New due diligence directive and annex on corporate sustainability proposed
- Posted by Tom Wijmans
- On 2 May 2023
Taking responsibility for environmental and social impacts of your business activities
The European Commission recently proposed a new directive on due diligence and the Corporate Sustainability Annex, which aims to ensure that companies operating in the EU take responsibility for the environmental and social impacts of their operations and supply chains. This proposal is part of the EU’s wider efforts to achieve a sustainable and fairer economy.
The proposed directive requires companies to subject their entire value chain, including subsidiaries, suppliers and subcontractors, to a due diligence process to identify and address any negative human rights, environmental and governance impacts. The due diligence process should be tailored to the size, sector and risk profile of the company and take into account internationally recognized guidelines and principles.
The proposed directive also includes a list of non-exhaustive criteria for identifying high-risk sectors, such as extractive industries, agriculture and textiles, and high-risk countries, such as those with weak governance or high levels of human rights violations. Companies operating in these sectors or countries will have to apply additional due diligence requirements.
Access to remedies
Furthermore, the directive includes a provision on access to remedies, which requires companies to set up effective and accessible grievance mechanisms to enable stakeholders to report negative impacts and seek redress. Companies will also have to publish an annual public report on their due diligence and its effectiveness.
To ensure compliance and accountability, the proposed directive includes provisions on enforcement and penalties. Member States will have to designate competent authorities to monitor compliance, investigate complaints and impose effective, proportionate and dissuasive sanctions for non-compliance. Companies will also be liable for any damage caused by their activities, and victims will have the right to claim compensation.
The proposed directive is an important step to promote corporate sustainability and ensure that companies operating in the EU respect human rights, protect the environment and promote good governance. However, it is important to note that the proposal is not yet law, and must be approved by the European Parliament and the Council of the EU before it can enter into force.
In short, the proposed Directive on Corporate Sustainability Due Diligence and Annex is a crucial initiative to achieve a more sustainable and fairer economy. It aims to ensure that companies operating in the EU take responsibility for the impacts of their operations and supply chains, and provides a framework for compliance, enforcement and accountability.
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