Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859 (Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 50(1), Article 50(2), point (g), and Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee⁽¹⁾,

Acting in accordance with the ordinary legislative procedure⁽²⁾,

Whereas:

As stated in Article 2 of the Treaty on European Union (TEU), the Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights as enshrined in the Charter of Fundamental Rights of the European Union (the ‘Charter’). Those core values, that have inspired the Union’s own creation, as well as the universality and indivisibility of human rights, and respect for the principles of the Charter of the United Nations (UN) and international law, should guide the Union’s action on the international scene. Such action includes fostering the sustainable economic, social and environmental development of developing countries.
In line with Article 191 of the Treaty on the Functioning of the European Union (TFEU), a high level of protection and improvement of the quality of the environment and promoting European core values are among the priorities of the Union, as set out in the communication of the Commission of 11 December 2019 on A European Green Deal. These objectives require the involvement not only of public authorities but also of private actors, in particular companies.
In its Communication of 14 January 2020 on a Strong Social Europe for Just Transition, the Commission committed to upgrading Europe’s social market economy to achieve a just transition to sustainability, ensuring that no-one is left behind. This Directive will also contribute to the European Pillar of Social Rights, which promotes rights ensuring fair working conditions. It forms part of the Union policies and strategies relating to the promotion of decent work worldwide, including in global value chains, as referred to in the communication of the Commission of 23 February 2022 on decent work worldwide.
The behaviour of companies across all sectors of the economy is key to success with regard to the Union’s sustainability objectives as Union companies, especially large ones, rely on global value chains. It is also in the interest of companies to protect human rights and the environment, in particular given the rising concern of consumers and investors regarding these topics. Several initiatives fostering enterprises which support a value-oriented transformation already exist at Union, as well as national level.
Existing international standards on responsible business conduct specify that companies should protect human rights and set out how they should address the protection of the environment across their operations and value chains. The UN Guiding Principles on Business and Human Rights (UN Guiding Principles) recognise the responsibility of companies to exercise human rights due diligence by identifying, preventing and mitigating the adverse impacts of their operations on human rights and by accounting for how they address those impacts. The UN Guiding Principles state that businesses should avoid infringing human rights and should address adverse human rights impacts that they have caused, contributed to or are linked with in their own operations, those of their subsidiaries and through their direct and indirect business relationships.
The concept of human rights due diligence was specified and further developed in the Guidelines for Multinational Enterprises (MNE Guidelines) of the Organisation for Economic Cooperation and Development (OECD) which extended the application of due diligence to environmental and governance topics. The OECD Due Diligence Guidance for Responsible Business Conduct (Guidance for Responsible Business Conduct) and sectoral guidance are internationally recognised frameworks setting out practical due diligence steps to help companies identify, prevent, mitigate and account for how they address actual and potential impacts in their operations, supply chains and other business relationships. The concept of due diligence is also embedded in the recommendations of the International Labour Organization’s (ILO) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.
All businesses have a responsibility to respect human rights, which are universal, indivisible, interdependent and interrelated.
The UN Sustainable Development Goals, adopted by all UN Member States in 2015, include the objectives to promote sustained, inclusive and sustainable economic growth. The Union has set itself the objective to deliver on the UN Sustainable Development Goals. The private sector contributes to those aims.
Global value chains, and in particular critical raw materials value chains, are impacted by detrimental effects of natural or man-made hazards. The frequency and impact of shocks involving risks to critical value chains are likely to increase in the future. The private sector could play an important role in promoting sustained, inclusive and sustainable economic growth, while avoiding the creation of imbalances on the internal market. This underlines the importance of strengthening the resilience of companies in relation to adverse scenarios related to their value chains, taking into account externalities as well as social, environmental and governance risks.
International agreements under the UN Framework Convention on Climate Change, to which the Union and its Member States are parties, such as the Paris Agreement under the UN Framework Convention on Climate Change adopted on 12 December 2015 (the ‘Paris Agreement’)⁽³⁾ and the recent Glasgow Climate Pact, set out precise avenues to address climate change and keep global warming within 1,5 ^oC degrees. Besides specific actions being expected from all signatory Parties, the role of the private sector, in particular its investment strategies, is also considered central to achieve these objectives.
By way of Regulation (EU) 2021/1119 of the European Parliament and of the Council⁽⁴⁾, the Union also legally committed to becoming climate-neutral by 2050 and to reducing emissions by at least 55 % by 2030. Both these commitments require changing the way in which companies produce and procure. The Commission Staff Working Document accompanying the communication of the Commission of 17 September 2020 on ‘Stepping up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit of our people’ (2030 Climate Target Plan) models various degrees of emission reductions required from different economic sectors, though all need to see considerable reductions under all scenarios for the Union to meet its climate objectives. That plan also underlines that ‘changes in corporate governance rules and practices, including on sustainable finance, will make company owners and managers prioritise sustainability objectives in their actions and strategies’. The communication of the Commission on the European Green Deal sets out that all Union actions and policies should pull together to help the Union achieve a successful and just transition towards a sustainable future. It also sets out that sustainability should be further embedded into the corporate governance framework. The framework for Union action in the field of the environment and climate set out in Decision (EU) 2022/591 of the European Parliament and of the Council⁽⁵⁾, aims to accelerate the green transition to a climate-neutral, sustainable, non-toxic, resource-efficient, renewable energy-based, resilient and competitive circular economy in a just, equitable and inclusive way, and to protect, restore and improve the state of the environment by, inter alia, halting and reversing biodiversity loss.
According to the communication of the Commission of 24 February 2021 on Forging a climate-resilient Europe presenting the Union Strategy on Adaptation to climate change, new investment and policy decisions should be climate-informed and future-proof, including for larger businesses managing value chains. This Directive should be consistent with that strategy. Similarly, there should be consistency with Directive (EU) 2024/1619 of the European Parliament and of the Council⁽⁶⁾, which sets out clear requirements for banks’ governance rules including knowledge about environmental, social and governance risks at board of directors level.
The communication of the Commission of 11 March 2020 on A new Circular Economy Action Plan For a cleaner and more competitive Europe (Action Plan on a Circular Economy), the communication of the Commission of 20 March 2020 on the EU Biodiversity Strategy for 2030: Bringing nature back into our lives (Biodiversity strategy), the communication of the Commission of 20 March 2020 on A Farm to Fork Strategy for a fair, healthy and environmentally-friendly food system (Farm to Fork strategy) and the communication of the Commission of 14 October 2020 on the Chemicals Strategy for Sustainability Towards a Toxic-Free Environment (Chemicals strategy), the communication of the Commission of 12 May 2021 on the EU Action Plan Towards Zero Pollution for Air, Water and Soil, the communication of the Commission of 5 May 2021 on Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery, the Commission approach referred to as Industry 5.0, the communication of the Commission of 4 March 2021 on the European Pillar of Social Rights Action Plan and the communication of the Commission of 18 February 2021 on Trade Policy Review: An Open, Sustainable and Assertive Trade Policy list an initiative on sustainable corporate governance among their elements. Due diligence requirements under this Directive should contribute to achieving the objectives of the EU Action Plan Towards Zero Pollution for Air, Water and Soil, of creating a toxic-free environment and of protecting the health and well-being of people, animals and ecosystems from environment-related risks and negative impacts.
This Directive is consistent with the joint communication of the Commission on the EU Action Plan on Human Rights and Democracy 2020-2024. That action plan defines as a priority strengthening the Union’s engagement to actively promote the global implementation of the UN Guiding Principles and other relevant international guidelines such as the MNE Guidelines, including by advancing relevant due diligence standards.
The European Parliament, in its resolution of 10 March 2021 with recommendations to the Commission on corporate due diligence and corporate accountability, calls upon the Commission to propose Union-level rules for comprehensive corporate due diligence obligations, with consequences including civil liability for those companies that cause or jointly cause harm by failing to carry out due diligence. The Council Conclusions of 1 December 2020 on Human Rights and Decent Work in Global Supply Chains called upon the Commission to table a proposal for a Union legal framework on sustainable corporate governance, including cross-sector corporate due diligence obligations along global supply chains. The European Parliament also calls for clarifying directors’ duties in its own initiative report of 2 December 2020 on sustainable corporate governance. In their Joint Declaration on EU Legislative Priorities for 2022 of 21 December 2021, the European Parliament, the Council of the European Union and the Commission have committed, to deliver on an economy that works for people, and to improve the regulatory framework on sustainable corporate governance.
This Directive aims to ensure that companies active in the internal market contribute to sustainable development and the sustainability transition of economies and societies through the identification, and where necessary, prioritisation, prevention and mitigation, bringing to an end, minimisation and remediation of actual or potential adverse human rights and environmental impacts connected with companies’ own operations, operations of their subsidiaries and of their business partners in the chains of activities of the companies, and ensuring that those affected by a failure to respect this duty have access to justice and legal remedies. This Directive is without prejudice to the responsibility of Member States to respect and protect human rights and the environment under international law.
This Directive is without prejudice to obligations in the areas of human, employment and social rights, protection of the environment and climate change under other Union legislative acts. If the provisions of this Directive conflict with provisions of another Union legislative act pursuing the same objectives and providing for more extensive or more specific obligations, the provisions of the other Union legislative act should prevail to the extent of the conflict and should apply to those specific obligations. Examples of such obligations in Union legislative acts include the obligations set out in Regulation (EU) 2017/821 of the European Parliament and of the Council⁽⁷⁾, Regulation (EU) 2023/1542 of the European Parliament and of the Council⁽⁸⁾ and Regulation (EU) 2023/1115 of the European Parliament and of the Council⁽⁹⁾.
This Directive does not apply to pension institutions operating social security systems under Union law. Where a Member State has chosen not to apply Directive (EU) 2016/2341 of the European Parliament and of the Council⁽¹⁰⁾ in whole or in part to an institution for occupational retirement provision in accordance with Article 5 of that Directive, this Directive does not apply to those institutions for occupational retirement provision.
Companies should take appropriate steps to set up and carry out due diligence measures, with respect to their own operations, those of their subsidiaries, as well as those of their direct and indirect business partners throughout their chains of activities in accordance with this Directive. This Directive should not require companies to guarantee, in all circumstances, that adverse impacts will never occur or that they will be stopped. For example, with respect to business partners, where the adverse impact results from State intervention, the company might not be in a position to arrive at such results. Therefore, the main obligations in this Directive should be obligations of means. The company should take appropriate measures which are capable of achieving the objectives of due diligence by effectively addressing adverse impacts, in a manner commensurate to the degree of severity and the likelihood of the adverse impact. Account should be taken of the circumstances of the specific case, the nature and extent of the adverse impact and relevant risk factors, including, in preventing and minimising adverse impacts, the specificities of the company’s business operations and its chain of activities, sector or geographical area in which its business partners operate, the company’s power to influence its direct and indirect business partners, and whether the company could increase its power of influence.
The due diligence process set out in this Directive should cover the six steps defined by the Guidance for Responsible Business Conduct, which include due diligence measures for companies to identify and address adverse human rights and environmental impacts. That process encompasses the following steps: (1) integrating due diligence into policies and management systems; (2) identifying and assessing adverse human rights and environmental impacts; (3) preventing, ceasing or minimising actual and potential adverse human rights and environmental impacts; (4) monitoring and assessing the effectiveness of measures; (5) communicating and (6) providing remediation.
In order to make due diligence more effective and reduce the burden on companies, they should be entitled to share resources and information within their respective groups of companies and with other legal entities. Parent companies falling under the scope of this Directive should be allowed to fulfil some of the due diligence obligations also on behalf of their subsidiaries that fall under the scope of this Directive, if that ensures effective compliance. This should be without prejudice to the subsidiaries being subject to the exercise of the supervisory authority’s powers and to them being subject to civil liability under this Directive. Where a parent company fulfils the obligations with regard to combatting climate change on behalf of a subsidiary, the subsidiary should comply with those obligations in accordance with the parent company’s climate change mitigation plan accordingly adapted to its business model and strategy. If the subsidiary does not fall under the scope of this Directive, since the subsidiary is not obliged to carry out due diligence, the parent company should cover operations of the subsidiary as part of its own due diligence obligations. If the subsidiaries fall under the scope of this Directive, but the parent company does not, they still should be allowed to share resources and information within the group of companies. Nevertheless, the subsidiaries should be responsible for fulfilling due diligence obligations provided for in this Directive.
The fulfilment of some of the due diligence obligations at a group level should be without prejudice to the civil liability of subsidiaries under this Directive in respect of victims to whom the damage is caused. If the conditions for civil liability are met, the subsidiary could be held liable for damage that occurred, irrespective of whether the due diligence obligations were carried out by the subsidiary or by the parent company on behalf of the subsidiary.
Business partners should not be obliged to disclose to a company which is complying with the obligations resulting from this Directive information that is a trade secret as defined in Directive (EU) 2016/943 of the European Parliament and of the Council⁽¹¹⁾, without prejudice to the disclosure of the identity of direct and indirect business partners, or essential information needed to identify actual or potential adverse impacts, where necessary and duly justified for the company’s compliance with due diligence obligations. This should be without prejudice to the possibility for the business partners to protect their trade secrets through the mechanisms established in Directive (EU) 2016/943. Business partners should never be obliged to disclose classified information or other information the disclosure of which would cause a risk to the essential interests of a state’s security.
Adverse human rights and environmental impacts might occur in companies’ own operations, operations of their subsidiaries and of their business partners in the chains of activities of the companies, in particular at the level of raw material sourcing and manufacturing. In order for the due diligence to have a meaningful impact, it should cover human rights and environmental adverse impacts generated throughout the majority of the life-cycle of production, distribution, transport and storage of a product or provision of services, at the level of companies’ own operations, operations of their subsidiaries and of their business partners in their chains of activities.
The chain of activities should cover activities of a company’s upstream business partners related to the production of goods or the provision of services by the company, including the design, extraction, sourcing, manufacture, transport, storage and supply of raw materials, products or parts of the products and development of the product or the service, and activities of a company’s downstream business partners related to the distribution, transport and storage of the product, where the business partners carry out those activities for the company or on behalf of the company. This Directive should not cover the disposal of the product. In addition, under this Directive the chain of activities should not encompass the distribution, transport, storage and disposal of a product that is subject to export control by a Member State, meaning either the export control under Regulation (EU) 2021/821 of the European Parliament and of the Council⁽¹²⁾ or the export control of weapons, munitions or war material under national export controls, after the export of the product is authorised. This Directive is complemented by other legislative acts which also address negative adverse impacts in the field of human rights or environmental protection. In particular, Regulation (EU) 2021/821 sets up a regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items, covering, inter alia, software and technologies that can be used for cyber-surveillance purposes. Under this regime, Member States should consider in particular the risk of such goods being used in connection with internal repression or the commission of serious violations of human rights and international humanitarian law. In addition, Regulation (EU) 2019/125 of the European Parliament and the Council⁽¹³⁾ prohibits or regulates, as the case may be, the export of goods such as chemical substances that are used or could be used for the purpose of capital punishment or for the purpose of torture or other cruel, inhuman or degrading treatment or punishment. Moreover, several other legislative initiatives are aimed at mitigating the environmental impacts of products during their whole lifecycle, including by setting ecodesign requirements based on the sustainability and circularity aspects of products. Compliance with this Directive should facilitate compliance with the provisions and objectives of these other legislative acts, and with the terms and conditions of the applicable authorisations implemented thereunder. Exporters should take into account the results of their due diligence findings under this Directive in their compliance with those other legislative acts. The term ‘chain of activities’ as defined in this Directive is without prejudice to the terms ‘value chain’ or ‘supply chain’ as defined in or within the meaning of other Union legislation.
