threats,
whether the list of relevant international conventions referred to in this Directive should
be amended, in particular in the light of international developments, or whether the
provisions on due diligence under this Directive should be extended to adverse climate
impacts.
(71) The objective of this Directive, namely better exploiting the potential of the single market
to contribute to the transition to a sustainable economy and contributing to sustainable
development through the prevention and mitigation of potential or actual human rights
and environmental adverse impacts in companies’ value chains, cannot be sufficiently
achieved by the Member States acting individually or in an uncoordinated manner, but
can rather, by reason of the scale and effects of the actions, be better achieved at Union
level. In particular, addressed problems and their causes are of a transnational dimension,
as many companies are operating Union wide or globally and value chains expand to
other Member States and to third countries. Moreover, individual Member States’
measures risk being ineffective and lead to fragmentation of the internal market.
Therefore, the Union may adopt measures, in accordance with the principle of
subsidiarity as set out in Article 5 TEU. In accordance with the principle of
proportionality, as set out in that Article, this Directive does not go beyond what is
necessary in order to achieve that objective.
such data, and repealing Directive 95/46/EC (General Data Protection Regulation) OJ L 119, 4.5.2016, p.
1–88.
109
Regulation (EU) 2018/1725 of the European Parliament and of the Council of 23 October 2018 on the
protection of natural persons with regard to the processing of personal data by the Union institutions,
bodies, offices and agencies and on the free movement of such data (OJ L 295, 21.11.2018, p. 39).
EN 46 EN
HAVE ADOPTED THIS DIRECTIVE:
Article 1
Subject matter
1. This Directive lays down rules
(a) on obligations for companies regarding actual and potential human rights adverse
impacts and environmental adverse impacts, with respect to their own operations,
the operations of their subsidiaries, and the value chain operations carried out by
entities with whom the company has an established business relationship and
(b) on liability for violations of the obligations mentioned above.
The nature of business relationships as ‘established’ shall be reassessed periodically,
and at least every 12 months.
2. This Directive shall not constitute grounds for reducing the level of protection of human
rights or of protection of the environment or the protection of the climate provided for
by the law of Member States at the time of the adoption of this Directive.
3. This Directive shall be without prejudice to obligations in the areas of human rights,
protection of the environment and climate change under other Union legislative acts. If
the provisions of this Directive conflict with a provision of another Union legislative act
pursuing the same objectives and providing for more extensive or more specific
obligations, the provisions of the other Union legislative act shall prevail to the extent
of the conflict and shall apply to those specific obligations.
Article 2
Scope
1. This Directive shall apply to companies which are formed in accordance with the
legislation of a Member State and which fulfil one of the following conditions:
(a) the company had more than 500 employees on average and had a net worldwide
turnover of more than EUR 150 million in the last financial year for which annual
financial statements have been prepared;
(b) the company did not reach the thresholds under point (a), but had more than 250
employees on average and had a net worldwide turnover of more than EUR 40
million in the last financial year for which annual financial statements have been
prepared, provided that at least 50% of this net turnover was generated in one or
more of the following sectors:
(i) the manufacture of textiles, leather and related products (including
footwear), and the wholesale trade of textiles, clothing and footwear;
EN 47 EN
(ii) agriculture, forestry, fisheries (including aquaculture), the manufacture of
food products, and the wholesale trade of agricultural raw materials, live
animals, wood, food, and beverages;
(iii) the extraction of mineral resources regardless from where they are extracted
(including crude petroleum, natural gas, coal, lignite, metals and metal ores,
as well as all other, non-metallic minerals and quarry products), the
manufacture of basic metal products, other non-metallic mineral products
and fabricated metal products (except machinery and equipment), and the
wholesale trade of mineral resources, basic and intermediate mineral
products (including metals and metal ores, construction materials, fuels,
chemicals and other intermediate products).
2. This Directive shall also apply to companies which are formed in accordance with the
legislation of a third country, and fulfil one of the following conditions:
(a) generated a net turnover of more than EUR 150 million in the Union in the
financial year preceding the last financial year;
(b) generated a net turnover of more than EUR 40 million but not more than EUR 150
million in the Union in the financial year preceding the last financial year,
provided that at least 50% of its net worldwide turnover was generated in one or
more of the sectors listed in paragraph 1, point (b).
3. For the purposes of paragraph 1, the number of part-time employees shall be calculated
on a full-time equivalent basis. Temporary agency workers shall be included in the
calculation of the number of employees in the same way as if they were workers
employed directly for the same period of time by the company.
4. As regards the companies referred to in paragraph 1, the Member State competent to
regulate matters covered in this Directive shall be the Member State in which the
company has its registered office.
Article 3
Definitions
For the purpose of this Directive, the following definitions shall apply:
(a) ‘company’ means any of the following:
EN 48 EN
(i) a legal person constituted as one of the legal forms listed in Annex I to Directive
2013/34/EU of the European Parliament and of the Council110
;
(ii) a legal person constituted in accordance with the law of a third country in a form
comparable to those listed in Annex I and II of that Directive;
(iii) a legal person constituted as one of the legal forms listed in Annex II to Directive
2013/34/EU composed entirely of undertakings organised in one of the legal
forms falling within points (i) and (ii);
(iv) a regulated financial undertaking, regardless of its legal form, which is
– a credit institution as defined in Article 4(1), point (1), of Regulation (EU)
No 575/2013 the European Parliament and of the Council111
;
– an investment firm as defined in Article 4(1), point (1), of Directive
2014/65/EU the European Parliament and of the Council112
;
– an alternative investment fund manager (AIFM) as defined in Article 4(1),
point (b), of Directive 2011/61/EU of the European Parliament and of the
Council (2), including a manager of Euveca under Regulation (EU) No
345/2013 of the European Parliament and of the Council113
, a manager of
EuSEF under Regulation (EU) No 346/2013 of the European Parliament and
of the Council114
and a manager of ELTIF under Regulation (EU) 2015/760
of the European Parliament and of the Council115
;
110
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual
financial statements, consolidated financial statements and related reports of certain types of undertakings
(OJ L 182, 29.6.2013, p. 19).
