The Due Diligence Directive is a major legislative initiative of the European Union. It aims to introduce a duty of due diligence on human rights, environmental protection and good governance in companies’ supply chains. Below is key information on the directive to help you understand its significance and implications.
Objectives of the Directive
The Directive aims to:
- Ensure that companies comply with international human rights and environmental standards: The Directive requires companies to identify, prevent, mitigate and take responsibility for the impacts of their actions worldwide.
- Improve transparency and accountability: The Directive requires companies to report on due diligence activities and remedial measures taken.
- Empowering consumers and investors: Enabling consumers and investors to make informed decisions based on information about companies’ social and environmental responsibility.
Scope of applicability
The Directive applies to large companies and certain small and medium-sized enterprises (SMEs) operating in the EU internal market which meet certain size and turnover criteria.
In particular, it covers:
- Large companies: Companies with at least 500 employees and annual revenues of more than €150 million.
- High-risk SMEs: Companies with at least 250 employees and annual revenues above €40 million, operating in high-risk sectors such as textiles, agriculture and raw material extraction.
Obligations of companies
Companies covered by the Directive are obliged to:
- Identify risks: Conduct regular human rights and environmental risk assessments of their operations and supply chain.
- Counteract and mitigate negative impacts: Take appropriate measures to prevent, minimise or eliminate negative impacts.
- Monitor the effectiveness of actions: Regularly monitor and evaluate the effectiveness of the actions taken.
- Report publicly: Report publicly on its due diligence activities, including risks identified and countermeasures taken.
Sanctions for non-compliance with the directive
Failure to comply with the requirements of the Directive may result in sanctions being imposed by EU Member States. Sanctions may include:
- Financial penalties: Imposition of administrative fines proportionate to the size of the undertaking and the seriousness of the infringement.
- Corrective measures: Obliging the undertaking to take specific corrective action.
- Civil liability: The possibility to hold the company civilly liable for damages caused by non-compliance with the requirements of the Directive.
Impact on businesses
The introduction of the Directive requires companies to strengthen their risk management mechanisms and transparency of operations. Companies will need to invest in:
- Management and monitoring systems: Development and implementation of systems to identify, assess and monitor risks.
- Employee training and awareness: Raising employee awareness and competence in due diligence.
- Working with supply chain partners: Building partnerships with suppliers and subcontractors to ensure compliance with the requirements of the Directive.
Summary
The Due Diligence Directive is an important step towards making companies more accountable for their impact on human rights and the environment. Companies will need to adapt their practices and procedures to meet the new requirements, which will contribute to greater transparency and accountability in business operations.
