What is the Directive?
The European Union (EU) published a draft Corporate Sustainability Due Diligence Directive in February 2022, which builds on the United Nations Guiding Principles (UNGPs) for businesses to respect human rights and the environment. The Directive establishes a corporate responsibility and due diligence duty across business operations and supply chains.
An update in December 2023 confirmed some further details of the Directive, including the proposed fines of up to 5% of global turnover.
What is the Directive?
The European Union (EU) published a draft Corporate Sustainability Due Diligence Directive in February 2022, which builds on the United Nations Guiding Principles’ (UNGPs) for businesses to respect human rights and the environment. It establishes a corporate responsibility and due diligence duty across business operations and supply chain.
Who will this Directive apply to?
The scope of the Directive covers:
- EU companies with more than 500 employees with a global revenue greater than €150 million.
- Non-EU companies with more than 500 employees that generated revenue greater than €150 million in the EU market in the last financial year.
- Companies with at least €20 million of revenue generated in high-risk sectors, recognised as manufacture and wholesale trade of textiles, clothing and footwear, agriculture including forestry and fisheries, manufacture of food and trade of raw agricultural materials, extraction and wholesale trade of mineral resources or manufacture of related products and construction:
- EU companies with more than 250 employees and a global revenue of more than €40 million.
- Non-EU companies with equivalent turnover in the EU.
Although the finance sector is not considered a high-risk sector under the proposed Directive, financial entities could still be linked to actual and potential human rights and environmental-related impacts.
Even if your business isn't covered by these criteria, it can still be affected by the Directive. The EU estimates that the Directive will cover approximately 17,000 companies, but this number is likely to be an underestimation considering there are close to 250,000 large companies within the EU market. Small and medium enterprises (SMEs) will also be affected as suppliers to companies within the scope of the Directive.
When will the Directive apply to businesses?
According to the most recent news, the application of the Directive will happen in three stages:
1. In 2024, for companies already subject to the EU Directive on non-financial reporting;
2. In January 2025, for companies that are not presently subject to the non-financial reporting Directive;
3. In January 2026, for listed SMEs, small and non-complex credit institutions (SNCI) and captive insurance undertakings.
The key points of the Directive have been agreed by the three main governing bodies of the EU - the EU Parliament, Council and Commission. As of December 2023, the agreed draft law is currently going through final legal and approval stages before it enters into force.
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