EU legislative process on corporate due diligence in full swing

In February 2022, the European Commission adopted a proposal for a directive on corporate due diligence in the field of sustainability. The directive aims to promote sustainable and responsible business conduct in the area of human rights and the environment in all value chains inside and outside the EU. The proposal is legally based on the European Green Deal as well as on numerous existing as well as planned EU legal acts. For example, the proposed directive complements the existing EU directive on the disclosure of non-financial information. It is also related to the Commission's proposal for a directive on corporate sustainability reporting to revise the directive on the disclosure of non-financial information. It complements the EU Regulation on sustainability-related disclosure requirements in the financial services sector, the Taxonomy Regulation, the Directive on preventing and combating human trafficking and protecting its victims, the Directive on sanctions against employers, the Regulation on minerals from conflict areas, and the current proposal for a Regulation on deforestation-free supply chains.

"State of play" October 2022.

After the Commission published the proposal in February 2022, the two co-legislators, the European Parliament (EP) and the Council, must now discuss and vote on the proposal. Work is currently in full swing in both institutions. In the Council, the Czech Presidency intends to reach a General Approach among the Member States in the Competitiveness Council in early December 2022. In the EP, the leading committee is the Committee for Legal Affairs Committee. Other committees that will deliver an opinion on the proposal are the Commettees for Foreign Affairs (AFET), for Human Rights (DROI), for International Trade (INTA), for Economic and Monetary Affairs (ECON), for Environment, Public Health and Food Safety (ENVI), for Industry, Research and Development (ITRE), for Development (DEVE), for Employment and Social Affairs (EMPL), and for Internal Market and Consumer Protection (IMCO). The report of the Legal Affairs Committee (rapporteur is Lara Wolters, S&D, NL) is expected by the end of October 2022. In March 2023, the text is to be voted on in the Legal Affairs Committee. In May 2023 eventually in the plenary of the EP. Meanwhile, individual committees have already published their draft opinions, such as the ENVI and ITRE committees.

Key points of the Commission proposal:

- The Directive sets out rules on companies' due diligence obligations with with regard to actual and potential negative impacts on human rights and the environment in relation to their own business activities, the business activities of their subsidiaries and the value chain activities carried out in the context of established business relationships.

- Member States should ensure that companies integrate due diligence into all aspects of their business policies and have a due diligence strategy that is updated annually.

- Member States should also ensure that companies provide for a grievance mechanism with the company where there are legitimate concerns about potential or actual negative impacts on human rights or the environment. Companies must make this grievance mechanism available to affected or potentially affected persons, as well as trade unions and civil society organizations active in the field.

- Member States are required to establish rules on the civil liability of companies to hold companies liable for damages resulting from a failure to exercise due diligence.

- Member States shall ensure that the following companies establish a plan to ensure that their business model and corporate strategy are consistent with limiting global warming to 1.5 degrees in accordance with the Paris Agreement.

- Companies that had an average of more than 500 employees and global net sales of more than 150 million euros in the last fiscal year for which financial statements were prepared.

- Companies that had net sales in the Union of more than 150 million euros in the fiscal year preceding the last fiscal year for which financial statements are prepared.

Assessment

The BDI has already contributed to the legislative process at EU level at an early stage with a statement.

German companies have been successfully promoting sustainability in their supply chains for many years. In this way, they actively contribute to better social and environmental standards, better education and sustainable development. However, there are limits to corporate responsibility and influence in the area of human rights and environmental protection. The Commission's proposal goes far beyond this. It risks to further burden European business in an already strained situation. The two co-legislators should take this into account in their joint vote.