The definition of the term ‘chain of activities’ should not include the activities of a company’s downstream business partners related to the services of the company. For regulated financial undertakings, the definition of the term ‘chain of activities’ should not include downstream business partners that receive their services and products. Therefore, as regards regulated financial undertakings, only the upstream but not the downstream part of their chains of activities should be covered by this Directive.
Under this Directive, companies formed in accordance with the law of a Member State should be subject to due diligence requirements when they meet certain conditions, including turnover and, in certain cases, employee thresholds. While those conditions are expressed with regard to single financial years, this Directive should only apply if the company has met them for each of the last two consecutive financial years and should no longer apply where they cease to be met for each of the last two relevant financial years. This is also true for companies formed in accordance with the law of a third country which should fulfil the relevant Union turnover criterion for each of the last two financial years. For the sake of clarity, and taking into account the staggered application of this Directive, the scope criteria need to be fulfilled for two consecutive financial years by both Union and third-country companies preceding the relevant application dates established in accordance with the rules on the transposition of this Directive. As regards the employee thresholds, temporary agency workers, and workers posted under Article 1(3), point (c), of Directive 96/71/EC of the European Parliament and of the Council⁽¹⁴⁾ should be included in the calculation of the number of employees in the user company. Posted workers under Article 1(3), points (a) and (b), of Directive 96/71/EC should only be included in the calculation of the number of employees of the sending company. Other workers in non-standard forms of employment should also be included in the calculation of the number of employees insofar as they meet the criteria for determining the status of worker established by the Court of Justice of the European Union (CJEU). Seasonal workers should be included in the calculation of the number of employees proportionally to the number of months that they are employed for. The calculation of the thresholds provided for in this Directive should include the number of employees and the turnover of a company’s branches, which are places of business, other than the head office, that are legally dependent on it, and therefore considered as part of the company, in accordance with Union and national law. This should also apply for the group of companies in the event the thresholds are calculated on a consolidated basis. Where not specified otherwise, the thresholds to be met in order for a company to be covered by this Directive should be understood as thresholds calculated on an individual basis.
Companies established in the Union with more than 1 000 employees on average and a net worldwide turnover exceeding EUR 450 000 000 in the last financial year for which annual financial statements have been or should have been adopted, should be required to comply with the due diligence obligations provided for in this Directive. Companies having entered into franchising or licensing agreements in the Union in return for royalties with independent third-party companies, where those agreements ensure a common identity, a common business concept and the application of uniform business methods, and where those royalties amount to more than EUR 22 500 000 in the last financial year for which annual financial statements have been or should have been adopted, and provided that the company had a net worldwide turnover of more than EUR 80 000 000 in the last financial year for which annual financial statements have been or should have been adopted should also be required to comply with the due diligence obligations provided for in this Directive. The same applies to ultimate parent companies of groups of companies that taken together fulfil those conditions. As regards such ultimate parent companies, the obligations of this Directive should be met by the ultimate parent company or, in the event the latter has as its main activity the holding of shares in operational subsidiaries and does not engage in the taking of management, operational or financial decisions affecting the group or one or more of its subsidiaries, instead of that ultimate parent company by one operational subsidiary established in the Union, in accordance with the conditions provided for in this Directive.
In order to achieve fully the objectives of this Directive addressing adverse human rights and environmental impacts with respect to companies’ operations, operations of their subsidiaries and their business partners in chains of activities of the companies, third-country companies with significant operations in the Union should also be covered. More specifically, this Directive should apply to third-country companies which generated a net turnover of at least EUR 450 000 000 in the Union in the financial year preceding the last financial year. Companies having entered into franchising or licensing agreements in the Union in return for royalties with independent third-party companies, where those agreements ensure a common identity, a common business concept and the application of uniform business methods, and where those royalties amount to more than EUR 22 500 000 in the Union in the financial year preceding the last financial year, and provided that the company had a net turnover of more than EUR 80 000 000 in the Union in the financial year preceding the last financial year should also be required to comply with the due diligence obligations provided for in this Directive. The same applies to ultimate parent companies of groups of companies that taken together fulfil those conditions. As regards such ultimate parent companies, the obligations of this Directive should be met by the ultimate parent company or, in the event the latter has as its main activity the holding of shares in operational subsidiaries and does not engage in the taking of management, operational or financial decisions affecting the group or one or more of its subsidiaries, instead of the ultimate parent company by one operational subsidiary established in the Union, in accordance with the conditions provided for in this Directive.
For the purpose of defining the scope of application of this Directive in relation to third-country companies, the described turnover criterion should be chosen as it creates a territorial connection between the third-country companies and the Union territory. Turnover is a proxy for the effects that the activities of those companies could have on the internal market. In accordance with international law, such effects justify the application of Union law to third-country companies. To ensure identification of the relevant turnover of companies concerned, the methods for calculating net turnover for third-country companies as laid down in Directive 2013/34/EU of the European Parliament and of the Council⁽¹⁵⁾ should be used. To ensure effective enforcement of this Directive, an employee threshold should, in turn, not be applied to determine which third-country companies fall under this Directive, as the notion of ‘employees’ retained for the purposes of this Directive is based on Union law and could not be easily transposed outside of the Union. In the absence of a clear and consistent methodology, including in accounting frameworks, to determine the employees of third-country companies, such employee threshold would therefore create legal uncertainty and would be difficult to apply for supervisory authorities. The definition of the term ‘turnover’ should be based on Directive 2013/34/EU which has already established the methods for calculating net turnover for third-country companies, as turnover and revenue definitions are similar in international accounting frameworks. With a view to ensuring that the supervisory authority knows which third-country companies generate the turnover in the Union required to fall within the scope of this Directive, this Directive should require that the third-country company’s authorised representative or the company itself informs a supervisory authority in the Member State where the third-country company’s authorised representative is domiciled or established and, where it is different, a supervisory authority in the Member State in which the company generated most of its net turnover in the Union in the financial year preceding the last financial year that the company is a company that falls under the scope of this Directive. If necessary for determining in which Member State the third-country company generated most of its net turnover in the Union, the Member State should be able to request the Commission to inform the Member State about the net turnover of the third-country company generated in the Union. The Commission should set up a system to ensure such an exchange of information.
It is essential to establish a Union framework for a responsible and sustainable approach to global value chains, given the importance of companies as a pillar in the construction of a sustainable society and economy. The emergence of binding law in several Member States has given rise to the need for a level playing field for companies in order to avoid fragmentation and to provide legal certainty for businesses operating in the internal market. Nonetheless, this Directive should not preclude Member States from introducing more stringent provisions of national law diverging from those laid down in Articles other than Article 8(1) and (2), Article 10(1) and Article 11(1), including where such provisions may indirectly raise the level of protection of Article 8(1) and (2), Article 10(1) and Article 11(1), such as the provisions on the scope, on the definitions, on the appropriate measures for the remediation of actual adverse impacts, on the carrying out of meaningful engagement with stakeholders and on civil liability; or from introducing provisions of national law that are more specific in terms of their objective or the field covered, such as provisions of national law regulating specific adverse impacts or specific sectors of activity, in order to achieve a different level of protection of human, employment and social rights, the environment or the climate.
This Directive aims to comprehensively cover human rights, including all five fundamental principles and rights at work as defined in the 1998 ILO Declaration on fundamental principles and rights at work. In order to achieve a meaningful contribution to the sustainability transition, due diligence under this Directive should be carried out with respect to adverse human rights impacts on persons resulting from the abuse of one of the rights as enshrined in the international instruments listed in Part I, Section 1, of the Annex to this Directive. The term ‘abuse’ should be interpreted in line with international human rights law. In order to ensure comprehensive coverage of human rights, an abuse of a human right not specifically listed in Part I, Section 1, of the Annex to this Directive which can be abused by a company or legal entity, and which directly impairs a legal interest protected in the human rights instruments listed in Part I, Section 2, of the Annex to this Directive should also form part of the adverse human rights impacts covered by this Directive, provided that the company concerned could have reasonably foreseen the risk of such human right abuse, taking into account all relevant circumstances of the specific case, including the nature and extent of the company’s business operations and its chain of activities, economic sector and geographical and operational context. Due diligence should further encompass adverse environmental impacts resulting from the violation of one of the prohibitions and obligations listed in Part II of the Annex to this Directive, as well as adverse impacts resulting from the breach of one of the prohibitions listed in Part I, points 15 and 16, of the Annex to this Directive taking into account national legislation linked to the provisions of the instruments listed in the Annex. Those prohibitions and obligations should be interpreted and applied in line with international law and general principles of Union environmental law, as set out in Article 191 TFEU. Those prohibitions include the prohibition of causing any measurable environmental degradation, such as harmful soil change, water or air pollution, harmful emissions, excessive water consumption, degradation of land, or any other impact on natural resources, such as deforestation, that substantially impairs the natural bases for the preservation and production of food, or that denies a person access to safe and clean drinking water, or that makes it difficult for a person to access sanitary facilities or destroys them, or that harms a person’s health, safety, normal use of land or lawfully acquired possessions, or that substantially adversely affects ecosystem services through which an ecosystem contributes directly or indirectly to human wellbeing. In order to assess whether the damage to ecosystem services is substantial, the following elements should be taken into account where relevant: the baseline condition of the environment affected, whether the damage is long-lasting, medium-term or short-term, the spread of the damage, and the reversibility of the damage. Due diligence requirements under this Directive should therefore contribute to preserving and restoring biodiversity and improving the state of the environment, in particular the air, water and soil, including to better protect human rights. The Commission should be empowered to adopt delegated acts in order to amend the Annex to this Directive for the purposes laid down in Article 3(2), including by adding the reference, once ratified by all Member States, to the ILO Occupational Safety and Health Convention, 1981 (No 155), and the ILO Promotional Framework for Occupational Safety and Health, 2006 (No 187), which form part of the ILO fundamental instruments.
Depending on the circumstances, companies may need to consider additional standards. For instance, taking account of specific contexts or intersecting factors, including among others, gender, age, race, ethnicity, class, caste, education, migration status, disability, as well as social and economic status, as part of a gender- and culturally responsive approach to due diligence, companies should pay special attention to any particular adverse impacts on individuals who may be at heightened risk due to marginalisation, vulnerability or other circumstances, individually or as members of certain groupings or communities, including indigenous peoples, as protected under the UN Declaration on the Rights of Indigenous Peoples, including in relation to fee, prior and informed consent (FPIC). In doing so, companies may need to take into consideration, where relevant, international instruments such as the International Convention on the Elimination of All Forms of Racial Discrimination, the Convention on the Elimination of All Forms of Discrimination Against Women, the Convention on the Rights of Persons with Disabilities.
Companies should also be responsible for using their influence to contribute to an adequate standard of living in chains of activities. This is understood to include a living wage for employees and a living income for self-employed workers and smallholders, which they earn in return for their work and production.
This Directive acknowledges the ‘One Health’ approach as recognised by the World Health Organization, an integrated and unifying approach that aims to sustainably balance and optimise the health of people, animals and ecosystems. The ‘One Health’ approach recognises that the health of humans, domestic and wild animals, plants, and the wider environment, including ecosystems, are closely interlinked and interdependent. It is therefore appropriate to provide that environmental due diligence should encompass avoiding environmental degradation that results in adverse health effects such as epidemics, and should respect the right to a clean, healthy and sustainable environment.
Adverse human rights and environmental impacts can be intertwined with or underpinned by factors such as corruption and bribery. It may therefore be necessary for companies to take into account those factors when carrying out human rights and environmental due diligence, in a manner that is consistent with the UN Convention against Corruption.
When assessing adverse human rights impacts, companies have guidance at their disposal that illustrates how their activities may impact human rights and which corporate behaviour is prohibited in accordance with internationally recognised human rights. Such guidance is included for instance in the UN Guiding Principles Reporting Framework, and the Interpretive Guide ‘The corporate responsibility to respect human rights’.
In order to conduct appropriate human rights and environmental due diligence with respect to their operations, the operations of their subsidiaries, and the operations of their business partners in the chains of activities of the companies, companies covered by this Directive should integrate due diligence into their policies and risk management systems, identify and assess, where necessary prioritise, prevent and mitigate as well as bring to an end and minimise the extent of actual and potential adverse human rights and environmental impacts, provide remediation in relation to actual adverse impacts, carry out meaningful engagement with stakeholders, establish and maintain a notification mechanism and complaints procedure, monitor the effectiveness of the measures taken in accordance with the requirements that are provided for in this Directive and communicate publicly on their due diligence. In order to ensure clarity for companies, in particular the steps of preventing and mitigating potential adverse impacts and of bringing to an end, or when this is not possible, minimising the extent of actual adverse impacts, should be clearly distinguished in this Directive.
In order to ensure that due diligence forms part of companies’ policies and risk management systems, and in line with the relevant international framework, companies should integrate due diligence into their relevant policies and risk management systems and at all relevant levels of operation, and have in place a due diligence policy. The due diligence policy should be developed in prior consultation with the company’s employees and their representatives and should contain a description of the company’s approach, including in the long term, to due diligence, a code of conduct describing the rules and principles to be followed throughout the company and its subsidiaries, and, where relevant, the company’s direct or indirect business partners and a description of the processes put in place to integrate due diligence into the relevant policies and to carry out due diligence, including the measures taken to verify compliance with the code of conduct and to extend its application to business partners. The due diligence policy should ensure a risk-based due diligence. The code of conduct should apply in all relevant corporate functions and operations, including procurement, employment and purchasing decisions. For the purposes of this Directive, employees should be understood as including temporary agency workers, and other workers in non-standard forms of employment provided that they fulfil the criteria for determining the status of worker established by the CJEU.
