Council Adopts Corporate Sustainability Due Diligence Directive, Setting New Standards for Large Companies

The Council has formally adopted the corporate sustainability due diligence directive. This is the last step in the decision-making procedure. The directive adopted today introduces obligations for large companies regarding adverse impacts of their activities on human rights and environmental protection. It also lays down the liabilities linked to these obligations. The rules concern not only the companies’ operations, but also the activities of their subsidiaries, and those of their business partners along the companies’ chain of activities.

Scope, activities, and civil liability

The directive will affect companies of more than 1 000 employees with a turnover of more than €450 million, and their activities ranging from the upstream production of goods or the provision of services, to the downstream distribution, transport, or storage of products. Companies affected by the legislation adopted today will have to take and implement a risk-based system to monitor, prevent or remedy human rights or environmental damages identified by the directive. 

The directive requires companies to ensure that human rights and environmental obligations are respected along their chain of activities. If a violation of these obligations is identified, companies will have to take the appropriate measures to prevent, mitigate, bring to an end or minimise the adverse impacts arising for their own operations, those of their subsidiaries and those of their business partners in their chain of activities. Companies can be held liable for the damage caused and will have to provide full compensation.

Companies affected by the directive will also have to adopt and put into effect a climate transition plan in line with the Paris agreement on climate change. 

The directive will apply depending on the size of the companies following this timeline: 

• 3 years from the entry into force of the directive for companies with more than 5 000 employees and €1 500 million turnover
• 4 years from the entry into force for companies with more than 3 000 employees and €900 million turnover
• 5 years from the entry into force of the directive for companies with more than 1 000 employees and €450 million turnover

Next steps

The legislative act has been approved after the European Parliament’s position was approved by the Council today.The directive will be published in the Official Journal of the European Union and come into effect on the twentieth day after it is signed by the presidents of the European Parliament and the Council.The regulations and administrative processes that member states must enact in order to comply with this legal text will take two years to implement.