111
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No
648/2012 (OJ L 176, 27.6.2013, p. 1).
112
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173,
12.6.2014, p. 349).
113
Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on
European venture capital funds (OJ L 115, 25.4.2013, p. 1).
114
Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on
European social entrepreneurship funds (OJ L 115, 25.4.2013, p. 18).
115
Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European
long-term investment funds (OJ L 123, 19.5.2015, p. 98).
EN 49 EN
– an undertaking for collective investment in transferable securities (UCITS)
management company as defined Article 2(1), point (b), of Directive
2009/65/EC of the European Parliament and of the Council116
;
– an insurance undertaking as defined in Article 13, point (1), of Directive
2009/138/EC of the European Parliament and of the Council117
;
– a reinsurance undertaking as defined in Article 13, point (4), of Directive
2009/138/EC;
– an institution for occupational retirement provision as defined in Article 1,
point (6) of Directive 2016/2341 of the European Parliament and of the
Council118
;
– pension institutions operating pension schemes which are considered to be
social security schemes covered by Regulation (EC) No 883/2004 of the
European Parliament and of the Council119
and Regulation (EC) No
987/2009 of the European Parliament and of the Council120
as well as any
legal entity set up for the purpose of investment of such schemes;
– an alternative investment fund (AIF) managed by an AIFM as defined in
Article 4(1), point (b), of Directive 2011/61/EU or an AIF supervised under
the applicable national law;
– UCITS in the meaning of Article 1(2) of Directive 2009/65/EC;
– a central counterparty as defined in Article 2, point (1), of Regulation (EU)
No 648/2012 of the European Parliament and of the Council121
;
116
Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination
of laws, regulations and administrative provisions relating to undertakings for collective investment in
transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).
117
Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-
up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).
118
Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the
activities and supervision of institutions for occupational retirement provision (IORPs) (OJ L 354,
23.12.2016, p. 37).
119
Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April 2004 on the
coordination of social security systems (OJ L 166, 30.4.2004, p. 1).
120
Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16 September 2009 laying
down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security
systems (OJ L 284, 30.10.2009, p. 1).
121
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC
derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1).
EN 50 EN
– a central securities depository as defined in Article 2(1), point (1), of
Regulation (EU) No 909/2014 of the European Parliament and of the
Council122
;
– an insurance or reinsurance special purpose vehicle authorised in
accordance with Article 211 of Directive 2009/138/EC;
– ‘securitisation special purpose entity’ as defined in Article 2, point (2), of
Regulation (EU) No 2017/2402 of the European Parliament and of the
Council123
;
– an insurance holding company as defined in Article 212(1), point (f), of
Directive 2009/138/EC or a mixed financial holding company as defined in
Article 212(1), point (h), of Directive 2009/138/EC, which is part of an
insurance group that is subject to supervision at the level of the group
pursuant to Article 213 of that Directive and which is not exempted from
group supervision pursuant to Article 214(2) of Directive 2009/138/EC;
– a payment institution as defined in point (d) of Article 1(1) of Directive
(EU) 2015/2366 of the European Parliament and of the Council124
;
– an electronic money institution as defined in point (1) of Article 2 of
Directive 2009/110/EC of the European Parliament and of the Council125
;
– a crowdfunding service provider as defined in point (e) Article 2(1) of
Regulation (EU) 2020/1503 of the European Parliament and of the
Council126
;
– a crypto-asset service provider as defined in Article 3(1), point (8), of [the
proposal for a Regulation of the European Parliament and of the Council on
122
Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving
securities settlement in the European Union and on central securities depositories and amending Directives
98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (OJ L 257, 28.8.2014, p. 1).
123
Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying
down a general framework for securitisation and creating a specific framework for simple, transparent and
standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and
Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, p. 35).
124
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on
payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU
and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (OJ L 337, 23.12.2015, p. 35).
125
Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking
up, pursuit and prudential supervision of the business of electronic money institutions amending Directives
2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (OJ L 267, 10.10.2009, p. 7).
126
Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European
crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive
(EU) 2019/1937 (OJ L 347, 20.10.2020, p. 1).
EN 51 EN
Markets in Crypto-assets, and amending Directive (EU) 2019/1937127
]
where performing one or more crypto-asset services as defined in Article
3(1), point (9), of [the proposal for a Regulation of the European Parliament
and of the Council on Markets in Crypto-assets, and amending Directive
(EU) 2019/1937];
(b) ‘adverse environmental impact’ means an adverse impact on the environment resulting
from the violation of one of the prohibitions and obligations pursuant to the
international environmental conventions listed in the Annex, Part II;
(c) ‘adverse human rights impact’ means an adverse impact on protected persons resulting
from the violation of one of the rights or prohibitions listed in the Annex, Part I Section
1, as enshrined in the international conventions listed in the Annex, Part I Section 2;
(d) ‘subsidiary’ means a legal person through which the activity of a ‘controlled
undertaking’ as defined in Article 2(1), point (f), of Directive 2004/109/EC of the
European Parliament and of the Council128
is exercised;
(e) ‘business relationship’ means a relationship with a contractor, subcontractor or any
other legal entities (‘partner’)
(i) with whom the company has a commercial agreement or to whom the company
provides financing, insurance or reinsurance, or
(ii) that performs business operations related to the products or services of the
company for or on behalf of the company;
(f) ‘established business relationship’ means a business relationship, whether direct or
indirect, which is, or which is expected to be lasting, in view of its intensity or duration
and which does not represent a negligible or merely ancillary part of the value chain;
(g) ‘value chain’ means activities related to the production of goods or the provision of
services by a company, including the development of the product or the service and the
use and disposal of the product as well as the related activities of upstream and
downstream established business relationships of the company. As regards companies
within the meaning of point (a)(iv), ‘value chain’ with respect to the provision of these
specific services shall only include the activities of the clients receiving such loan,
credit, and other financial services and of other companies belonging to the same group
whose activities are linked to the contract in question. The value chain of such regulated
127
COM/2020/593 final.
