The EU’s Corporate Sustainability Due Diligence Directive Draft

“The only responsibility of business is to increase its profits” Milton Friedman

No more. If your company falls within the scope of the Corporate Sustainability Due Diligence Directive, the first draft of which was published earlier this year, sustainability will now be part of its responsibilities too.

In line with the European Union’ Green Taxonomy, Corporate Sustainability Reporting Standard and building on the existing Non-Financial Reporting Directive, the proposed Corporate Sustainability Due Diligence directive will require companies to carry out due diligence on the environmental and human rights impact of their own operations and that of its value chain.

Currently, the scope of the directive extends to:

• EU companies with over 500 employees and a turnover of more than 150 million euros

• EU companies in high-impact sectors with over 250 employees and a turnover of more than 40 million euros

• Non-EU companies active in the EU, with a turnover of over 40 million euros for high-impact sector companies or 150 million for other sectors

The companies that fall within the scope will be required to carry out due diligence to identify, prevent and mitigate negative environmental and human rights impacts of their own operations, that of their subsidiaries, and their value chain. To achieve this, companies will need to include the following activities in their sustainability due diligence:

1.Integrate due diligence into policies

2. Identify actual or potential adverse impacts on human rights and the environment

3. Bring an end to, or minimise the extent of, actual adverse impact

4. Establish and maintain a complaints procedure

5. Monitor the effectiveness of the due diligence policy and measures on a yearly basis

6. Communicate publicly on due diligence

A key point of the directive, as it currently stands, is the duty of care clause, which would legally require the board of directors of companies to account for sustainability in decision-making. This aligns with a wider goal of the EU Green Deal, which is to embed sustainability as a measure of a company’s performance, on par with financial performance.

Another novelty is the proposition that compliance with the Corporate Sustainability Due Diligence Directive will be monitored through audits, which each member state is responsible for appointing auditing agencies.  It will be up to each member state to enforce sanctions for non-compliance.

The draft for the directive was published in early 2022. Amendments to the proposed directive are likely and, as member states will be given time to implement it in their national laws, it will take a few years until corporate sustainability due diligence becomes mandatory.

However, sustainable and human rights due diligence are not only beneficial purely for legal compliance reasons. Sustainability due diligence as part of real estate acquisition processes can reduce potential risks of loss of value and reputational risks due to poor ESG performance.

Contact Considerate Group to see how our due diligence services can benefit you.