To comply with due diligence obligations, companies need to take appropriate measures with respect to the identification, prevention, bringing to an end, minimisation and remediation of adverse impacts, and the carrying out of meaningful engagement with stakeholders throughout the due diligence process. The term ‘appropriate measures’ should be understood to mean measures that are capable of achieving the objectives of due diligence, by effectively addressing adverse impacts in a manner commensurate to the degree of severity and the likelihood of the adverse impact, and reasonably available to the company, taking into account the circumstances of the specific case, including the nature and extent of the adverse impact and relevant risk factors. If necessary information, including information that is deemed to be a trade secret, cannot be reasonably obtained due to factual or legal obstacles, for instance because a business partner refuses to provide information and there are no legal grounds to enforce this, such circumstances cannot be held against the company, but it should be able to explain why such information could not be obtained and should take the necessary and reasonable steps to obtain it as soon as possible.
Under the due diligence obligations provided for in this Directive, a company should identify and assess actual or potential adverse human rights and environmental impacts. In order to allow for a comprehensive identification and assessment of adverse impacts, such identification and assessment should be based on quantitative and qualitative information, including the relevant disaggregated data that can be reasonably obtained by a company. Companies should make use of appropriate methods and resources, including public reports. For instance, as regards adverse environmental impacts, the company should obtain information about baseline conditions at higher risk sites or facilities in its chain of activities. As part of the obligation to identify adverse impacts, companies should take appropriate measures to map their own operations, those of their subsidiaries and, where related to their chains of activities, those of their business partners, in order to identify general areas where adverse impacts are most likely to occur and to be most severe. Based on the results of such mapping, companies should carry out an in-depth assessment of their own operations, those of their subsidiaries and, where related to their chains of activities, those of their business partners, in the areas where adverse impacts were identified to be most likely to occur and most severe. When identifying, and assessing adverse impacts, the company should take into account, based on an overall assessment, possible relevant risk factors, including company-level risk factors, such as whether the business partner is not a company covered by this Directive; business operation risk factors; geographic and contextual risk factors, such as the level of law enforcement with respect to the type of adverse impacts; product and service risk factors; and sectoral risk factors. When identifying and assessing adverse impacts, companies should also identify and assess the impact of a business partner’s business model and strategies, including trading, procurement and pricing practices. With a view to limiting the burden on smaller companies created by requests for information, where information necessary for the identification of adverse impacts can be obtained from business partners at different levels of their chains of activities, companies should exercise restraint with regard to business partners that do not themselves present risks of adverse impacts and favour reaching out, where reasonable, directly for more detailed information to business partners at levels in their chains of activities where, based on the mapping, actual or potential adverse impacts are most likely to occur. Identification of adverse impacts should include assessing the human rights and environmental context in a dynamic way and at regular intervals: without undue delay after a significant change occurs, but at least every 12 months, throughout the life cycle of an activity or relationship, and whenever there are reasonable grounds to believe that new risks may arise. A significant change should be understood as a change to the status quo of the company’s own operations, operations of its subsidiaries or business partners, the legal or business environment or any other substantial shift from the situation of the company or its operating context. Examples of a significant change could be cases when the company starts to operate in a new economic sector or geographical area, starts producing new products or changes the way of producing the existing products using technology with potentially higher adverse impacts, or changes its corporate structure via restructuring or via mergers or acquisitions. Reasonable grounds to believe that there are new risks may arise in different ways, including learning about the adverse impact from publicly available information, through stakeholder engagement, or through notifications. If, despite having taken appropriate measures to identify adverse impacts, companies do not have all the necessary information regarding their chains of activities, they should be able to explain why that information could not be obtained and should take the necessary and reasonable steps to obtain it as soon as possible.
In conflict-affected and high-risk areas, as defined in accordance with Regulation (EU) 2017/821, human rights abuses are more likely to occur and to be severe. Companies should take this into account when integrating due diligence into their policies and risk management systems to ensure that codes of conduct and processes put in place to carry out due diligence are adapted to conflict-affected and high-risk areas, in a manner that is consistent with international humanitarian law, as laid out in the Geneva Conventions of 1949 and their additional protocols. Companies should take into account that such situations constitute particular geographic and contextual risk factors when performing in-depth assessments as part of the identification and assessment process, when taking appropriate measures to prevent, mitigate, bring to an end and minimise identified adverse impacts, and when engaging with stakeholders. For this purpose, companies may rely on the Commission’s guidance on the assessment of risk factors associated with conflict-affected and high-risk areas, which should take into account the UN Development Programme’s guidance ‘Heightened Human Rights Due Diligence for Business in Conflict-Affected Contexts. A Guide’.
This Directive should be without prejudice to the rules on professional secrecy applicable to lawyers or to other certified professionals who are authorised to represent their clients in judicial proceedings, in accordance with Union and national law.
Where a company cannot prevent, mitigate, bring to an end or minimise the extent of all the identified actual and potential adverse impacts at the same time to the full extent, it should prioritise the adverse impacts based on their severity and likelihood. The severity of an adverse impact should be assessed based on the scale, scope or irremediable character of the adverse impact, taking into account the gravity of the impact, including the number of individuals that are or will be affected, the extent to which the environment is or may be damaged or otherwise affected, its irreversibility and the limits on the ability to restore affected individuals or the environment to a situation equivalent to their situation prior to the impact within a reasonable period of time. Once the most severe and likely adverse impacts are addressed in reasonable time, the company should address less severe and less likely adverse impacts. On the other hand, actual or potential influence of the company on its business partners, the level of involvement of the company in the adverse impact, the proximity to the subsidiary or the business partner, or its potential liability should not be considered relevant factors in the prioritisation of adverse impacts.
Under the due diligence obligations provided for in this Directive, if a company identifies potential adverse human rights or environmental impacts, it should take appropriate measures to prevent or adequately mitigate them. To provide companies with legal clarity and certainty, this Directive should set out the actions companies should be expected to take for prevention and mitigation of potential adverse impacts, where relevant depending on the circumstances. When assessing the appropriate measures to prevent or adequately mitigate adverse impacts, due account should be taken of the so-called ‘level of involvement of the company in an adverse impact’ in line with the international frameworks and the company’s ability to influence the business partner causing or jointly causing the adverse impact. Companies should take appropriate measures to prevent or mitigate the adverse impacts that they cause by themselves (so-called ‘causing’ the adverse impact as referred to in the international framework) or jointly with their subsidiaries or business partners (so-called ‘contributing’ to the adverse impact as referred to in the international framework). This applies irrespective of whether third parties outside of the company’s chain of activities are also causing the adverse impact. Jointly causing the adverse impact is not limited to equal implication of the company and its subsidiary or business partner in the adverse impact, but should cover all cases of the company’s acts or omissions, causing the adverse impact in combination with the acts or omissions of subsidiaries or business partners, including where the company substantially facilitates or incentivises a business partner to cause an adverse impact, that is, excluding minor or trivial contributions. When companies are not causing the adverse impacts occurring in their chains of activities themselves or jointly with other legal entities, but the adverse impact is caused only by their business partner in the chains of activities of the companies (so-called ‘being directly linked to’ the adverse impact, as referred to in the international framework), they should still aim to use their influence to prevent or mitigate the adverse impact caused by their business partners or to increase their influence to do so. Using only the notion of ‘causing’ the adverse impact instead of the aforementioned terms used in the international frameworks avoids confusion with existing legal terms in national legal systems while covering the same causal relationships described in those frameworks. In this context, in line with the international frameworks, the company’s influence on a business partner should include on the one hand its ability to persuade the business partner to prevent adverse impacts, (for example through market power, pre-qualification requirements or linking business incentives to human rights and environmental performance), and, on the other hand, the degree of influence or leverage that the company could reasonably exercise, for example through cooperation with the business partner in question or engagement with another company which is the direct business partner of the business partner associated with the adverse impact.
So as to comply with the prevention and mitigation obligation provided for in this Directive, companies should be required to take the following appropriate measures, where relevant. Where necessary due to the complexity of prevention measures, companies should develop and implement a prevention action plan. Companies should seek to obtain contractual assurances from a direct business partner that it will ensure compliance with the code of conduct and, as necessary, the prevention action plan, including by seeking corresponding contractual assurances from its partners to the extent that their activities are part of the chains of activities of the companies. Contractual assurances should be designed to ensure that responsibilities are shared appropriately by the company and the business partners. The contractual assurances should be accompanied by appropriate measures to verify compliance. However, the company should only be obliged to seek the contractual assurances, as obtaining them may depend on the circumstances. To ensure comprehensive prevention of potential adverse impacts, companies should also make financial or non-financial investments, adjustments or upgrades which aim to prevent adverse impacts, and collaborate with other companies, in compliance with Union law. Where relevant, companies should adapt business plans, overall strategies and operations, including purchasing practices, and develop and use purchasing policies that contribute to living wages and incomes for their suppliers, and that do not encourage potential adverse impacts on human rights or the environment. To conduct their due diligence in an effective and efficient manner, companies should also make necessary modifications of, or improvements to, their design and distribution practices, to address adverse impacts arising both in the upstream part and the downstream part of their chains of activities, before and after the product has been made. Adopting and adapting such practices, as necessary, could be particularly relevant for the company, to avoid an adverse impact in the first instance. Such measures could also be relevant to address adverse impacts that are jointly caused by the company and its business partners, for instance due to the deadlines or specifications imposed on them by the company. In addition, by better sharing the value along the chain of activities, responsible purchasing or distribution practices contribute to fighting against child labour, which often arises in countries or territories with high poverty levels. Companies should also provide targeted and proportionate support for a small and medium-sized enterprise (SME) which is a business partner of the company, where necessary in light of the resources, knowledge and constraints of the SME, including by providing or enabling access to capacity-building, training or upgrading management systems, and, where compliance with the code of conduct or the prevention action plan would jeopardise the viability of the SME, providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing. The notion of ‘jeopardising the viability of an SME’ should be interpreted as possibly causing a bankruptcy of the SME or putting the SME in a situation where bankruptcy is imminent.
Tackling harmful purchasing practices and price pressures on producers, particularly smaller operators is especially important in relation to sales of agricultural and food products. In order to address the power imbalances in the agricultural sector and ensure fair prices at all links in the food supply chain and strengthen the position of farmers, large food processors and retailers should adapt their purchasing practices, and develop and use purchasing policies that contribute to living wages and incomes for their suppliers. By applying only to the business conduct of the largest operators, that is, those with a net worldwide turnover of more than EUR 450 000 000, this Directive should benefit agricultural producers with less bargaining power. Moreover, given companies formed in accordance with the law of a third country are equally subject to this Directive, this would protect agricultural producers in the Union against unfair competition and against harmful practices by operators established not only inside but also outside the Union.
In order to reflect the full range of options for the company in cases where potential adverse impacts could not be addressed by the described prevention or mitigation measures, this Directive should also refer to the possibility for the company to seek contractual assurances from the indirect business partner, with a view to achieving compliance with the company’s code of conduct or a prevention action plan, and conduct appropriate measures to verify compliance of the indirect business partner with the contractual assurances.
It is possible that prevention of potential adverse impacts would require collaboration with another company, for example, at the level of an indirect business partner with a company, which has a direct contractual relationship with the indirect business partner in question. In some instances, a collaboration with other entities could be the only realistic way of preventing potential adverse impacts being caused even by direct business partners if the influence of the company is not sufficient. The company should collaborate with the entity which can most effectively prevent or mitigate potential adverse impacts solely or jointly with the company, or other legal entities, while respecting applicable law, in particular competition law.
In order to ensure that appropriate measures for the prevention and mitigation of potential adverse impacts are effective, companies should prioritise engagement with business partners in their chains of activities, instead of terminating the business relationship, as a last resort after attempting to prevent and mitigate adverse potential impacts without success. However, this Directive should also, for cases where potential adverse impacts could not be addressed by such appropriate measures, refer to the obligation for companies, as a last resort, to refrain from entering into new or extending existing relations with the partner in question and, where there is a reasonable prospect of change, by using or increasing the company’s leverage through the temporary suspension of the business relationship with respect to the activities concerned, adopt and implement an enhanced prevention action plan for the specific adverse impact without undue delay including a specific and appropriate timeline for the adoption and implementation of all actions therein, during which the company may also seek alternative business partners. Factors determining the appropriateness of the timeline for adoption and implementation of such actions could include the severity of the adverse impact, the need to identify and take steps to prevent or mitigate any additional adverse impacts, including impacts on SMEs or smallholders. Companies should suspend their business relationships with the business partner, thereby increasing their leverage and increasing the chances that the impact is addressed. Where there is no reasonable expectation that these efforts would succeed, for instance, in situations of state-imposed forced labour, or where the implementation of the enhanced prevention action plan failed to prevent or mitigate the adverse impact, the company should be required to terminate the business relationship with respect to the activities concerned if the potential adverse impact is severe. In order to allow companies to fulfil that obligation, Member States should provide for the availability of an option to terminate the business relationship in contracts governed by their laws. In deciding to terminate or suspend a business relationship, the company should assess whether the adverse impacts of doing so could be reasonably expected to be manifestly more severe than the adverse impact that could not be prevented or adequately mitigated. Where companies temporarily suspend or terminate the business relationship, they should take steps to prevent, mitigate, or bring to an end the impacts of suspension or termination, provide reasonable notice to the business partner and keep that decision under review. It is possible that prevention of adverse impacts at the level of indirect business relationships requires collaboration with another entity. In some instances, collaboration with another company could be the only realistic way of preventing adverse impacts at the level of indirect business relationships, in particular, where the indirect business partner is not ready to enter into a contract with the company.