128
Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the
harmonisation of transparency requirements in relation to information about issuers whose securities are
admitted to trading on a regulated market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p.
38).
EN 52 EN
financial undertakings does not cover SMEs receiving loan, credit, financing, insurance
or reinsurance of such entities;
(h) ‘independent third-party verification’ means verification of the compliance by a
company, or parts of its value chain, with human rights and environmental requirements
resulting from the provisions of this Directive by an auditor which is independent from
the company, free from any conflicts of interests, has experience and competence in
environmental and human rights matters and is accountable for the quality and
reliability of the audit;
(i) ‘SME’ means a micro, small or a medium-sized enterprise, irrespective of its legal form,
that is not part of a large group, as those terms are defined in Article 3(1), (2), (3) and
(7) of Directive 2013/34/EU;
(j) ‘industry initiative’ means a combination of voluntary value chain due diligence
procedures, tools and mechanisms, including independent third-party verifications,
developed and overseen by governments, industry associations or groupings of
interested organisations;
(k) ‘authorised representative’ means a natural or legal person resident or established in the
Union who has a mandate from a company within the meaning of point (a)(ii) to act on
its behalf in relation to compliance with that company’s obligations pursuant to this
Directive;
(l) ‘severe adverse impact’ means an adverse environmental impact or an adverse human
rights impact that is especially significant by its nature, or affects a large number of
persons or a large area of the environment, or which is irreversible, or is particularly
difficult to remedy as a result of the measures necessary to restore the situation
prevailing prior to the impact;
(m) ‘net turnover’ means
(i) the ‘net turnover’ as defined in Article 2, point (5), of Directive 2013/34/EU; or,
(ii) where the company applies international accounting standards adopted on the
basis of Regulation (EC) No 1606/2002 of the European Parliament and of the
Council129
or is a company within the meaning of point (a)(ii), the revenue as
defined by or within the meaning of the financial reporting framework on the
basis of which the financial statements of the company are prepared;
(n) ‘stakeholders’ means the company’s employees, the employees of its subsidiaries, and
other individuals, groups, communities or entities whose rights or interests are or could
129
Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the
application of international accounting standards (OJ L 243, 11.9.2002, p.1).
EN 53 EN
be affected by the products, services and operations of that company, its subsidiaries
and its business relationships;
(o) ‘director’ means:
(i) any member of the administrative, management or supervisory bodies of a
company;
(ii) where they are not members of the administrative, management or supervisory
bodies of a company, the chief executive officer and, if such function exists in a
company, the deputy chief executive officer;
(iii) other persons who perform functions similar to those performed under point (i) or
(ii);
(p) ‘board of directors’ means the administrative or supervisory body responsible for
supervising the executive management of the company, or, if no such body exists, the
person or persons performing equivalent functions;
(q) ‘appropriate measure’ means a measure that is capable of achieving the objectives of
due diligence, commensurate with the degree of severity and the likelihood of the
adverse impact, and reasonably available to the company, taking into account the
circumstances of the specific case, including characteristics of the economic sector and
of the specific business relationship and the company’s influence thereof, and the need
to ensure prioritisation of action.
Article 4
Due diligence
1. Member States shall ensure that companies conduct human rights and environmental
due diligence as laid down in Articles 5 to 11 (‘due diligence’) by carrying out the
following actions:
(a) integrating due diligence into their policies in accordance with Article 5;
(b) identifying actual or potential adverse impacts in accordance with Article 6;
(c) preventing and mitigating potential adverse impacts, and bringing actual adverse
impacts to an end and minimising their extent in accordance with Articles 7 and 8;
(d) establishing and maintaining a complaints procedure in accordance with Article 9;
(e) monitoring the effectiveness of their due diligence policy and measures in
accordance with Article 10;
(f) publicly communicating on due diligence in accordance with Article 11.
2. Member States shall ensure that, for the purposes of due diligence, companies are
entitled to share resources and information within their respective groups of companies
and with other legal entities in compliance with applicable competition law.
EN 54 EN
Article 5
Integrating due diligence into companies’ policies
1. Member States shall ensure that companies integrate due diligence into all their
corporate policies and have in place a due diligence policy. The due diligence policy
shall contain all of the following:
(a) a description of the company’s approach, including in the long term, to due
diligence;
(b) a code of conduct describing rules and principles to be followed by the company’s
employees and subsidiaries;
(c) a description of the processes put in place to implement due diligence, including
the measures taken to verify compliance with the code of conduct and to extend
its application to established business relationships.
2. Member States shall ensure that the companies update their due diligence policy
annually.
Article 6
Identifying actual and potential adverse impacts
1. Member States shall ensure that companies take appropriate measures to identify actual
and potential adverse human rights impacts and adverse environmental impacts arising
from their own operations or those of their subsidiaries and, where related to their value
chains, from their established business relationships, in accordance with paragraph 2, 3
and 4.
