New rules for companies to protect people and the planet

At the last plenary session this week, the European Parliament adopted the Corporate Sustainability Due Diligence Directive (CSDDD). With this decision, the adoption of a common European standard was accepted, requiring companies to manage better the risks associated with human rights violations in global supply chains, as well as their impact on the environment.

Companies and their partners will be required to prevent their adverse impact on human rights and the environment, not only upstream and downstream in the supply chain but also with activities associated with sales, production, and distribution.

Scope

The rules will apply to EU companies with over 1000 employees and a global turnover of over 450 million euros. Among the obligations are for companies to integrate human rights into their policies, improve their business models, conduct human rights due diligence, especially in their supply chains, and support small and medium-sized enterprises to ensure compliance with mandatory requirements.

Companies will be required to develop strategic plans for climate transition to align their business models with the 1.5°C global warming limit as outlined in the Paris Agreement.

Transparency and effective protection

To ensure transparency and clarity about the rules, governments will provide online information to facilitate companies’ understanding of the new requirements.  A supervisory body will be established with the authority to investigate and impose sanctions on companies that fail to comply with the rules, along with increased transparency through fines of up to 5% of annual global net turnover and disclosure of companies that have not fulfilled their obligations.

The directive will clarify the existing rules of EU member states on their obligations to protect human rights and provide effective protection for affected people by the adverse impact of companies’ activities.

What’s Next?

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

Although the number of companies covered by the Directive is only around 5500 companies in the EU, mandatory human rights due diligence rules have already been applied in different EU countries such as Germany, France, the Netherlands, and Norway. These rules demonstrate the push for change towards more responsible business models that will reduce the exploitation of people and resources, and promote sustainability and care for people and the planet.