Although regulated financial undertakings are only subject to due diligence obligations for the upstream part of their chains of activities, the specificities of financial services as well as the MNE Guidelines provide indications of the types of measures that are appropriate and effective for financial undertakings to take in due diligence processes. As it is highlighted also in the MNE Guidelines, the specificities of financial services need to be acknowledged. Regulated financial undertakings are expected to consider adverse impacts and to use their so-called ‘leverage’ to influence companies. The exercise of shareholders’ rights can be a way to exercise leverage.
As regards direct and indirect business partners, industry and multi-stakeholder initiatives can help create additional leverage to identify, mitigate, and prevent adverse impacts. Therefore it should be possible for companies to participate in such initiatives to support the implementation of obligations laid down in Articles 7 to 16 of this Directive to the extent that such initiatives are appropriate to support the fulfilment of those obligations. The meaning of the term ‘initiatives’ is broad and includes a combination of voluntary due diligence procedures, tools and mechanisms, developed and overseen by governments, industry associations, interested organisations, including civil society organisations, or groupings or combinations thereof, that companies could participate in in order to support the implementation of due diligence obligations. Companies could, after having assessed their appropriateness, make use of or join relevant risk analysis carried out by industry or multi-stakeholder initiatives or by members of those initiatives and could take or join effective appropriate measures through such initiatives. When doing so, companies should monitor the effectiveness of such measures and continue to take appropriate measures where necessary to ensure the fulfilment of their obligations. In order to ensure full information on such initiatives, this Directive should also refer to the possibility for the Commission and the Member States to facilitate the dissemination of information on such initiatives and their outcomes. The Commission, in collaboration with Member States, should issue guidance setting out fitness criteria and a methodology for companies to assess the fitness of industry and multi-stakeholder initiatives. Companies could also use independent third-party verification on and from companies in their chains of activities to support the implementation of due diligence obligations to the extent that such verification is appropriate to support the fulfilment of the relevant obligations. Independent third-party verification could be carried out by other companies or by an industry or multi-stakeholder initiative. Independent third-party verifiers should act with objectivity and complete independence from the company, be free from any conflict of interests, remain free from external influence, whether direct or indirect, and should refrain from any action incompatible with their independence. Depending on the nature of the adverse impact, they should have experience and competence in environmental or human rights matters and should be accountable for the quality and reliability of the verification. The Commission, in collaboration with Member States, should issue guidance setting out fitness criteria and a methodology for companies to assess the fitness of third-party verifiers, and guidance for monitoring the accuracy, effectiveness and integrity of third-party verification. This guidance is essential to address the shortcomings of ineffective audits. Companies participating in industry or multi-stakeholder initiatives or using third-party verification or contractual clauses to support the implementation of due diligence obligations should still be able to be penalised or found liable for violations of this Directive and damage suffered by victims as a result.
Under the due diligence obligations provided for in this Directive, if a company identifies actual adverse human rights or environmental impacts, it should take appropriate measures to bring those to an end. It can be expected that a company is able to bring to an end actual adverse impacts in its own operations and those of its subsidiaries. However, it should be clarified that, where adverse impacts cannot be brought to an end, companies should minimise the extent of such impacts. Minimisation of the extent of adverse impacts should require an outcome that is the closest possible to bringing the adverse impact to an end. Therefore, the company should periodically reassess the circumstances that prevented it from bringing the adverse impact to an end, and whether the adverse impact can be brought to an end. To provide companies with legal clarity and certainty, this Directive should specify which actions companies should be required to take for bringing actual human rights and environmental adverse impacts to an end and for minimising their extent, where relevant depending on the circumstances. When assessing the appropriate measures to bring to an end or minimise the extent of the adverse impacts, due account should be taken of the so-called ‘level of involvement of the company in an adverse impact’ in line with the international frameworks and the company’s ability to influence the business partner causing or jointly causing the adverse impact. Companies should take appropriate measures to bring to an end or minimise the extent of the adverse impacts that they cause by themselves (so-called ‘causing’ the adverse impact as referred to in the international framework) or jointly with their subsidiaries or business partners (so-called ‘contributing’ to the adverse impact as referred to in the international framework). This applies irrespective of whether third parties outside of the company’s chain of activities are also causing the adverse impact. Jointly causing the adverse impact is not limited to equal implication of the company and its subsidiary or business partner in the adverse impact, but should cover all cases of the company’s acts or omissions, causing the adverse impact in combination with the acts or omissions of subsidiaries or business partners, including where the company substantially facilitates or incentivises a business partner to cause an adverse impact, that is, excluding minor or trivial contributions. When companies are not causing the adverse impacts occurring in their chains of activities themselves or jointly with other legal entities, but the adverse impact is caused only by their business partner in the chains of activities of the companies (so-called ‘being directly linked to’ the adverse impact as referred to in the international framework), they should still aim to use their influence to bring to an end or minimise the extent of the adverse impact caused by their business partners or to increase their influence to do so. Using only the notion of ‘causing’ the adverse impact instead of the aforementioned terms used in the international frameworks avoids confusion with existing legal terms in national legal systems while covering the same causal relationships described in those frameworks. In this context, in line with the international frameworks, the company’s influence on a business partner should include on the one hand its ability to persuade the business partner to bring to an end or minimise the extent of the adverse impacts (for example through market power, pre-qualification requirements or linking business incentives to human rights and environmental performance) and, on the other hand, the degree of influence or leverage that the company could reasonably exercise, for example, through cooperation with the business partner in question or engagement with another company which is the direct business partner of the business partner associated with the adverse impact.
So as to comply with the obligation to bring to an end or minimise the extent of actual adverse impacts provided for in this Directive, companies should be required to take the following appropriate measures, where relevant. Where necessary due to the fact that the adverse impact cannot be immediately brought to an end, companies should develop and implement a corrective action plan. Companies should seek to obtain contractual assurances from a direct business partner that it will ensure compliance with the code of conduct and, as necessary, the corrective action plan, including by seeking corresponding contractual assurances from its partners to the extent that their activities are part of the chains of activities of the companies. Contractual assurances should be designed to ensure that responsibilities are shared appropriately by the company and the business partners. The contractual assurances should be accompanied by appropriate measures to verify compliance. However, the company should only be obliged to seek the contractual assurances, as obtaining them may depend on the circumstances. Companies should also make financial or non-financial investments, adjustments or upgrades aiming at ceasing or minimising the extent of adverse impacts, and collaborate with other companies, in compliance with Union law. Where relevant, companies should adapt business plans, overall strategies and operations, including purchasing practices, and develop and use purchasing policies that contribute to living wages and incomes for their suppliers, and that do not encourage actual adverse impacts on human rights or the environment. To conduct their due diligence in an effective and efficient manner, companies should also make necessary modifications of, or improvements to, their design and distribution practices, to address adverse impacts arising both in the upstream part and the downstream part of their chains of activities, before and after the product has been made. Adopting and adapting such practices, as necessary, could be particularly relevant for the company to avoid an adverse impact in the first instance. Such measures could also be relevant to address adverse impacts that are jointly caused by the company and its business partners, for instance due to the deadlines or specifications imposed on them by the company. In addition, by better sharing the value along the chain of activities, responsible purchasing or distribution practices contribute to fighting against child labour, which often arises in countries or territories with high poverty levels. Companies should also provide targeted and proportionate support for an SME which is a business partner of the company, where necessary in light of the resources, knowledge and constraints of the SME, including by providing or enabling access to capacity-building, training or upgrading management systems, and, where compliance with the code of conduct or the corrective action plan would jeopardise the viability of the SME, providing targeted and proportionate financial support, such as direct financing, low-interest loans, guarantees of continued sourcing, or assistance in securing financing. The notion of ‘Jeopardising the viability of an SME’ should be interpreted as possibly causing a bankruptcy of the SME or putting the SME in a situation where bankruptcy is imminent.
In order to reflect the full range of options for the company in cases where actual adverse impacts could not be addressed by the described measures, this Directive should also refer to the possibility for the company to seek contractual assurances with the indirect business partner, with a view to achieving compliance with the company’s code of conduct or a corrective action plan, and conduct appropriate measures to verify compliance of the indirect business partner with the contractual assurances.
When contractual assurances are obtained from an SME that is an indirect business partner, companies should assess whether the contractual assurances should be accompanied by appropriate measures for SMEs. When the SME requests to pay part of the cost, or in agreement with the company, the SME should be able to share the results of verification with other companies.
In order to ensure that appropriate measures for the bringing to an end or minimising of actual adverse impacts are effective, companies should prioritise engagement with business partners in their chains of activities, instead of terminating the business relationship, as a last resort after attempting to bring actual adverse impacts to an end or to minimise their extent without success. However, this Directive should also, for cases where actual adverse impacts could not be brought to an end or the extent adequately minimised by such appropriate measures, refer to the obligation for companies, as a last resort, to refrain from entering into new or extending existing relations with the partner in question and, where there is a reasonable prospect of change, by using or increasing the company’s leverage through the temporary suspension of the business relationship with respect to the activities concerned, adopt and implement an enhanced corrective action plan for the specific adverse impact without undue delay including a specific and appropriate timeline for the adoption and implementation of all actions therein, during which the company may also seek alternative business partners. Factors determining the appropriateness of the timeline for adoption and implementation of those actions could include the severity of the adverse impact, the need to identify and take steps to bring to an end or minimise the extent of any additional adverse impacts, as well as impacts on SMEs or smallholders. Companies should suspend their business relationships with the business partner, thereby increasing their leverage and increasing the chances that the impact is addressed. Where there is no reasonable expectation that those efforts would succeed, for instance, in situations of state-imposed forced labour, or where the implementation of the enhanced corrective action plan failed to bring to an end or minimise the extent of the adverse impact, the company should be required to terminate the business relationship with respect to the activities concerned if the actual adverse impact is severe. In order to allow companies to fulfil that obligation, Member States should provide for the availability of an option to terminate the business relationship in contracts governed by their laws. In deciding to terminate or suspend a business relationship, the company should assess whether the adverse impacts of doing so could be reasonably expected to be manifestly more severe than the adverse impact that could not be brought to an end or the extent of which could not be adequately minimised. Where companies temporarily suspend or terminate the business relationship, they should take steps to prevent, mitigate, or bring to an end the impacts of suspension or termination, provide reasonable notice to the business partner and keep that decision under review. It is possible that bringing to an end adverse impacts at the level of indirect business relationships requires collaboration with another entity. In some instances, collaboration with another company could be the only realistic way of bringing to an end actual adverse impacts at the level of indirect business relationships, in particular where the indirect business partner is not ready to enter into a contract with the company.
Where a company has caused or jointly caused an actual adverse impact, the company should provide remediation. The term ‘remediation’ means restoring the affected person or persons, communities or environment to a situation equivalent or as close as possible to the situation they would have been in had the actual adverse impact not occurred, proportionate to the company’s implication in the adverse impact, including through financial or non-financial compensation provided by the company to a person or persons affected by the actual adverse impact and, where applicable, reimbursement of the costs incurred by public authorities for any necessary remedial measures. Member States should ensure that stakeholders affected by an adverse impact are not required to seek remediation prior to filing claims in court. Member States should ensure that, where the company fails to provide remediation in case it has caused or jointly caused the actual adverse impact, the competent supervisory authority has the power, on its own initiative or as a result of substantiated concerns communicated to it in accordance with this Directive, to order the company to provide appropriate remediation. This is without prejudice in such a situation to the imposition of penalties for the infringement of provisions of national law adopted pursuant to this Directive and to civil liability being sought before a national court. Where the actual adverse impact is caused only by the company’s business partner, voluntary remediation may be provided by the company. The company may also use its ability to influence the business partner causing or jointly causing the adverse impact to enable remediation.
Companies should provide the possibility for persons and organisations to submit complaints directly to them in case of legitimate concerns regarding actual or potential human rights and environmental adverse impacts. Persons and organisations who could submit such complaints should include persons who are affected or have reasonable grounds to believe that they might be affected and the legitimate representatives of such persons on behalf of them, such as civil society organisations and human rights defenders; trade unions and other workers’ representatives representing individuals working in the chain of activities concerned; and civil society organisations active and experienced in the areas related to the environmental adverse impact that is the subject matter of the complaint. Companies should establish a fair, publicly available, accessible, predictable and transparent procedure for dealing with those complaints and inform the relevant workers, trade unions and other workers’ representatives about such procedures. Companies should also establish an accessible mechanism for the submission of notifications by persons and organisations where they have information or concerns regarding actual or potential adverse impacts. In order to reduce the burden on companies, they should be able to participate in collaborative complaints procedures and notification mechanisms, such as those established jointly by companies, for example, by a group of companies, through industry associations, multi-stakeholder initiatives or global framework agreements. The submission of a notification or complaint should not be a prerequisite or preclude the person submitting them from having access to the substantiated concerns procedure or to judicial or other non-judicial mechanisms, such as the OECD national contact points where they exist. The provisions on the complaints procedure and notification mechanism under this Directive should be such as to avoid that access to a company’s representatives leading to unreasonable solicitation. In accordance with international standards, persons submitting complaints, where they do not submit them anonymously, should be entitled to request from the company timely and appropriate follow-up and to meet with the company’s representatives at an appropriate level to discuss actual or potential severe adverse impacts that are the subject matter of the complaint and potential remediation, to be provided with the reasoning as to why a complaint has been considered founded or unfounded and, where considered founded, to be provided with information on the steps and actions taken or to be taken by the company. Companies should also take reasonably available measures to prevent any form of retaliation by ensuring the confidentiality of the identity of the person or organisation submitting the complaint or notification, in accordance with national law. The terms ‘fair, publicly available, accessible, predictable and transparent’ should be understood in line with principle 31 of the UN Guiding Principles requiring procedures to be legitimate, accessible, predictable, equitable, transparent, rights-compatible and a source of continuous learning, as also referred to in the UN Committee on the Rights of the Child General Comment No 16. Workers and their representatives should also be properly protected, and any non-judicial remediation efforts should be without prejudice to encouraging collective bargaining and recognition of trade unions, and should by no means undermine the role of legitimate trade unions or workers’ representatives in addressing labour-related disputes. Companies should ensure accessibility of the notification mechanisms and complaint procedures for stakeholders, taking due account of relevant barriers.
