27.04.2024

New rules for companies with care for the environment and respect for human rights

At the last plenary session this week, the European Parliament adopted the Due Diligence Directive (CSDDD). This decision led to the adoption of a common European standard that would oblige businesses to better manage the risks associated with human rights abuses in global supply chains, as well as the impact on the environment.

Companies, together with their partners, will need to prevent their adverse impact on human rights and the environment, not only up and down the supply chain, but also in activities related to sales, production and distribution.

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The rules will apply to EU companies with more than 1000 employees and a worldwide turnover of more than €450 million. Among the obligations are companies to integrate due diligence into their policies, improve their business models, survey supply chains, and support small and medium-sized enterprises to ensure that mandatory requirements are met.

Companies will need to draw up strategic climate transition plans to guide their business models towards compliance with the 1,5°C global warming limit as set out in the Paris Agreement.

Transparency and protection for stakeholders

To bring transparency and clarity to the rules, online information will be made available to facilitate companies on the new requirements. It is also expected to create a supervisory body that will be able to investigate and impose sanctions on companies that do not comply with the rules, as well as more transparency through the application of fines of up to 5% of annual global turnover and public disclosure of companies that do not have fulfilled their obligations.

The directive will clarify the existing rules of EU member states on obligations to protect human rights and ensure effective protection of potentially affected people from adverse effects of companies.

What next?

The next step is for EU members to approve the final text in May, with the Directive expected to enter into force in the next 3 or 4 years depending on company size and annual turnover.

Although the number of companies covered by the Directive is about 5500 companies in the EU, mandatory due diligence rules are already in place in countries such as Germany, France, the Kingdom of the Netherlands, and Norway. These rules show the desire to change to more responsible business models that will reduce the exploitation of people and resources, and contribute to sustainable development with care for people and the planet.