New due diligence rules for EU companies in the field of human rights and the environment | Actual

MEPs approved the new ‘due diligence’ directive, which has already been agreed with the Council, by 374 votes to 235 and 19 abstentions. This directive obliges companies and their partners in the supply, production and distribution chain to eliminate or reduce their negative impact on human rights and the environment. Such impacts may include enslavement, child labour, exploitation of workers, loss of biodiversity or destruction of natural heritage.

Risk-based approach and transition plan

The rules will apply to EU companies and parent companies with more than 1,000 employees and a worldwide turnover of at least €450 million, as well as franchises with a common corporate identity if they have a turnover of at least €80 million. They will also apply to non-EU companies, parent companies and franchises whose turnover in the European Union will reach the mentioned amounts. To ensure compliance, these companies will need to exercise due diligence in their operations, make appropriate investments, request contractual guarantees from partners, improve their business plan or support partners who are small and medium-sized enterprises. They will also need to adopt a transition plan so that their business model takes into account the 1.5°C global warming limit set by the Paris Agreement.

Penalties and compensation for victims

Member States will be obliged to provide companies with detailed practical information on their due diligence obligations on the internet on specific websites, which will also host the Commission’s instructions. States will also have to establish or designate a supervisory authority to investigate and fine companies for non-compliance. Such penalties could include, for example, blacklisting and fines of up to 5% of the company’s net turnover worldwide. The Commission will establish a network of European supervisory authorities that will help these authorities to cooperate and exchange best practices. Companies will be liable for damages caused by non-compliance with these rules and will have to pay compensation to victims.

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Following the vote in plenary, lead MEP Lara Walters (S&D, Netherlands) said: “Today’s vote is a milestone towards responsible business and a big step forward to end the exploitation of people and the planet for business interests. This law, which we have been trying to agree on for several years, is the result of a hard-fought compromise. I am proud of what has been achieved and of the progressive thinking of our cooperation partners. In the next convocation of the Parliament, we will fight not only for quick implementation, but also for the European economy to become even more sustainable.”

Next steps

So that the directive can be signed and published In the Official Gazette, it still needs to be officially approved by the Council. It will enter into force 20 days after publication. Member States will have to ensure the transposition of the directive into their legislation within two years.

The new rules (except reporting obligations) will be applied gradually to companies in the EU and other countries:

• from 2027 companies with at least 5,000 employees and a turnover of at least 1,500 million euros in the world,
• from 2028 companies with at least 3,000 employees and a turnover of at least EUR 900 million in the world,
• from 2029 for all other companies covered by the directive (with at least 1,000 employees and a worldwide turnover of 450 million euros).

General Information

Parliament has repeatedly called for increased corporate responsibility and mandatory due diligence legislation. The Commission’s proposal, proposed on 23 February 2022, complements other existing and soon-to-be-applied legislation, such as the Deforestation Regulation, the Conflict Minerals Regulation and the Regulation banning products made from forced labour.

By adopting this legislation, the Parliament has responded to the citizens’ desire to strengthen the sustainability of consumption, ethical trade and the model of sustainable growth expressed in the conclusions of the Conference on the Future of Europe.