Due to a broader list of persons or organisations being entitled to submit a complaint and a broader scope of subject-matter of complaints, the complaints procedure under this Directive should be legally understood as a mechanism that is separate from the internal reporting procedure set up by companies in accordance with Directive (EU) 2019/1937 of the European Parliament and of the Council⁽¹⁶⁾. If the breach of Union or national law included in the material scope of that Directive can be considered to be an adverse impact and the reporting person is a company employee that is directly affected by the adverse impact, then that person could use both procedures: the complaints mechanism in accordance with this Directive and an internal reporting procedure set out in accordance with Directive (EU) 2019/1937. Nevertheless, if one of the conditions above is not met, then the person should be able to proceed only via one of the procedures.
Companies should monitor the implementation and effectiveness of their due diligence measures. They should carry out periodic assessments of their own operations, those of their subsidiaries and, where related to the chain of activities of the company, those of their business partners, to assess the implementation and to monitor the adequacy and effectiveness of the identification, prevention, minimisation, bringing to an end and mitigation of adverse impacts. Such assessments should verify that adverse impacts are properly identified, due diligence measures are implemented and adverse impacts have actually been prevented or brought to an end. In order to ensure that such assessments are up-to-date, they should be carried out without undue delay after a significant change occurs, but at least every 12 months and be revised in-between if there are reasonable grounds to believe that new risks of adverse impact could have arisen. A significant change should be understood as a change to the status quo of the company’s own operations, operations of its subsidiaries or business partners, the legal or business environment or any other substantial shift from the situation of the company or its operating context. Examples of a significant change could be cases when the company starts to operate in a new economic sector or geographical area, starts producing new products or changes the way of producing the existing products using technology with potentially higher adverse impact, or changes its corporate structure via restructuring or via mergers or acquisitions. Reasonable grounds to believe that there are new risks may arise in different ways, including learning about the adverse impact from publicly available information, through stakeholder engagement, or through notifications. Companies should retain documentation demonstrating their compliance with this requirement for at least five years. Such documentation should at least include, where relevant, the identified impacts and in-depth assessments pursuant to Article 8, the prevention and/or corrective action plan pursuant to Articles 10(2), point (a), and 11(3), point (b), contractual provisions obtained or contracts concluded pursuant to Articles 10(2), point (b), Article 10(4) and 11(3)(c), Article 11(5), verifications pursuant to Articles 10(5) and 11(6), remediation measures, periodic assessments as part of the company’s monitoring obligation, as well as notifications and complaints. Financial undertakings should carry out periodic assessment only of their own operations, those of their subsidiaries and those of their upstream business partners.
As is the case in the existing international standards set by the UN Guiding Principles and the OECD framework, it forms part of the due diligence requirement to communicate externally relevant information on due diligence policies, processes and activities conducted to identify and address actual or potential adverse impacts, including the findings and outcomes of those activities. Directive 2013/34/EU sets out relevant reporting obligations for the companies covered by this Directive. In addition, Regulation (EU) 2019/2088 of the European Parliament and of the Council⁽¹⁷⁾ sets out further reporting obligations on sustainability-related disclosures in the financial services sector, for financial undertakings. In order to avoid duplicating reporting obligations, this Directive should therefore not introduce any new reporting obligations in addition to those under Directive 2013/34/EU for the companies covered by Directive 2013/34/EU as well as the reporting standards that should be developed under it. In order to comply with their obligation of communicating as part of the due diligence under this Directive, companies should publish on their website an annual statement in at least one of the official languages of the Union, within a reasonable period of time, but no later than 12 months after the balance sheet date of the financial year for which the statement is drawn up, unless the company is subject to the sustainability reporting requirements provided for in Directive 2013/34/EU. In cases where a company is not required to report in accordance with Article 19a or 29a of Directive 2013/34/EU, the statement should be published by the date of publication of the annual financial statements. The annual statement should be submitted to the designated collection body for the purpose of making it accessible on the European single access point (ESAP) as established by Regulation (EU) 2023/2859 of the European Parliament and of the Council⁽¹⁸⁾. In order to ensure uniform conditions for the implementation of the rules on accessibility of information on the ESAP, implementing powers should be conferred on the Commission. To enhance legal certainty, the Annex to Regulation (EU) 2023/2859 should be amended by introducing the reference to this Directive.
The requirement on companies which are under the scope of this Directive and at the same time are subject to reporting requirements under Articles 19a, 29a and 40a of Directive 2013/34/EU to report on their due diligence process as stipulated in Articles 19a, 29a and 40a of Directive 2013/34/EU should be understood as a requirement for companies to describe how they carry out due diligence as provided for in this Directive.
It is not the objective of this Directive to require companies to publicly disclose intellectual capital, intellectual property, know-how or the results of innovation that would qualify as trade secrets, as defined in Directive (EU) 2016/943. Reporting requirements provided for in this Directive should therefore be without prejudice to Directive (EU) 2016/943. This Directive should also apply without prejudice to Regulation (EU) No 596/2014 of the European Parliament and of the Council⁽¹⁹⁾.
In order to conduct meaningful human rights and environmental due diligence, companies should take appropriate measures to carry out effective engagement with stakeholders, for the process of carrying out the due diligence actions. Without prejudice to Directive (EU) 2016/943, effective engagement should cover providing consulted stakeholders with relevant and comprehensive information, as well as ongoing consultation that allows for genuine interaction and dialogue at the appropriate level, such as project or site level, and with appropriate periodicity. Meaningful engagement with consulted stakeholders should take due account of barriers to engagement, ensure that stakeholders are free from retaliation and retribution, including by maintaining confidentiality and anonymity, and particular attention should be paid to the needs of vulnerable stakeholders, and to overlapping vulnerabilities and intersecting factors, including by taking into account potentially affected groupings or communities, for example those protected under the UN Declaration on the Rights of Indigenous People and those covered in the UN Declaration on Human Rights Defenders. There are situations in which it will not be possible to carry out meaningful engagement with consulted stakeholders, or where engagement with additional expert perspectives is useful to allow the company to comply fully with the requirements of this Directive. In such cases, companies should additionally consult with experts, such as civil society organisations or natural or legal persons defending human rights or the environment in order to gain credible insights into actual or potential adverse impacts. The consultation of employees and their representatives should be conducted in accordance with relevant Union law, and where applicable, national law and collective agreements, and without prejudice to their applicable rights to information, consultation and participation, and in particular those covered by relevant Union legislation in the field of employment and social rights, including Council Directive 2001/86/EC⁽²⁰⁾ and Directives 2002/14/EC⁽²¹⁾ and 2009/38/EC⁽²²⁾ of the European Parliament and of the Council. For the purposes of this Directive, employees should be understood as including temporary agency workers, and other workers in non-standard forms of employment provided that they fulfil the criteria for determining the status of worker established by the CJEU. When carrying out consultations, it should be possible for companies to rely on industry initiatives to the extent that they are appropriate to support effective engagement. The use of industry or multi-stakeholder initiatives is not in itself sufficient to fulfil the obligation to consult workers and their representatives.
In order to give companies tools to help them comply with their due diligence requirements through their chains of activities, the Commission, in consultation with Member States and stakeholders, should provide guidance on model contractual clauses, which can be used voluntarily by companies as a tool to help fulfil their obligations in Articles 10 and 11. The guidance should aim to facilitate a clear allocation of tasks between contracting parties and ongoing cooperation, in a way that avoids the transfer of the obligations provided for in this Directive to a business partner and automatically rendering the contract void in case of a breach. The guidance should reflect the principle that the mere use of contractual assurances cannot, on its own, satisfy the due diligence standards provided for in this Directive.
In order to provide support and practical tools to companies or to Member State authorities on how companies should fulfil their due diligence obligations in a practical manner, and to provide support to stakeholders, the Commission, using relevant international guidelines and standards as a reference, and in consultation with Member States and stakeholders, the European Union Agency for Fundamental Rights, the European Environment Agency, the European Labour Authority, and where appropriate with international organisations and other bodies having expertise in due diligence, should issue guidelines, including general guidelines and guidelines for specific sectors or specific adverse impacts and the interplay between this Directive and other Union legislative acts pursuing the same objectives and providing for more extensive or more specific obligations.
Digital tools and technologies, such as those used for tracking, surveillance or tracing raw materials, goods and products throughout value chains, for instance satellites, drones, radars, or platform-based solutions, could support and reduce the cost of data gathering for value chain management, including the identification and assessment of adverse impacts, prevention and mitigation, and monitoring of the effectiveness of due diligence measures. In order to help companies fulfil their due diligence obligations along their value chain, the use of such tools and technologies should be encouraged and promoted. To that end, the Commission should issue guidelines with useful information and references to appropriate resources. When using digital tools and technologies, companies should take into account and appropriately address possible risks associated therewith, and put in place mechanisms to verify the appropriateness of the information obtained.
Although SMEs are not included in the scope of this Directive, they could be impacted by its provisions as contractors or subcontractors to the companies which are in the scope. The aim is nevertheless to mitigate financial or administrative burden on SMEs, many of which are already struggling in the context of the global economic and sanitary crisis. In order to support SMEs, Member States, with the support of the Commission, should set up and operate, either individually or jointly, dedicated user-friendly websites, portals or platforms, to provide information and support to companies, and Member States could also financially support SMEs and help them build capacity. Such support could also be made accessible and, where necessary, adapted and extended to upstream economic operators in third countries. Companies whose business partners are SMEs are also encouraged to support them to comply with due diligence measures and use fair, reasonable, non-discriminatory and proportionate requirements vis-à-vis the SMEs.
The Commission should establish a single helpdesk on corporate sustainability due diligence. That single helpdesk should be able to collaborate with and request information from relevant national authorities in each Member State, including national helpdesks where they exist, for instance to assist in tailoring the information and guidance to national contexts and its dissemination, without prejudice to the allocation of functions and powers among the authorities within national systems. The single helpdesk and relevant national authorities should also liaise with each other to ensure cross-border cooperation.
In order to complement Member State support to companies, including SMEs, in their implementation of due diligence obligations, the Commission may build on existing Union tools, projects and other actions helping with the due diligence implementation in the Union and in third countries. It may set up new support measures that provide help to companies, including SMEs, on due diligence requirements, including an observatory for chain of activities transparency and the facilitation of industry or multi-stakeholder initiatives.
The Commission could complement Member States’ support measures building on existing Union action to support upstream economic operators to build the capacity to effectively prevent and mitigate adverse human rights and environmental impacts of their operations and business relationships, paying specific attention to the challenges faced by smallholders. The Union and its Member States within their respective competences are encouraged to use their neighbourhood, development and international cooperation instruments, including trade agreements, to support third-country governments and upstream economic operators in third countries to address adverse human rights and environmental impacts of their operations and upstream business relationships. This could include working with partner country governments, the local private sector and stakeholders on addressing the root causes of adverse human rights and environmental impacts.
This Directive is an important legislative tool to ensure corporate transition to a sustainable economy, including to reduce the existential harms and costs of climate change, to ensure alignment with ‘global net zero’ by 2050, to avoid any misleading claims regarding such alignment and to stop greenwashing, disinformation and fossil fuels expansion worldwide in order to achieve international and European climate objectives. In order to ensure that this Directive effectively contributes to combating climate change, companies should adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1,5 ^oC in line with the Paris Agreement and the objective of achieving climate neutrality as established in Regulation (EU) 2021/1119, including its intermediate and 2050 climate neutrality targets. The plan should address, where relevant, the exposure of the company to coal-, oil- and gas- related activities. Such requirements should be understood as an obligation of means and not of results. Being an obligation of means, due account should be given to the progress companies make, and the complexity and evolving nature of climate transitioning. While companies should strive to achieve the greenhouse gas emission reduction targets contained in their plans, specific circumstances may lead to companies not being able to reach these targets, where this is no longer reasonable. The plan should include time-bound targets related to climate change for 2030 and in five-year steps up to 2050 based on conclusive scientific evidence and, where appropriate, absolute emission reduction targets for greenhouse gas for scope 1, scope 2 and scope 3 greenhouse gas emissions. The plan should develop implementing actions to achieve the company’s climate targets and be based on conclusive scientific evidence, meaning evidence with independent scientific validation that is consistent with the limiting of global warming to 1,5 ^oC as defined by the Intergovernmental Panel on Climate Change (IPCC) and taking into account the recommendations of the European Scientific Advisory Board on Climate Change. Supervisory authorities should be required to at least supervise the adoption and design of the plan and the updates thereof, in accordance with the requirements laid down in this Directive. Since the content of the transition plan for climate change mitigation should be in line with the reporting requirements under Directive 2013/34/EU as regards corporate sustainability reporting, companies that report such a plan under Directive 2013/34/EU should be deemed to have complied with the specific obligation to adopt a plan under this Directive. While the adoption obligation will be considered to have been met, companies should still abide by their obligation to put that transition plan for climate change mitigation into effect and to update it every 12 months to assess progress made towards its targets.
In order to allow for the effective oversight of and, where necessary, enforcement of this Directive in relation to third-country companies, those companies should designate a sufficiently mandated authorised representative in the Union and provide information relating to their authorised representatives. It should be possible for the authorised representative to also function as a point of contact, provided the relevant requirements of this Directive are complied with. If the third-country company does not designate the authorised representative, all Member States in which the company operates should be competent to enforce the fulfilment of this obligation, especially to designate a natural or legal person in one of the Member States where it operates, in accordance with the enforcement framework set in national law. The Member States initiating such enforcement should inform supervisory authorities of other Member States through a European Network of Supervisory Authorities so that other Member States do not enforce them.