2. By way of derogation from paragraph 1, companies referred to in Article 2(1), point (b),
and Article 2(2), point (b), shall only be required to identify actual and potential severe
adverse impacts relevant to the respective sector mentioned in Article 2(1), point (b).
3. When companies referred to in Article 3, point (a)(iv), provide credit, loan or other
financial services, identification of actual and potential adverse human rights impacts
and adverse environmental impacts shall be carried out only before providing that
service..
4. Member States shall ensure that, for the purposes of identifying the adverse impacts
referred to in paragraph 1 based on, where appropriate, quantitative and qualitative
information, companies are entitled to make use of appropriate resources, including
independent reports and information gathered through the complaints procedure
provided for in Article 9. Companies shall, where relevant, also carry out consultations
with potentially affected groups including workers and other relevant stakeholders to
gather information on actual or potential adverse impacts.
EN 55 EN
Article 7
Preventing potential adverse impacts
1. Member States shall ensure that companies take appropriate measures to prevent, or
where prevention is not possible or not immediately possible, adequately mitigate
potential adverse human rights impacts and adverse environmental impacts that have
been, or should have been, identified pursuant to Article 6, in accordance with
paragraphs 2, 3, 4 and 5 of this Article.
2. Companies shall be required to take the following actions, where relevant:
(a) where necessary due to the nature or complexity of the measures required for
prevention, develop and implement a prevention action plan, with reasonable and
clearly defined timelines for action and qualitative and quantitative indicators for
measuring improvement. The prevention action plan shall be developed in
consultation with affected stakeholders;
(b) seek contractual assurances from a business partner with whom it has a direct
business relationship that it will ensure compliance with the company’s code of
conduct and, as necessary, a prevention action plan, including by seeking
corresponding contractual assurances from its partners, to the extent that their
activities are part of the company’s value chain (contractual cascading). When
such contractual assurances are obtained, paragraph 4 shall apply;
(c) make necessary investments, such as into management or production processes
and infrastructures, to comply with paragraph 1;
(d) provide targeted and proportionate support for an SME with which the company
has an established business relationship, where compliance with the code of
conduct or the prevention action plan would jeopardise the viability of the SME;
(e) in compliance with Union law including competition law, collaborate with other
entities, including, where relevant, to increase the company’s ability to bring the
adverse impact to an end, in particular where no other action is suitable or
effective.
3. As regards potential adverse impacts that could not be prevented or adequately
mitigated by the measures in paragraph 2, the company may seek to conclude a contract
with a partner with whom it has an indirect relationship, with a view to achieving
compliance with the company’s code of conduct or a prevention action plan. When such
a contract is concluded, paragraph 4 shall apply.
4. The contractual assurances or the contract shall be accompanied by the appropriate
measures to verify compliance. For the purposes of verifying compliance, the company
may refer to suitable industry initiatives or independent third-party verification.
When contractual assurances are obtained from, or a contract is entered into, with an
SME, the terms used shall be fair, reasonable and non-discriminatory. Where measures
to verify compliance are carried out in relation to SMEs, the company shall bear the cost
of the independent third-party verification.
EN 56 EN
5. As regards potential adverse impacts within the meaning of paragraph 1 that could not
be prevented or adequately mitigated by the measures in paragraphs 2, 3 and 4, the
company shall be required to refrain from entering into new or extending existing
relations with the partner in connection with or in the value chain of which the impact
has arisen and shall, where the law governing their relations so entitles them to, take the
following actions:
(a) temporarily suspend commercial relations with the partner in question, while
pursuing prevention and minimisation efforts, if there is reasonable expectation
that these efforts will succeed in the short-term;
(b) terminate the business relationship with respect to the activities concerned if the
potential adverse impact is severe.
Member States shall provide for the availability of an option to terminate the business
relationship in contracts governed by their laws.
6. By way of derogation from paragraph 5, point (b), when companies referred to in
Article 3, point (a)(iv), provide credit, loan or other financial services, they shall not be
required to terminate the credit, loan or other financial service contract when this can be
reasonably expected to cause substantial prejudice to the entity to whom that service is
being provided.
Article 8
Bringing actual adverse impacts to an end
1. Member States shall ensure that companies take appropriate measures to bring actual
adverse impacts that have been, or should have been, identified pursuant to Article 6 to
an end, in accordance with paragraphs 2 to 6 of this Article.
2. Where the adverse impact cannot be brought to an end, Member States shall ensure that
companies minimise the extent of such an impact.
3. Companies shall be required to take the following actions, where relevant:
(a) neutralise the adverse impact or minimise its extent, including by the payment of
damages to the affected persons and of financial compensation to the affected
communities. The action shall be proportionate to the significance and scale of the
adverse impact and to the contribution of the company’s conduct to the adverse
impact;
(b) where necessary due to the fact that the adverse impact cannot be immediately
brought to an end, develop and implement a corrective action plan with reasonable
and clearly defined timelines for action and qualitative and quantitative indicators
for measuring improvement. Where relevant, the corrective action plan shall be
developed in consultation with stakeholders;
(c) seek contractual assurances from a direct partner with whom it has an established
business relationship that it will ensure compliance with the code of conduct and,
as necessary, a corrective action plan, including by seeking corresponding
contractual assurances from its partners, to the extent that they are part of the
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value chain (contractual cascading). When such contractual assurances are
obtained, paragraph 5 shall apply.
(d) make necessary investments, such as into management or production processes
and infrastructures to comply with paragraphs 1, 2 and 3;
(e) provide targeted and proportionate support for an SME with which the company
has an established business relationship, where compliance with the code of
conduct or the corrective action plan would jeopardise the viability of the SME;
(f) in compliance with Union law including competition law, collaborate with other
entities, including, where relevant, to increase the company’s ability to bring the
adverse impact to an end, in particular where no other action is suitable or
effective.
