European Council Follows Up on Due Diligence Duty

Following the approval of the European Parliament’s position by the European Council, the directive on corporate sustainability due diligence has thus been formally adopted.

After being signed by the President of the European Parliament and the President of the Council, the directive will be published in the Official Journal of the European Union and will enter into force 20 days after its publication. Then, Member States have two years to apply the rules and administrative procedures in order to comply with the legal text.

The directive will be applicable based on the size of the companies according to the following timeline:

– Three years after the directive enters into force for companies with more than 5,000 employees and a turnover exceeding 1.5 billion euros.

– Four years after the directive enters into force for companies with more than 3,000 employees and a turnover exceeding 900 million euros.

– Five years after the directive enters into force for companies with more than 1,000 employees and a turnover exceeding 450 million euros.

Thus, the directive will affect companies with more than 1,000 employees and a turnover exceeding 450 million euros, and their activities range from the upstream production of goods or provision of services to the downstream distribution, transportation, or storage of products. The companies affected by the legislation will have to adopt and implement a risk-based system to control, prevent, or remedy the damage caused to human rights or the environment identified by the directive. “The implementation of these new rules will not only improve environmental and human rights practices but also enhance the competitiveness of companies in the global market by aligning with the growing expectations of consumers and investors for greater corporate responsibility,” explains Ana Dinis, Director General of ATP – Textile and Clothing Association of Portugal.

The directive requires companies to ensure respect for human rights and environmental obligations throughout their supply chains. If a violation of these obligations is identified, companies will have to take appropriate measures to prevent, mitigate, cease, or minimize the negative effects of their own operations, the operations of their subsidiaries, and their business partners in their supply chains. Companies can be held liable for the damage caused and will have to provide full compensation.

The companies affected by the directive will also have to adopt and implement a climate transition plan in accordance with the Paris Agreement on climate change. “This directive will further encourage innovation, promoting the development of new technologies and processes that minimize environmental impact and ensure decent working conditions for all involved in the production chain,” states the Director General of ATP.

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