EU adopts new due diligence directive

Friday 15 March, the European Council adopted a modified version of the proposed Due Diligence Directive. The directive requires large companies to assess the impact of their activities on human rights and the environment. Several EU member states have been skeptical about the proposed rules, and there has been significant tension about whether the directive would be adopted.

On 23 February 2022, the European Commission presented a proposal for a directive on corporate sustainability due diligence: Directive on Corporate Sustainability Due Diligence (CSDDD). The purpose of the directive is to ensure accountability and sustainability from companies at all stages of their value chains. The directive envisages that larger companies will be required to perform due diligence and take measures to safeguard human rights, employment rights and the environment. Among other things:

• The duty to conduct due diligence will be placed on the board of directors
• Duty to establish and maintain grievance procedures
• Companies may be subject to fines
• Be faced with lawsuits for damages as a result of non-compliance

Several member states have been skeptical about the directive and have expressed concern about the introduction of excessively bureaucratic regulations. Germany and Finland, for example, announced that they would abstain from voting. After several weeks of uncertainty, the member states reached an agreement on the text of the directive on Friday 15 March. Compared to the original proposal, significantly fewer companies will be covered by the rules.

Initially, the directive will apply to companies in and outside the EU with a minimum of 1,000 employees and a net turnover of at least EUR 450 million. For companies outside the EU, the turnover must be generated within the EU. The directive will be implemented in the following phases:

• Companies with more than 5,000 employees and more than EUR 1,500 million will have three years for implementation.
• Companies with more than 3,000 employees and more than EUR 900 million will have four years for implementation.
• Companies with more than 1,000 employees and a turnover of more than EUR 450 million will be affected five years after implementation.

Initially, only the largest Norwegian companies will be directly affected by the directive. However, the directive must be seen in the context of the Transparency Act, and it is possible that the directive will be given the same scope as the Transparency Act when implemented in Norwegian law. Companies should therefore already now familiarise themselves with what the new rules may mean.

Follow the further development of the directive on Europalov.no.