4. As regards actual adverse impacts that could not be brought to an end or adequately
mitigated by the measures in paragraph 3, the company may seek to conclude a contract
with a partner with whom it has an indirect relationship, with a view to achieving
compliance with the company’s code of conduct or a corrective action plan. When such
a contract is concluded, paragraph 5 shall apply.
5. The contractual assurances or the contract shall be accompanied by the appropriate
measures to verify compliance. For the purposes of verifying compliance, the company
may refer to suitable industry initiatives or independent third-party verification.
When contractual assurances are obtained from, or a contract is entered into, with an
SME, the terms used shall be fair, reasonable and non-discriminatory. Where measures
to verify compliance are carried out in relation to SMEs, the company shall bear the cost
of the independent third-party verification.
6. As regards actual adverse impacts within the meaning of paragraph 1 that could not be
brought to an end or the extent of which could not be minimised by the measures
provided for in paragraphs 3, 4 and 5, the company shall refrain from entering into new
or extending existing relations with the partner in connection to or in the value chain of
which the impact has arisen and shall, where the law governing their relations so entitles
them to, take one of the following actions:
(a) temporarily suspend commercial relationships with the partner in question, while
pursuing efforts to bring to an end or minimise the extent of the adverse impact, or
(b) terminate the business relationship with respect to the activities concerned, if the
adverse impact is considered severe.
Member States shall provide for the availability of an option to terminate the business
relationship in contracts governed by their laws.
7. By way of derogation from paragraph 6, point (b), when companies referred to in
Article 3, point (a)(iv), provide credit, loan or other financial services, they shall not be
required to terminate the credit, loan or other financial service contract, when this can
be reasonably expected to cause substantial prejudice to the entity to whom that service
is being provided.
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Article 9
Complaints procedure
1. Member States shall ensure that companies provide the possibility for persons and
organisations listed in paragraph 2 to submit complaints to them where they have
legitimate concerns regarding actual or potential adverse human rights impacts and
adverse environmental impacts with respect to their own operations, the operations of
their subsidiaries and their value chains.
2. Member States shall ensure that the complaints may be submitted by:
(a) persons who are affected or have reasonable grounds to believe that they might be
affected by an adverse impact,
(b) trade unions and other workers’ representatives representing individuals working
in the value chain concerned,
(c) civil society organisations active in the areas related to the value chain concerned.
3. Member States shall ensure that the companies establish a procedure for dealing with
complaints referred to in paragraph 1, including a procedure when the company
considers the complaint to be unfounded, and inform the relevant workers and trade
unions of those procedures. Member States shall ensure that where the complaint is
well-founded, the adverse impact that is the subject matter of the complaint is deemed
to be identified within the meaning of Article 6.
4. Member States shall ensure that complainants are entitled
(a) to request appropriate follow-up on the complaint from the company with which
they have filed a complaint pursuant to paragraph 1, and
(b) to meet with the company’s representatives at an appropriate level to discuss
potential or actual severe adverse impacts that are the subject matter of the
complaint.
Article 10
Monitoring
Member States shall ensure that companies carry out periodic assessments of their own
operations and measures, those of their subsidiaries and, where related to the value chains of the
company, those of their established business relationships, to monitor the effectiveness of the
identification, prevention, mitigation, bringing to an end and minimisation of the extent of
human rights and environmental adverse impacts. Such assessments shall be based, where
appropriate, on qualitative and quantitative indicators and be carried out at least every 12 months
and whenever there are reasonable grounds to believe that significant new risks of the occurrence
of those adverse impacts may arise. The due diligence policy shall be updated in accordance with
the outcome of those assessments.
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Article 11
Communicating
Member States shall ensure that companies that are not subject to reporting requirements under
Articles 19a and 29a of Directive 2013/34/EU report on the matters covered by this Directive by
publishing on their website an annual statement in a language customary in the sphere of
international business. The statement shall be published by 30 April each year, covering the
previous calendar year.
The Commission shall adopt delegated acts in accordance with Article 28 concerning the content
and criteria for such reporting under paragraph 1, specifying information on the description of
due diligence, potential and actual adverse impacts and actions taken on those.
Article 12
Model contractual clauses
In order to provide support to companies to facilitate their compliance with Article 7(2),
point (b), and Article 8(3), point (c), the Commission shall adopt guidance about voluntary
model contract clauses.
Article 13
Guidelines
In order to provide support to companies or to Member State authorities on how companies
should fulfil their due diligence obligations, the Commission, in consultation with Member
States and stakeholders, the European Union Agency for Fundamental Rights, the European
Environment Agency, and where appropriate with international bodies having expertise in due
diligence, may issue guidelines, including for specific sectors or specific adverse impacts.
Article 14
Accompanying measures
1. Member States shall, in order to provide information and support to companies and the
partners with whom they have established business relationships in their value chains in
their efforts to fulfil the obligations resulting from this Directive, set up and operate
individually or jointly dedicated websites, platforms or portals. Specific consideration
shall be given, in that respect, to the SMEs that are present in the value chains of
companies.
2. Without prejudice to applicable State aid rules, Member States may financially support
SMEs.
3. The Commission may complement Member States’ support measures building on
existing Union action to support due diligence in the Union and in third countries and
may devise new measures, including facilitation of joint stakeholder initiatives to help
companies fulfil their obligations.
EN 60 EN
4. Companies may rely on industry schemes and multi-stakeholder initiatives to support
the implementation of their obligations referred to in Articles 5 to 11 of this Directive to
the extent that such schemes and initiatives are appropriate to support the fulfilment of
those obligations. The Commission and the Member States may facilitate the
dissemination of information on such schemes or initiatives and their outcome. The
Commission, in collaboration with Member States, may issue guidance for assessing the
fitness of industry schemes and multi-stakeholder initiatives.
