Corporate Sustainability Due Diligence

✒ RASS compliance team – avv. Maria Luisa Muserra – avv. Sofia Zuffi

On May 24, 2024, the Council of the European Commission adopted the corporate sustainability due diligence directive. The Directive will enter into force after 20 (twenty) days from its publication in the Official Journal of the European Union.

Hints on the scope of the directive (Corporate Sustainability Due Diligence)

The directive establishes a corporate due diligence duty upon large companies to identify and address any adverse impacts their commercial activities may engender upon human rights and the protection of the environment. The new obligations are not confined to the companies’ operations but also pertain to the actions of their subsidiaries and their partners (global value chains).

The directive will be applicable to companies employing more than 1,000 employees and generating annual revenues exceeding €450 million. The interested activities go from the initial production operations up to the distribution, transport or warehousing of products.

Under the directive, the companies are required:

• to ensure the respect of human rights and environmental standards throughout their entire chain of activities;
• to adopt and implement specific protocols to monitor, prevent and remedy any damages to human rights or to the environment, on the basis of a specific risk-assessment;
• to intervene and implement suitable measures to mitigate, terminate or reduce any adverse impact (deriving from their operations, those of their subsidiaries or business partners) in the event of any violation;
• to put in place a climate transition aligned with the objectives set forth in the Paris Agreement on climate change.

Timing

Member states will have a period of two years to implement and enforce the necessary regulatory and administrative measures to conform with the Directive which will apply depending on the size of the companies, as follows:

• after 3 years for companies with a workforce exceeding 5,000 and a turnover of €1,500 million;
• after 4 years for companies with a workforce exceeding 3,000 and a turnover of €900 million.
• after 5 years for companies with a workforce exceeding 1,000 and a turnover of €450 million.

Member States are required to designate an authority with supervision and enforcement tasks and shall have to ensure that victims get compensation for damages resulting from an intentional or negligent failure to carry out due diligence.

Costs

The Commissions indicates that businesses will have to bear:

• the costs of establishing and operating the due diligence process;
• transition costs (which will include expenditure and investments to adapt the business operations and value chains to comply with the due diligence obligation).

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This news has merely information purposes and cannot be construed as a legal assistance or aimed at giving a legal opinion.