EU Adopted Corporate Sustainability Due Diligence Directive

Realizing climate actions and other sustainable development efforts is only possible with the participation of the business sector. Corporations must take responsibility for their social and environmental impacts while integrating sustainability principles into their operations going forward. In this case, regulations are crucial. In May 2024, the European Council adopted a corporate sustainability due diligence directive.

Corporate Sustainability Due Diligence directive

On May 24, the European Council formally adopted a corporate sustainability due diligence directive. This is the last step of the two-year-long process since the European Commission submitted the proposal in February 2022.

Under the directive, large companies will be obliged to take responsibility for the social and environmental impacts of their business operations. It also sets down the liabilities linked to these obligations.

Furthermore, as the EU has one of the largest markets and most expansive supply chains globally, the directive also mandates that companies monitor the activities of their subsidiaries, supply chains, and business partners.

“The Corporate Sustainability Due Diligence directive will give us the possibility to sanction those actors that violate their obligations. It is a concrete and significant step towards a better place to live for everyone,” said Pierre-Yves Dermagne, Belgian Deputy Prime Minister and Minister of the Economy and Employment.

Who is affected?

The corporate sustainability due diligence directive will affect large companies with over 1,000 employees and a more than €450 million turnover. This criteria is a leap from the original proposal, in which the European Commission originally defined ‘large companies’ as those with 500 employees and a turnover of €150 million.

Companies affected must implement a risk-based system to monitor, prevent, and mitigate human rights and environmental damages listed in the directive. This applies to the whole supply chain. If violations occur, companies are obliged to respond with measures that can minimize the impacts of the social and environmental violations and compensation if found liable.

However, several loopholes are found in the directive. The Human Rights Watch notes several weaknesses, such as the exclusion of small and medium enterprises and the financial sector as well as narrow definitions of supply chains.

Additionally, there is also a lack of due diligence and sanction related to climate change. Companies affected are required to adopt and implement a climate transition plan that aligns with the Paris Agreement goals without any consequences if the goals are unmet.

Implementation

Ultimately, the directive is a part of the region’s broader effort to encourage corporate sustainability and support sustainable development. The law will come into effect 20 days after being published in the Official Journal of the European Union. After that, EU Member States will have two years to implement the necessary regulations and procedures to comply with the directive.

Editor: Nazalea Kusuma

Kresentia Madina

Reporter at Green Network Asia | Website | + posts

Madina is the Assistant Manager of Stakeholder Engagement at Green Network Asia. She holds a bachelor’s degree in English Studies from Universitas Indonesia. As part of the GNA In-House Team, she supports the organization's multi-stakeholder engagement across international organizations, governments, businesses, civil society, and grassroots communities through digital publications, events, capacity building, and research.