Article 15
Combating climate change
1. Member States shall ensure that companies referred to in Article 2(1), point (a), and
Article 2(2), point (a), shall adopt a plan to ensure that the business model and strategy
of the company are compatible with the transition to a sustainable economy and with the
limiting of global warming to 1.5 °C in line with the Paris Agreement. This plan shall,
in particular, identify, on the basis of information reasonably available to the company,
the extent to which climate change is a risk for, or an impact of, the company’s
operations.
2. Member States shall ensure that, in case climate change is or should have been
identified as a principal risk for, or a principal impact of, the company’s operations, the
company includes emission reduction objectives in its plan.
3. Member States shall ensure that companies duly take into account the fulfilment of the
obligations referred to in paragraphs 1 and 2 when setting variable remuneration, if
variable remuneration is linked to the contribution of a director to the company’s
business strategy and long-term interests and sustainability.
Article 16
Authorised representative
1. Member States shall ensure that each company referred to in Article 2(2) designates a
legal or natural person as its authorised representative, established or domiciled in one
of the Member States where it operates. The designation shall be valid when confirmed
as accepted by the authorised representative.
2. Member States shall ensure that the name, address, electronic mail address and
telephone number of the authorised representative is notified to a supervisory authority
in the Member State where the authorised representative is domiciled or established.
Member States shall ensure that the authorised representative is obliged to provide,
upon request, a copy of the designation in an official language of a Member State to any
of the supervisory authorities.
3. Member States shall ensure that a supervisory authority in the Member State where the
authorised representative is domiciled or established and, where it is different, a
supervisory authority in the Member State in which the company generated most of its
net turnover in the Union in the financial year preceding the last financial year are
informed that the company is a company within the meaning of Article 2(2).
EN 61 EN
4. Member States shall ensure that each company empowers its authorised representative
to receive communications from supervisory authorities on all matters necessary for
compliance with and enforcement of national provisions transposing this Directive.
Companies shall be required to provide their authorised representative with the
necessary powers and resources to cooperate with supervisory authorities.
Article 17
Supervisory Authorities
1. Each Member State shall designate one or more supervisory authorities to supervise
compliance with the obligations laid down in national provisions adopted pursuant to
Articles 6 to 11 and Article 15(1) and (2) (‘supervisory authority’).
2. As regards the companies referred to in Article 2(1), the competent supervisory
authority shall be that of the Member State in which the company has its registered
office.
3. As regards companies referred to in Article 2(2), the competent supervisory authority
shall be that of the Member State in which the company has a branch. If the company
does not have a branch in any Member State, or has branches located in different
Member States, the competent supervisory authority shall be the supervisory authority
of the Member State in which the company generated most of its net turnover in the
Union in the financial year preceding the last financial year before the date indicated in
Article 30 or the date on which the company first fulfils the criteria laid down in Article
2(2), whichever comes last.
Companies referred to in Article 2(2) may, on the basis of a change in circumstances
leading to it generating most of its turnover in the Union in a different Member State,
make a duly reasoned request to change the supervisory authority that is competent to
regulate matters covered in this Directive in respect of that company.
4. Where a Member State designates more than one supervisory authority, it shall ensure
that the respective competences of those authorities are clearly defined and that they
cooperate closely and effectively with each other.
5. Member States may designate the authorities for the supervision of regulated financial
undertakings also as supervisory authorities for the purposes of this Directive.
6. By the date indicated in Article 30(1), point (a), Member States shall inform the
Commission of the names and contact details of the supervisory authorities designated
pursuant to this Article, as well as of their respective competence where there are
several designated supervisory authorities. They shall inform the Commission of any
changes thereto.
7. The Commission shall make publicly available, including on its website, a list of the
supervisory authorities. The Commission shall regularly update the list on the basis of
the information received from the Member States.
8. Member States shall guarantee the independence of the supervisory authorities and shall
ensure that they, and all persons working for or who have worked for them and auditors
EN 62 EN
or experts acting on their behalf, exercise their powers impartially, transparently and
with due respect for obligations of professional secrecy. In particular, Member States
shall ensure that the authority is legally and functionally independent from the
companies falling within the scope of this Directive or other market interests, that its
staff and the persons responsible for its management are free of conflicts of interest,
subject to confidentiality requirements, and that they refrain from any action
incompatible with their duties.
Article 18
Powers of supervisory authorities
1. Member States shall ensure that the supervisory authorities have adequate powers and
resources to carry out the tasks assigned to them under this Directive, including the
power to request information and carry out investigations related to compliance with the
obligations set out in this Directive.
2. A supervisory authority may initiate an investigation on its own motion or as a result of
substantiated concerns communicated to it pursuant to Article 19, where it considers
that it has sufficient information indicating a possible breach by a company of the
obligations provided for in the national provisions adopted pursuant to this Directive.
3. Inspections shall be conducted in compliance with the national law of the Member State
in which the inspection is carried out and with prior warning to the company, except
where prior notification hinders the effectiveness of the inspection. Where, as part of its
investigation, a supervisory authority wishes to carry out an inspection on the territory
of a Member State other than its own, it shall seek assistance from the supervisory
authority in that Member State pursuant to Article 21(2).
4. If, as a result of the actions taken pursuant to paragraphs 1 and 2, a supervisory
authority identifies a failure to comply with national provisions adopted pursuant to this
Directive, it shall grant the company concerned an appropriate period of time to take
remedial action, if such action is possible.
