EU agrees corporate due diligence rules to safeguard human rights and environment

EU Parliament and Council negotiators agreed on new rules obliging firms to integrate their human rights and environmental impact into their management systems.

The new directive on corporate sustainability due diligence, informally agreed by EU co-legislators on Thursday, sets obligations for companies to mitigate their negative impact on human rights and the environment such as child labour, slavery, labour exploitation, pollution, deforestation, excessive water consumption or damage to ecosystems.

The legislation will apply to EU companies and parent companies with over 500 employees and a worldwide turnover higher than 150 million euros.

The obligations will also apply to companies with over 250 employees and with a turnover of more than 40 million euros if at least 20 million are generated in one of the following sectors: manufacture and wholesale trade of textiles, clothing and footwear, agriculture including forestry and fisheries, manufacture of food and trade of raw agricultural materials, extraction and wholesale trade of mineral resources or manufacture of related products and construction. It will also apply to non-EU companies and parent companies with equivalent turnover in the EU.

Each EU country will designate a supervisory authority to monitor whether firms are complying with these obligations. These bodies will exchange best practices and cooperate at the EU level within the European Network of Supervisory Authorities established by the Commission. They will be able to launch inspections and investigations and impose penalties on non-compliant companies, including “naming and shaming” and fines of up to 5% of their net worldwide turnover.