In order to ensure the monitoring of the correct implementation of companies’ due diligence obligations and ensure the proper enforcement of this Directive, Member States should designate one or more national supervisory authorities. These supervisory authorities should be of a public nature, independent from the companies falling within the scope of this Directive or other market interests, and free from conflicts of interest and external influence, whether direct or indirect. In order to exercise their powers impartially, these supervisory authorities should neither seek nor take instructions from anybody. In accordance with national law, Member States should ensure that each supervisory authority is provided with the human and financial resources necessary for the effective performance of its tasks and exercise of its powers. They should be entitled to carry out investigations, on their own initiative or based on substantiated concerns raised under this Directive. Those investigations could include, where appropriate, on-site inspections and the hearing of relevant stakeholders. Where competent authorities under sectoral legislation exist, Member States could identify those as responsible for the application of this Directive in their areas of competence. Supervisory authorities should publish and make available on a website an annual report on their past activities, including the most serious breaches identified. Member States should establish an accessible mechanism for receiving substantiated concerns, free of charge or with a fee limited to covering administrative costs only, and ensure that practical information is made available to the public on how to exercise this right.
In order to ensure effective enforcement of the provisions of national law transposing this Directive, Member States should provide for dissuasive, proportionate and effective penalties for infringements of those measures. In order for such penalties regime to be effective, penalties to be imposed by the national supervisory authorities should include pecuniary penalties and a public statement indicating the company responsible and the nature of the infringement if the company fails to comply with a decision imposing a pecuniary penalty within the applicable timeframe. That penalties regime is without prejudice to the power to withdraw and to prohibit the placing, making available on the market and export of products under other Union legislative acts providing for more extensive or more specific due diligence obligations, such as Regulation (EU) 2023/1115. Member States should ensure that the pecuniary penalty is commensurate to the company’s worldwide net turnover when being imposed. However, that should not oblige the Member States to base the pecuniary penalty solely on the net turnover of the company in every case. The Member States should decide in accordance with national law whether the penalties should be imposed directly by supervisory authorities, in collaboration with other authorities or by application to the competent judicial authorities. In order to ensure public oversight of the application of the rules set out in this Directive, the decisions of the supervisory authorities imposing penalties on companies due to a failure to comply with the provisions of national law transposing this Directive should be published, sent to the European Network of Supervisory Authorities and remain publicly available for at least three years. The published decision should not contain any personal data in accordance with Regulation (EU) 2016/679 of the European Parliament and of the Council⁽²³⁾. The publication of the company’s name should be allowed even if it contains the name of a natural person.
In order to prevent an artificial reduction of potential administrative fines, Member States should ensure that, when imposing a pecuniary penalty on a company belonging to a group, such penalties are calculated taking into account the consolidated turnover calculated at the level of the ultimate parent company.
In order to ensure consistent application and enforcement of provisions of national law adopted pursuant to this Directive, national supervisory authorities should cooperate and coordinate their action. For that purpose a European Network of Supervisory Authorities should be set up by the Commission and the supervisory authorities should assist each other in performing their tasks and provide mutual assistance.
In order to ensure that victims of adverse impacts have effective access to justice and compensation, Member States should be required to lay down rules governing the civil liability of companies for damage caused to a natural or legal person, on condition that the company intentionally or negligently failed to prevent or mitigate potential adverse impacts or to bring actual impacts to an end or minimise their extent and, as a result of such a failure, damage was caused to the natural or legal person. Damage caused to a person’s protected legal interests should be understood in accordance with national law, for example death, physical or psychological injury, deprivation of personal liberty, loss of human dignity, or damage to a person’s property. The condition that the damage has to be caused to a person as a result of the company’s failure to comply with the obligation to address the adverse impact, when the right, prohibition or obligation listed in the Annex to this Directive, the abuse or violation of which is resulting in the adverse impact that should have been addressed, is aimed to protect the natural or legal person to whom the damage is caused, should be understood as meaning that derivative damage (caused indirectly to other persons who are not the victims of adverse impacts and who are not protected by the rights, prohibitions or obligations listed in the Annex to this Directive) is not covered. For example, if an employee of a company suffered damage due to the company’s violation of safety standards in the workplace, the landlord of such an employee should not be allowed to bring a claim against the company for an economic loss caused by the employee not being able to pay the rent. Causality within the meaning of civil liability is not regulated by this Directive, with the exception that the companies should not be held liable under this Directive if the damage is caused only by the business partners in the chains of activities of the companies (so-called ‘being directly linked to’ as referred to in the international framework). Victims should have the right to full compensation for the damage caused in accordance with national law and in line with such common principle. Deterrence through damages (punitive damages) or any other form of overcompensation should be prohibited.
As the adverse impacts should be prioritised according to their severity and likelihood and addressed gradually, if it is not possible to address at the same time to the full extent all adverse impacts it has identified, a company should not be liable under this Directive for any damage stemming from any less significant adverse impacts that were not yet addressed. The correctness of the company’s prioritisation of adverse impacts should, however, be assessed when determining whether the conditions for the company’s liability were met as part of the assessment of whether the company breached its obligation to adequately address the adverse impacts it identified.
The liability regime does not regulate who should prove the fulfilment of the conditions for liability under the circumstances of the case, or upon which conditions civil proceedings can be initiated, therefore those questions are left to national law.
In order to ensure the right to an effective remedy, as enshrined in Article 2(3) of the International Covenant on Civil and Political Rights, Article 8 of the Universal Declaration of Human Rights and Article 9(3) of the Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters (Aarhus Convention), this Directive addresses certain practical and procedural barriers to justice for victims of adverse impacts, including difficulties in accessing evidence, the limited duration of limitation periods, the absence of adequate mechanisms for representative actions, and the prohibitive costs of civil liability proceedings.
When a claimant presents a reasoned justification containing reasonably available facts and evidence sufficient to support the plausibility of its claim for damages and indicates that additional evidence lies in the control of the company, Member States should ensure that courts can order that such evidence be disclosed by the company in accordance with national procedural law, while limiting such disclosure to that which is necessary and proportionate. For that purpose, national courts should consider the extent to which the claim or defence is supported by available facts and evidence justifying the disclosure request; the scope and cost of disclosure as well as the legitimate interests of all parties concerned, including preventing non-specific searches for information which is unlikely to be of relevance for the parties in the procedure. Where such evidence contains confidential information, national courts should be able to order its disclosure only where they consider it relevant to the action for damages, and should put in place effective measures to protect such information.
Member States should provide for the reasonable conditions under which any alleged injured party should be able to authorise a trade union, a non-governmental human rights or environmental organisation or other non-governmental organisation, and, in accordance with national law, national human rights’ institutions, based in any Member State, to bring civil liability actions to enforce victims’ rights, where such entities comply with the requirements laid down in national law, for instance, where they maintain a permanent presence of their own and, in accordance with their statutes, are not engaged commercially and not only temporarily in the realisation of rights protected under this Directive or the corresponding rights in national law. That could be achieved by provisions of national civil procedure on authorisation to represent the victim in the context of a third-party intervention, based on the explicit consent of the alleged injured party, and should not be interpreted as requiring the Member States to extend the provisions of their national law on representative actions as defined in Directive (EU) 2020/1828 of the European Parliament and of the Council⁽²⁴⁾.
Limitation periods for bringing civil liability claims for damages should be at least five years and, in any case, not shorter than the limitation period laid down under general civil liability national regimes. National rules on the beginning, duration, suspension or interruption of limitation periods should not unduly hamper the bringing of actions for damages and, in any case, should not be more restrictive than the rules on national general civil liability regimes.
Moreover, in order to ensure legal remedies, claimants should be able to seek injunctive measures in the form of a definitive or provisional measure to cease infringements of the provisions of national law adopted pursuant to this Directive by performing an action or ceasing conduct.
As regards civil liability rules, the civil liability of a company for damages arising due to its failure to carry out adequate due diligence should be without prejudice to civil liability of its subsidiaries or the respective civil liability of direct and indirect business partners in its chain of activities. Where the company caused the damage jointly with its subsidiary or business partner, it should be jointly and severally liable with that subsidiary or business partner. This should be in accordance with national law on the conditions of joint and several liability, and without prejudice to any Union or national law on joint and several liability, and on rights of recourse for the full compensation paid by one jointly and severally liable party.
The civil liability rules under this Directive should be without prejudice to Union or national rules on civil liability related to adverse human rights impacts or to adverse environmental impacts that provide for liability in situations not covered by or providing for stricter liability than this Directive. A stricter liability regime should also be understood as a civil liability regime that provides for liability also in cases where the application of the liability rules under this Directive would not result in the liability of the company.
As regards civil liability arising from adverse environmental impacts, persons who suffer damage can claim compensation under this Directive even where such claims overlap with human rights claims.
In order to ensure that victims of human rights and environmental harm can bring an action for damages and claim compensation for damage caused when the company intentionally or negligently failed to comply with the due diligence obligations stemming from this Directive, this Directive should require Member States to ensure that the provisions of national law transposing the civil liability regime provided for in this Directive are of overriding mandatory application in cases where the law applicable to such claims is not the national law of a Member State, as could for instance be the case in accordance with international private law rules when the damage occurs in a third country. This means that the Member States should also ensure that the requirements in respect of which natural or legal persons can bring the claim, the statute of limitations and the disclosure of evidence are of overriding mandatory application. When transposing the civil liability regime provided for in this Directive and choosing the methods to achieve such results, Member States should also be able to take into account all related national rules to the extent they are necessary to ensure the protection of victims and crucial for safeguarding the Member States’ public interests, such as its political, social or economic organisation.
The civil liability regime under this Directive should be without prejudice to Directive 2004/35/EC of the European Parliament and of the Council⁽²⁵⁾. This Directive should not prevent Member States from imposing further, more stringent obligations on companies or from otherwise taking further measures having the same objectives as Directive 2004/35/EC.
Member States should ensure that compliance with the obligations resulting from the provisions of national law transposing this Directive, or their voluntary implementation, qualifies as an environmental and/or social aspect or element that contracting authorities may, in accordance with Directives 2014/23/EU⁽²⁶⁾, 2014/24/EU⁽²⁷⁾ and 2014/25/EU⁽²⁸⁾ of the European Parliament and of the Council, take into account as part of the award criteria for public and concession contracts or lay down in relation to the performance of such contracts. Contracting authorities and contracting entities may exclude or may be required by Member States to exclude from participation in a procurement procedure, including a concession award procedure, where applicable, any economic operator, where they can demonstrate by any appropriate means a violation of applicable obligations in the fields of environmental, social and labour law, including those stemming from certain international agreements ratified by all Member States and listed in those Directives, or that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable. To ensure consistency of Union legislation and support implementation, the Commission should consider whether it is relevant to update any of those directives, in particular with regard to the requirements and measures Member States are to adopt to ensure compliance with the sustainability and due diligence obligations throughout procurement and concession processes.
Persons who work for companies subject to due diligence obligations provided for in this Directive or who are in contact with such companies in the context of their work-related activities can play a key role in exposing breaches of the provisions of national law transposing this Directive. They can thus contribute to preventing and deterring such breaches and strengthening the enforcement of this Directive. Directive (EU) 2019/1937 should therefore apply to the reporting of all breaches of the provisions of national law transposing this Directive and to the protection of persons reporting such breaches.
To enhance legal certainty, the applicability, pursuant to this Directive, of Directive (EU) 2019/1937 to the reporting of breaches of the provisions of national law transposing this Directive and to the protection of persons reporting such breaches, should be reflected in Directive (EU) 2019/1937. The Annex to Directive (EU) 2019/1937 should therefore be amended accordingly. It is for the Member States to ensure that that amendment is reflected in their transposition measures adopted in accordance with Directive (EU) 2019/1937.
In order to specify the information that companies not subject to reporting requirements under the provisions on corporate sustainability reporting under Directive 2013/34/EU should be communicating on the matters covered by this Directive, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of determining additional rules concerning the content and criteria of such reporting, specifying information on the description of due diligence, actual and potential impacts and actions taken on those. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making⁽²⁹⁾. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.
This Directive should be applied in compliance with Union data protection law and the right to the protection of privacy and personal data as enshrined in Articles 7 and 8 of the Charter. Any processing of personal data under this Directive is to be undertaken in accordance with Regulation (EU) 2016/679, including the requirements of purpose limitation, data minimisation and storage limitation.
The European Data Protection Supervisor was consulted in accordance with Article 28(2) of Regulation (EU) 2018/1725 of the European Parliament and of the Council⁽³⁰⁾ and delivered an opinion on 17 March 2022.
The Commission should periodically report to the European Parliament and to the Council on the implementation of this Directive and its effectiveness in reaching its objectives, in particular in addressing adverse impacts. The first report should cover, among others, the impacts of this Directive on SMEs, the scope of application of this Directive in terms of the companies covered, whether the definition of the term ‘chain of activities’ needs to be revised, whether the Annex to this Directive needs to be modified and the list of relevant international conventions referred to in this Directive should be amended, in particular in the light of international developments, whether the rules on combatting climate change and the powers of supervisory authorities related to those rules need to be revised, the effectiveness of the enforcement mechanisms put in place at national level, of the penalties and the rules on civil liability, and whether changes to the level of harmonisation of this Directive are required to ensure a level-playing field for companies in the internal market. At the earliest possible opportunity after the date of entry into force of this Directive, but no later than two years after that date, the Commission should also submit a report to the European Parliament and to the Council on the necessity of laying down additional sustainability due diligence requirements tailored to regulated financial undertakings with respect to the provision of financial services and investment activities, and the options for such due diligence requirements as well as their impacts, in line with the objectives of this Directive, while taking into account other Union legislative acts that apply to regulated financial undertakings. That report should be accompanied, if appropriate, by a legislative proposal.
Since the objectives of this Directive, namely better exploiting the potential of the single market to contribute to the transition to a sustainable economy and contributing to sustainable development through the prevention and mitigation of actual or potential human rights and environmental adverse impacts in companies’ chains of activities, cannot be sufficiently achieved by the Member States, but can rather, by reason of the scale and effects of the action, in particular, the fact that the problems and the causes of those problems addressed by this Directive are of a transnational dimension, as many companies are operating Union wide or globally and their value chains extend to other Member States and to third countries, and the fact that individual Member States’ measures risk being ineffective and leading to fragmentation of the internal market, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 TEU. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives,