Taking remedial action does not preclude the imposition of administrative sanctions or
the triggering of civil liability in case of damages, in accordance with Articles 20 and
22, respectively.
5. When carrying out their tasks, supervisory authorities shall have at least the following
powers:
(a) to order the cessation of infringements of the national provisions adopted pursuant
to this Directive, abstention from any repetition of the relevant conduct and,
where appropriate, remedial action proportionate to the infringement and
necessary to bring it to an end;
(b) to impose pecuniary sanctions in accordance with Article 20;
(c) to adopt interim measures to avoid the risk of severe and irreparable harm.
6. Where the legal system of the Member State does not provide for administrative
sanctions, this Article and Article 20 may be implemented in such a manner that the
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sanction is initiated by the competent supervisory authority and imposed by the
competent national courts, while ensuring that those legal remedies are effective and
have an equivalent effect to the administrative sanctions imposed by supervisory
authorities.
7. Member States shall ensure that each natural or legal person has the right to an effective
judicial remedy against a legally binding decision by a supervisory authority concerning
them.
Article 19
Substantiated concerns
1. Member States shall ensure that natural and legal persons are entitled to submit
substantiated concerns to any supervisory authority when they have reasons to believe,
on the basis of objective circumstances, that a company is failing to comply with the
national provisions adopted pursuant to this Directive (‘substantiated concerns’).
2. Where the substantiated concern falls under the competence of another supervisory
authority, the authority receiving the concern shall transmit it to that authority.
3. Member States shall ensure that supervisory authorities assess the substantiated
concerns and, where appropriate, exercise their powers as referred to in Article 18.
4. The supervisory authority shall, as soon as possible and in accordance with the relevant
provisions of national law and in compliance with Union law, inform the person
referred to in paragraph 1 of the result of the assessment of their substantiated concern
and shall provide the reasoning for it.
5. Member States shall ensure that the persons submitting the substantiated concern
according to this Article and having, in accordance with national law, a legitimate
interest in the matter have access to a court or other independent and impartial public
body competent to review the procedural and substantive legality of the decisions, acts
or failure to act of the supervisory authority.
Article 20
Sanctions
1. Member States shall lay down the rules on sanctions applicable to infringements of
national provisions adopted pursuant to this Directive, and shall take all measures
necessary to ensure that they are implemented. The sanctions provided for shall be
effective, proportionate and dissuasive.
2. In deciding whether to impose sanctions and, if so, in determining their nature and
appropriate level, due account shall be taken of the company’s efforts to comply with
any remedial action required of them by a supervisory authority, any investments made
and any targeted support provided pursuant to Articles 7 and 8, as well as collaboration
with other entities to address adverse impacts in its value chains, as the case may be.
3. When pecuniary sanctions are imposed, they shall be based on the company’s turnover.
EN 64 EN
4. Member States shall ensure that any decision of the supervisory authorities containing
sanctions related to the breach of the provisions of this directive is published.
Article 21
European Network of Supervisory Authorities
1. The Commission shall set up a European Network of Supervisory Authorities,
composed of representatives of the supervisory authorities. The Network shall facilitate
the cooperation of the supervisory authorities and the coordination and alignment of
regulatory, investigative, sanctioning and supervisory practices of the supervisory
authorities and, as appropriate, sharing of information among them.
The Commission may invite Union agencies with relevant expertise in the areas covered
by this Directive to join the European Network of Supervisory Authorities.
2. Supervisory authorities shall provide each other with relevant information and mutual
assistance in carrying out their duties and shall put in place measures for effective
cooperation with each other. Mutual assistance shall include collaboration with a view
to the exercise of the powers referred to in Article 18, including in relation to
inspections and information requests.
3. Supervisory authorities shall take all appropriate steps needed to reply to a request for
assistance by another supervisory authority without undue delay and no later than 1
month after receiving the request. Such steps may include, in particular, the
transmission of relevant information on the conduct of an investigation.
4. Requests for assistance shall contain all the necessary information, including the
purpose of and reasons for the request. Supervisory authorities shall only use the
information received through a request for assistance for the purpose for which it was
requested.
5. The requested supervisory authority shall inform the requesting supervisory authority of
the results or, as the case may be, of the progress regarding the measures to be taken in
order to respond to the request for assistance.
6. Supervisory authorities shall not charge each other fees for actions and measures taken
pursuant to a request for assistance.
However, supervisory authorities may agree on rules to indemnify each other for
specific expenditure arising from the provision of assistance in exceptional cases.
7. The supervisory authority that is competent pursuant to Article 17(3) shall inform the
European Network of Supervisory Authorities of that fact and of any request to change
the competent supervisory authority.
8. When doubts exist as to the attribution of competence, the information on which that
attribution is based will be shared with the European Network of Supervisory
Authorities, which may coordinate efforts to find a solution.
EN 65 EN
Article 22
Civil liability
1. Member States shall ensure that companies are liable for damages if:
(a) they failed to comply with the obligations laid down in Articles 7 and 8 and;
(b) as a result of this failure an adverse impact that should have been identified,
prevented, mitigated, brought to an end or its extent minimised through the
appropriate measures laid down in Articles 7 and 8 occurred and led to damage.
2. Notwithstanding paragraph 1, Member States shall ensure that where a company has
taken the actions referred to in Article 7(2), point (b) and Article 7(4), or Article 8(3),
point (c), and Article 8(5), it shall not be liable for damages caused by an adverse
impact arising as a result of the activities of an indirect partner with whom it has an
established business relationship, unless it was unreasonable, in the circumstances of the
case, to expect that the action actually taken, including as regards verifying compliance,
would be adequate to prevent, mitigate, bring to an end or minimise the extent of the
adverse impact.
