In a wide-ranging package announced on Wednesday 23 February, the EU announced its long awaited proposal to introduce mandatory due diligence for environmental and human rights risks.
The new proposal Corporate Sustainability Due Diligence (which was expected to be called Sustainable Corporate Governance) comes as part of a suite of measures around promoting decent work.
New proposals outline a new set of compliance responsibilities for firms operating in EU countries aimed at identifying, preventing, and mitigating human rights and environmental harms. The imposition of exact laws and enforcement of said laws is delegated to EU member states. This includes EU based companies and non-EU companies who operate in the jurisdiction.
Companies in scope include:
- All EU limited companies with 500+ employees and 150 million+ in global net turnover.
- So called high impact companies with 250+ employees and at least 40million in net turnover (those operating in agroforestry, mining, textiles industries for example)
- Non-EU companies active in the EU with turnover threshold aligned with the above 2 points
Companies not in scope:
SMEs and companies below the above stated thresholds.
This proposal applied to a company's own operations, the operations of its subsidiaries and its value chain (up and down stream). This includes direct and indirect established business relationships.
techUK welcomes this announcement as it addresses the ethical concerns of our membership, as well as the business concerns that a heterogeneous, regionally fragmented policy environment would raise. By creating a clear set of guidelines, the EU makes compliance realistic and exercisable by all companies, regardless of their base or extent of operations.
A level playing field omits actors who do not align themselves with the business ethics shared by our membership and wider community; those of fair competition, social responsibility, and environmental sustainability.
Of the 32 Articles in the proposal, of particular interest for EU engaged companies is the substantive framework for preventing potential adverse impacts (Article 7) and the Civil Liability framework (Article 22). These give clear instruction to those companies in scope on the business behaviours that must be adopted, activities that must be mitigated and the consequences of non-compliance.
We are pleased that strong punitive measures have been included in this proposal to promote sensible engagement with the important and pervasive issues of human rights violations and environmental destructions which sneak into the supply chains of otherwise well-meaning and socially oriented enterprises.
Article 24 makes clear that public support will be blocked for companies that fail to build in these recommendations to their business models. Directors will be charged with a duty of care for compliance with these regulations when implemented, as stated in Article 25. Civil liability is chosen over criminal liability, a decision that techUK is also in support of. Article 25 also makes note of the short-long term nature of environmental impacts, and lays responsibility again at the feet of those with the power and influence to affect change.
This move by the EU is long-awaited and, in some ways, overdue. However, considering the direction of travel for most firms relating to ESG issues, this shouldn't be too demanding of a request for our membership, most of whom are engaged with climate and ESG initiatives both internally and through trade associations such as techUK.
Guidance on these new proposals is on offer from techUK to members who have any questions about the implementation or potential consequences of its implementation. Please email Craig.Melson@techUK.org or Adam.Young@techUK.org for any such enquiries.