HAVE ADOPTED THIS DIRECTIVE:

Article 1 Subject matter

This Directive lays down rules on:

obligations for companies regarding actual and potential human rights adverse impacts and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies;
liability for violations of the obligations as referred to in point (a); and
the obligation for companies to adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, compatibility of the business model and of the strategy of the company with the transition to a sustainable economy and with the limiting of global warming to 1,5 ^oC in line with the Paris Agreement.

This Directive shall not constitute grounds for reducing the level of protection of human, employment and social rights, or of protection of the environment or of protection of the climate provided for by the national law of the Member States or by the collective agreements applicable at the time of the adoption of this Directive.

This Directive shall be without prejudice to obligations in the areas of human, employment and social rights, and of protection of the environment and climate change under other Union legislative acts. If a provision of this Directive conflicts with a provision of another Union legislative act pursuing the same objectives and providing for more extensive or more specific obligations, the provision of that other Union legislative act shall prevail to the extent of the conflict and shall apply as regards those specific obligations.

Article 2 Scope

This Directive shall apply to companies which are formed in accordance with the legislation of a Member State and which fulfil one of the following conditions:

the company had more than 1 000 employees on average and had a net worldwide turnover of more than EUR 450 000 000 in the last financial year for which annual financial statements have been or should have been adopted;
the company did not reach the thresholds as referred to in point (a) but is the ultimate parent company of a group that reached those thresholds in the last financial year for which consolidated annual financial statements have been or should have been adopted;
the company entered into or is the ultimate parent company of a group that entered into franchising or licensing agreements in the Union in return for royalties with independent third-party companies, where those agreements ensure a common identity, a common business concept and the application of uniform business methods, and where those royalties amounted to more than EUR 22 500 000 in the last financial year for which annual financial statements have been or should have been adopted, and provided that the company had or is the ultimate parent company of a group that had a net worldwide turnover of more than EUR 80 000 000 in the last financial year for which annual financial statements have been or should have been adopted.

This Directive shall also apply to companies which are formed in accordance with the legislation of a third country and fulfil one of the following conditions:

the company generated a net turnover of more than EUR 450 000 000 in the Union in the financial year preceding the last financial year;
the company did not reach the threshold as referred to in point (a) but is the ultimate parent company of a group that on a consolidated basis reached that threshold in the financial year preceding the last financial year;
the company entered into or is the ultimate parent company of a group that entered into franchising or licensing agreements in the Union in return for royalties with independent third-party companies, where those agreements ensure a common identity, a common business concept and the application of uniform business methods, and where those royalties amounted to more than EUR 22 500 000 in the Union in the financial year preceding the last financial year; and provided that the company generated, or is the ultimate parent company of a group that generated, a net turnover of more than EUR 80 000 000 in the Union in the financial year preceding the last financial year.

Where the ultimate parent company has as its main activity the holding of shares in operational subsidiaries and does not engage in taking management, operational or financial decisions affecting the group or one or more of its subsidiaries, it may be exempted from carrying out the obligations under this Directive. That exemption is subject to the condition that one of the ultimate parent company’s subsidiaries established in the Union is designated to fulfil the obligations set out in Articles 6 to 16 and Article 22 on behalf of the ultimate parent company, including the obligations of the ultimate parent company with respect to the activities of its subsidiaries. In such a case, the designated subsidiary is given all the necessary means and legal authority to fulfil those obligations in an effective manner, in particular to ensure that the designated subsidiary obtains from the companies of the group the relevant information and documents to fulfil the obligations of the ultimate parent company under this Directive.

The ultimate parent company shall apply for the exemption referred to in the first subparagraph of this paragraph to the competent supervisory authority, in accordance with Article 24, to assess whether the conditions referred to in the first subparagraph of this paragraph are met. Where the conditions are met, the competent supervisory authority shall grant the exemption. Where applicable, such authority shall duly inform the competent supervisory authority of the Member State where the designated subsidiary is established of the application and then of its decision.

The ultimate parent company shall remain jointly liable with the designated subsidiary for a failure of the latter to comply with its obligations in accordance with the first subparagraph of this paragraph.

For the purposes of paragraph 1, the number of part-time employees shall be calculated on a full-time equivalent basis. Temporary agency workers and other workers in non-standard forms of employment, provided that they fulfil the criteria for determining the status of worker as established by the Court of Justice of the European Union, shall be included in the calculation of the number of employees in the same way as if they were workers employed directly for the same period of time by the company.

Where a company meets the conditions laid down in paragraph 1 or 2, this Directive shall only apply if those conditions are met in two consecutive financial years. This Directive shall no longer apply to a company referred to in paragraph 1 or 2 where the conditions laid down in paragraph 1 or 2 cease to be met for each of the last two relevant financial years.

As regards the companies referred to in paragraph 1, the Member State competent to regulate matters covered by this Directive shall be the Member State in which the company has its registered office.

As regards a company as referred to in paragraph 2, the Member State competent to regulate matters covered by this Directive shall be the Member State in which that company has a branch. If a company does not have a branch in any Member State, or has branches located in different Member States, the Member State competent to regulate matters covered by this Directive shall be that in which that company generated the highest net turnover in the Union in the financial year preceding the last financial year.

This Directive shall not apply to AIFs, as defined in Article 4(1), point (a), of Directive 2011/61/EU of the European Parliament and of the Council⁽³¹⁾ or to undertakings for collective investment in transferable securities (UCITS) within the meaning of Article 1(2) of Directive 2009/65/EC of the European Parliament and of the Council⁽³²⁾.