In the assessment of the existence and extent of liability under this paragraph, due
account shall be taken of the company’s efforts, insofar as they relate directly to the
damage in question, to comply with any remedial action required of them by a
supervisory authority, any investments made and any targeted support provided
pursuant to Articles 7 and 8, as well as any collaboration with other entities to address
adverse impacts in its value chains.
3. The civil liability of a company for damages arising under this provision shall be
without prejudice to the civil liability of its subsidiaries or of any direct and indirect
business partners in the value chain.
4. The civil liability rules under this Directive shall be without prejudice to Union or
national rules on civil liability related to adverse human rights impacts or to adverse
environmental impacts that provide for liability in situations not covered by or
providing for stricter liability than this Directive.
5. Member States shall ensure that the liability provided for in provisions of national law
transposing this Article is of overriding mandatory application in cases where the law
applicable to claims to that effect is not the law of a Member State.
Article 23
Reporting of breaches and protection of reporting persons
Directive (EU) 2019/1937 shall apply to the reporting of all breaches of this Directive and the
protection of persons reporting such breaches.
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Article 24
Public support
Member States shall ensure that companies applying for public support certify that no sanctions
have been imposed on them for a failure to comply with the obligations of this Directive.
Article 25
Directors’ duty of care
1. Member States shall ensure that, when fulfilling their duty to act in the best interest of
the company, directors of companies referred to in Article 2(1) take into account the
consequences of their decisions for sustainability matters, including, where applicable,
human rights, climate change and environmental consequences, including in the short,
medium and long term.
2. Member States shall ensure that their laws, regulations and administrative provisions
providing for a breach of directors’ duties apply also to the provisions of this Article.
Article 26
Setting up and overseeing due diligence
1. Member States shall ensure that directors of companies referred to in Article 2(1) are
responsible for putting in place and overseeing the due diligence actions referred to in
Article 4 and in particular the due diligence policy referred to in Article 5, with due
consideration for relevant input from stakeholders and civil society organisations. The
directors shall report to the board of directors in that respect.
2. Member States shall ensure that directors take steps to adapt the corporate strategy to
take into account the actual and potential adverse impacts identified pursuant to
Article 6 and any measures taken pursuant to Articles 7 to 9.
Article 27
Amendment to Directive (EU) No 2019/1937
In Point E.2 of Part I of the Annex to Directive (EU) No 2019/1937, the following point is
added:
EN 67 EN
‘(vi) [Directive … of the European Parliament and of the Council of … on Corporate
Sustainability Due Diligence and amending Directive (EU) 2019/1937*+
]’
Article 28
Exercise of the delegation
1. The power to adopt delegated acts is conferred on the Commission subject to the
conditions laid down in this Article.
2. The power to adopt delegated acts referred to in Article 11 shall be conferred on the
Commission for an indeterminate period of time.
3. The delegation of power referred to in Article 11 may be revoked at any time by the
European Parliament or by the Council. A decision to revoke shall put an end to the
delegation of the power specified in that decision. It shall take effect the day following
the publication of the decision in the Official Journal of the European Union or at a
later date specified therein. It shall not affect the validity of any delegated acts already
in force.
4. Before adopting a delegated act, the Commission shall consult experts designated by
each Member State in accordance with the principles laid down in the Interinstitutional
Agreement of 13 April 2016 on Better Law-Making.
5. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to
the European Parliament and to the Council.
6. A delegated act adopted pursuant to Article 11 shall enter into force only if no objection
has been expressed either by the European Parliament or the Council within a period of
two months of notification of that act to the European Parliament and the Council or if,
before the expiry of that period, the European Parliament and the Council have both
informed the Commission that they will not object. That period shall be extended by
two months at the initiative of the European Parliament or of the Council."
Article 29
Review
No later than … [OP please insert the date = 7 years after the date of entry into force of this
Directive], the Commission shall submit a report to the European Parliament and to the Council
on the implementation of this Directive. The report shall evaluate the effectiveness of this
Directive in reaching its objectives and assess the following issues:
+
OJ: Please insert in the text the number and the date of the Directive contained in document ... and insert
the OJ reference of that Directive in the footnote.
EN 68 EN
(a) whether the thresholds regarding the number of employees and net turnover laid down
in Article 2(1) need to be lowered;
(b) whether the list of sectors in Article 2(1), point (b), needs to be changed, including in
order to align it to guidance from the Organisation for Economic Cooperation and
Development;
(c) whether the Annex needs to be modified, including in light of international
developments
(d) whether Articles 4 to 14 should be extended to adverse climate impacts.
Article 30
Transposition
1. Member States shall adopt and publish, by … [OJ to insert: 2 years from the entry into
force of this Directive] at the latest, regulations and administrative provisions necessary
to comply with this Directive. They shall forthwith communicate to the Commission the
text of those provisions.
They shall apply those provisions as follows:
(a) from… [OJ to insert: 2 years from the entry into force of this Directive] as regards
companies referred to in Article 2(1), point (a), and Article 2(2), point (a);
(b) from … [OJ to insert: 4 years from the entry into force of this Directive] as
regards companies referred to in Article 2(1), point (b), and Article 2(2), point (b).
When Member States adopt those provisions, they shall contain a reference to this
Directive or be accompanied by such a reference on the occasion of their official
publication. Member States shall determine how such reference is to be made.
2. Member States shall communicate to the Commission the text of the main provisions of
national law which they adopt in the field covered by this Directive.
Article 31
Entry into force
This Directive shall enter into force on the twentieth day following that of its publication in the
Official Journal of the European Union.
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Article 32
Addressees
This Directive is addressed to the Member States.
Done at Brussels,
For the European Parliament For the Council
The President The President