EU Corporate Sustainability Due Diligence and Proposed Directive regarding the Amendment to the Directive Numbered 2019/1937 (the “Proposal“) has been published on 23.02.2022 Within the scope of the long-awaited Proposal, companies shall pay required attention to the identification, prevention, mitigation, and remediation of external damages resulting from adverse human rights and environmental impacts in their operations.
- Which Companies are Subject to the Obligations?
The obligations within the scope of the Proposal shall apply to the following EU member companies:
Group 1: All EU limited liability companies with more than 500 employees on average and a net worldwide turnover in excess of 150 million Euros in the last financial year.
Group 2: Other EU limited liability companies with more than 250 employees and a net worldwide turnover in excess of 40 million Euros in the last financial year, provided that at least 50% of this net turnover was generated in one or more of the following high levels – impact sectors:
- Manufacture of textiles, leather, and related products (including footwear) and wholesale of textiles, clothing, and footwear;
- Agriculture, forestry, fishing (including aquaculture), manufacture of food products, and wholesale trade of agricultural raw materials, live animals, wood, food, and beverages;
iii. Manufacture of base metal products, other non-metallic mineral products, and fabricated metal products (excluding machinery and equipment), regardless of where the minerals are mined, and wholesale of basic and intermediate mineral products.
According to the Proposal, the rules for EU companies that fall into Group 2 shall start to apply two years later than Group 1.
Non-EU companies that meet any of the following conditions:
Group 1: A net turnover in excess of 150 million Euros in the EU in the financial year preceding the last financial year; or
Group 2: Sectors listed in the aforementioned Group 2 that have a net turnover in excess of 40 million Euros in the EU in the financial year preceding the last financial year, but not exceeding 150 million Euros, provided that at least 50% of this net worldwide turnover was generated in one or more of the high-impact sectors.
Non-EU companies falling into the scope of the Proposal are required to appoint an authorized representative established in one of the EU Member States or in the states in which they operate. The detailed information of this authorized representative shall be notified to a supervisory authority in the related EU Member State. Each company shall grant power to its authorized representative to receive notifications from and cooperate with supervisory authorities on all matters necessary to comply with and implement the national provisions transposing the Proposal into national law.
While the Proposal excludes SMEs from the scope of the implementation, Article 14 includes the precautions which are implemented for SMEs in the value chains of the in-scope companies.
- What are the Due Diligence Obligations of In-Scope Companies within the Scope of the Proposed Offer?
The obligations of companies within the scope of the Proposal are as follows:
- Integration of due diligence into company policy,
- Identification of current or potential adverse human rights and environmental impacts,
iii. Prevention, mitigation, and remediation of potential or actual adverse human rights and environmental impacts,
- Establishment of and maintaining complaint procedures,
- Monitoring the effectiveness of the company’s due diligence policies and precautions,
- Publicly communication on due diligence.
- Which Authorities Will Supervise?
Within the scope of the Proposal, the EU Member States are required to appoint one or more national administrative authorities to supervise the implementation and ensure that the implementation of the transposed act is effective.
The competent supervisory authority shall be located in a place where the company has its registered office (for in-scope companies established in the EU), where the company has a branch office (for companies outside the EU), or where the company has gained the most of its net turnover in the EU in the fiscal year preceding the last financial year (for non-EU companies when the company has no branch office in the EU or has branch offices in the several EU Member States).
The Proposal also requires that the EU Member States ensure that the supervisory authorities have the power to request information and carry out investigations regarding the compliance with obligations stated under the Proposal.
- What Are the Sanctions within the Scope of the Proposal?
In case of non-compliance with the obligations within the scope of the Proposal, administrative and legal liability arises.
In case of non-compliance, supervisory authorities shall apply effective, proportionate, and dissuasive sanctions, including monetary fines and compliance orders. By doing so, supervisory authorities shall consider the company’s efforts to comply with any remedial action ordered, investments made and cooperation with other organizations to prevent and cease adverse impacts.
The Proposal also includes ensuring punishing the companies, applying for the public support, due to failing to comply with their obligations by the EU Member States.
The Proposal also states that the EU Member States shall lay down mechanisms, due to non-compliance with the obligations, for victims to apply legal remedies for damages that can be prevented or mitigated by appropriate due diligence precautions.
The Proposal also indicates that the legal liability of the parent company shall not prejudice the legal liability of its subsidiaries or any direct or indirect business partner in the value chain.
- What are the Interactions with the European Green Deal?
The Proposal will play a significant role in reorienting the Commission’s corporate business and finance towards sustainability and the goals of the Paris Agreement.
The Proposal shall be associated with the European Green Deal also in terms of financial. Firstly, the Commission states that the Proposal will form the basis of the Sustainable Finance Disclosure Regulation, which comes into force in 2021 and valid for the financial market participants and financial advisors. Similarly, it is stated that the Proposal will complete the Taxonomy Regulations which is the EU’s sustainable activities classification system.
This Proposal aims not only to contribute to the European Green Deal but also to create an equal field within the business world and to offer better transparency to investors.
28th February 2022|Emissions Trading System