Article 3 Definitions

For the purpose of this Directive, the following definitions shall apply:

‘company’ means any of the following:
1. a legal person constituted as one of the legal forms listed in Annexes I and II to Directive 2013/34/EU;
2. a legal person constituted in accordance with the law of a third country in a form comparable to those listed in Annexes I and II to Directive 2013/34/EU;
3. a regulated financial undertaking, regardless of its legal form, which is:
  - a credit institution, as defined in Article 4(1), point (1), of Regulation (EU) No 575/2013 the European Parliament and of the Council⁽³³⁾;
  - an investment firm, as defined in Article 4(1), point (1), of Directive 2014/65/EU the European Parliament and of the Council⁽³⁴⁾;
  - an alternative investment fund manager (AIFM), as defined in Article 4(1), point (b), of Directive 2011/61/EU, including a manager of European venture capital funds (EuVECA), as referred to in Regulation (EU) No 345/2013 of the European Parliament and of the Council⁽³⁵⁾, a manager of European social entrepreneurship funds (EuSEF), as referred to in Regulation (EU) No 346/2013 of the European Parliament and of the Council⁽³⁶⁾, and a manager of European long-term investment funds (ELTIF), as referred to in Regulation (EU) 2015/760 of the European Parliament and of the Council⁽³⁷⁾;
  - a management company, as defined in Article 2(1), point (b), of Directive 2009/65/EC;
  - an insurance undertaking, as defined in Article 13, point (1), of Directive 2009/138/EC of the European Parliament and of the Council⁽³⁸⁾;
  - a reinsurance undertaking, as defined in Article 13, point (4), of Directive 2009/138/EC;
  - an institution for occupational retirement provision within the scope of Directive (EU) 2016/2341 in accordance with Article 2 thereof, unless a Member State has chosen not to apply that Directive in whole or in part to those institutions for occupational retirement provision in accordance with Article 5 of that Directive;
  - a central counterparty, as defined in Article 2, point (1), of Regulation (EU) No 648/2012 of the European Parliament and of the Council⁽³⁹⁾;
  - a central securities depository, as defined in Article 2(1), point (1), of Regulation (EU) No 909/2014 of the European Parliament and of the Council⁽⁴⁰⁾;
  - an insurance or reinsurance special purpose vehicle authorised in accordance with Article 211 of Directive 2009/138/EC;
  - a securitisation special purpose entity, as defined in Article 2, point (2), of Regulation (EU) 2017/2402 of the European Parliament and of the Council⁽⁴¹⁾;
  - a financial holding company, as defined in Article 4(1), point (20), of Regulation (EU) No 575/2013, an insurance holding company, as defined in Article 212(1), point (f), of Directive 2009/138/EC, or a mixed financial holding company, as defined in Article 212(1), point (h), of Directive 2009/138/EC, which is part of an insurance group that is subject to supervision at the level of the group pursuant to Article 213 of that Directive and which is not exempted from group supervision pursuant to Article 214(2) of Directive 2009/138/EC;
  - a payment institution, as referred to in Article 1(1), point (d), of Directive (EU) 2015/2366 of the European Parliament and of the Council⁽⁴²⁾;
  - an electronic money institution, as defined in Article 2, point (1), of Directive 2009/110/EC of the European Parliament and of the Council⁽⁴³⁾;
  - a crowdfunding service provider, as defined in Article 2(1), point (e), of Regulation (EU) 2020/1503 of the European Parliament and of the Council⁽⁴⁴⁾;
  - a crypto-asset service provider, as defined in Article 3(1), point (15), of Regulation (EU) 2023/1114 of the European Parliament and of the Council⁽⁴⁵⁾, where performing one or more crypto-asset services, as defined in Article 3(1), point (16), of that Regulation;
‘adverse environmental impact’ means an adverse impact on the environment resulting from the breach of the prohibitions and obligations listed in Part I, Section 1, points 15 and 16, and Part II of the Annex to this Directive, taking into account national legislation linked to the provisions of the instruments listed therein;
‘adverse human rights impact’ means an impact on persons resulting from:
1. an abuse of one of the human rights listed in Part I, Section 1, of the Annex to this Directive, as those human rights are enshrined in the international instruments listed in Part I, Section 2, of the Annex to this Directive;
2. an abuse of a human right not listed in Part I, Section 1, of the Annex to this Directive, but enshrined in the human rights instruments listed in Part I, Section 2, of the Annex to this Directive, provided that:
  - the human right can be abused by a company or legal entity;
  - the human right abuse directly impairs a legal interest protected in the human rights instruments listed in Part I, Section 2, of the Annex to this Directive; and
  - the company could have reasonably foreseen the risk that such human right may be affected, taking into account the circumstances of the specific case, including the nature and extent of the company’s business operations and its chain of activities, the characteristics of the economic sector and the geographical and operational context;
‘adverse impact’ means an adverse environmental impact or adverse human rights impact;
‘subsidiary’ means a legal person, as defined in Article 2, point (10), of Directive 2013/34/EU, and a legal person through which the activity of a controlled undertaking, as defined in Article 2(1), point (f), of Directive 2004/109/EC of the European Parliament and of the Council⁽⁴⁶⁾, is exercised;
‘business partner’ means an entity:
1. with which the company has a commercial agreement related to the operations, products or services of the company or to which the company provides services pursuant to point (g) (‘direct business partner’); or
2. which is not a direct business partner but which performs business operations related to the operations, products or services of the company (‘indirect business partner’);
‘chain of activities’ means:
1. activities of a company’s upstream business partners related to the production of goods or the provision of services by that company, including the design, extraction, sourcing, manufacture, transport, storage and supply of raw materials, products or parts of products and the development of the product or the service; and
2. activities of a company’s downstream business partners related to the distribution, transport and storage of a product of that company, where the business partners carry out those activities for the company or on behalf of the company, and excluding the distribution, transport and storage of a product that is subject to export controls under Regulation (EU) 2021/821 or to the export controls relating to weapons, munitions or war materials, once the export of the product is authorised;
‘independent third-party verification’ means verification of the compliance by a company, or parts of its chain of activities, with human rights and environmental requirements resulting from this Directive by an expert that is objective, completely independent from the company, free from any conflicts of interest and from external influence, has experience and competence in environmental or human rights matters, according to the nature of the adverse impact, and is accountable for the quality and reliability of the verification;
‘SME’ means a micro, small or a medium-sized undertaking, irrespective of its legal form, that is not part of a large group, as those terms are defined according to Article 3(1), (2), (3) and (7) of Directive 2013/34/EU;
‘industry or multi-stakeholder initiative’ means a combination of voluntary due diligence procedures, tools and mechanisms, developed and overseen by governments, industry associations, interested organisations, including civil society organisations, or groupings or combinations thereof, that companies may participate in in order to support the implementation of due diligence obligations;
‘authorised representative’ means a natural or legal person resident or established in the Union that has a mandate from a company within the meaning of point (a)(ii) to act on its behalf in relation to compliance with that company’s obligations pursuant to this Directive;
‘severe adverse impact’ means an adverse impact that is especially significant on account of its nature, such as an impact that entails harm to human life, health or liberty, or on account of its scale, scope or irremediable character, taking into account its gravity, including the number of individuals that are or may be affected, the extent to which the environment is or may be damaged or otherwise affected, its irreversibility and the limits on the ability to restore affected individuals or the environment to a situation equivalent to their situation prior to the impact within a reasonable period of time;
‘net turnover’ means:
1. the ‘net turnover’, as defined in Article 2, point (5), of Directive 2013/34/EU; or
2. where the company applies international accounting standards adopted on the basis of Regulation (EC) No 1606/2002 of the European Parliament and of the Council⁽⁴⁷⁾ or is a company within the meaning of point (a)(ii), the revenue as defined by or within the meaning of the financial reporting framework on the basis of which the financial statements of the company are prepared;
‘stakeholders’ means the company’s employees, the employees of its subsidiaries, trade unions and workers’ representatives, consumers and other individuals, groupings, communities or entities whose rights or interests are or could be affected by the products, services and operations of the company, its subsidiaries and its business partners, including the employees of the company’s business partners and their trade unions and workers’ representatives, national human rights and environmental institutions, civil society organisations whose purposes include the protection of the environment, and the legitimate representatives of those individuals, groupings, communities or entities;
‘appropriate measures’ means measures that are capable of achieving the objectives of due diligence by effectively addressing adverse impacts in a manner commensurate to the degree of severity and the likelihood of the adverse impact, and reasonably available to the company, taking into account the circumstances of the specific case, including the nature and extent of the adverse impact and relevant risk factors;
‘business relationship’ means the relationship of a company with a business partner;
‘parent company’ means a company that controls one or more subsidiaries;
‘ultimate parent company’ means a parent company that controls, either directly or indirectly in accordance with the criteria set out in Article 22(1) to (5) of Directive 2013/34/EU, one or more subsidiaries and is not controlled by another company;
‘group of companies’ or ‘group’ means a parent company and all its subsidiaries;
‘remediation’ means restoration of the affected person or persons, communities or environment to a situation equivalent or as close as possible to the situation they would have been in had an actual adverse impact not occurred, in proportion to the company’s implication in the adverse impact, including by financial or non-financial compensation provided by the company to a person or persons affected by the actual adverse impact and, where applicable, reimbursement of the costs incurred by public authorities for any necessary remedial measures;
‘risk factors’ means facts, situations or circumstances that relate to the severity and likelihood of an adverse impact, including company-level, business operations, geographic and contextual, product and service, and sectoral facts, situations or circumstances;
‘severity of an adverse impact’ means the scale, scope or irremediable character of the adverse impact, taking into account the gravity of an adverse impact, including the number of individuals that are or may be affected, the extent to which the environment is or may be damaged or otherwise affected, its irreversibility and the limits on the ability to restore affected individuals or the environment to a situation equivalent to their situation prior to the impact within a reasonable period of time.

The Commission is empowered to adopt delegated acts in accordance with Article 34 in order to amend the Annex to this Directive by:

adding references to articles of international instruments ratified by all Member States and falling within the scope of a specific right, prohibition or obligation related to the protection of human rights, fundamental freedoms and of the environment listed in the Annex to this Directive;
modifying, where appropriate, the references to international instruments referred to in the Annex to this Directive, in view of the modification, supersession or abrogation of such instruments;
in accordance with developments within the relevant international fora concerning the instruments listed in Part 1, Section 2, of the Annex to this Directive:
1. replacing the references to the listed instruments with references to new instruments covering the same subject matter and ratified by all Member States; or
2. adding references to new instruments covering the same subject matter as the listed instruments and ratified by all Member States.

Article 4 Level of harmonisation

Without prejudice to Article 1(2) and (3), Member States shall not introduce, in their national law, provisions within the field covered by this Directive laying down human rights and environmental due diligence obligations diverging from those laid down in Article 8(1) and (2), Article 10(1) and Article 11(1).

Notwithstanding paragraph 1, this Directive shall not preclude Member States from introducing, in their national law, more stringent provisions diverging from those laid down in provisions other than Article 8(1) and (2), Article 10(1) and Article 11(1), or provisions that are more specific in terms of the objective or the field covered, in order to achieve a different level of protection of human, employment and social rights, the environment or the climate.

Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859 (Text with EEA relevance)

Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859 (Text with EEA relevance)

Article 1 Subject matter

Article 2 Scope

Article 3 Definitions

Article 4 Level of harmonisation

Article 5 Due diligence

Article 6 Due diligence support at a group level

Article 7 Integrating due diligence into company policies and risk management systems

Article 8 Identifying and assessing actual and potential adverse impacts

Article 9 Prioritisation of identified actual and potential adverse impacts

Article 10 Preventing potential adverse impacts

Article 11 Bringing actual adverse impacts to an end

Article 12 Remediation of actual adverse impacts

Article 13 Meaningful engagement with stakeholders

Article 14 Notification mechanism and complaints procedure

Article 15 Monitoring

Article 16 Communicating

Article 17 Accessibility of information on the European single access point

Article 18 Model contractual clauses

Article 19 Guidelines

Article 20 Accompanying measures

Article 21 Single helpdesk

Article 22 Combating climate change

Article 23 Authorised representative

Article 24 Supervisory authorities

Article 25 Powers of supervisory authorities

Article 26 Substantiated concerns

Article 27 Penalties

Article 28 European Network of Supervisory Authorities

Article 29 Civil liability of companies and the right to full compensation

Article 30 Reporting of breaches and protection of reporting persons

Article 31 Public support, public procurement and public concessions

Article 32 Amendment to Directive (EU) 2019/1937

Article 33 Amendment to Regulation (EU) 2023/2859

Article 34 Exercise of the delegation

Article 35 Committee procedure

Article 36 Review and reporting

Article 37 Transposition

Article 38 Entry into force

Article 39 Addressees

ANNEX