On 23 February 2022, the EU Commission adopted a proposal for a directive on corporate sustainability due diligence which would introduce new mandatory due diligence obligations for large EU companies and non-EU companies with significant operations in the EU, together with new duties for directors of in-scope EU companies. 

OVERVIEW

The proposal introduces: 

• Due Diligence – obligations on in-scope companies to identify, bring to an end, prevent, mitigate, and account for actual or potential adverse impacts on human rights and the environment in the company’s own operations, its subsidiaries and value chains.
• Combatting Climate Change – a requirement for larger EU and non-EU companies have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.  Directors are incentivised to contribute to sustainability and climate change mitigation goals.
• Directors’ Duties – duties of care for directors of in-scope EU companies in addition to obligations to oversee effective due diligence measures.

COMPANIES IN SCOPE

• EU Companies:
  • with more than 500 employees on average and a net worldwide turnover of more than EUR 150 million in the last financial year for which financial statements have been prepared; or
  • with more than 250 employees on average and a net worldwide turnover of more than EUR 40 million in the last financial year for which financial statements have been prepared, provided at least 50% of the net turnover was generated in specified high impact sectors. 
• Non-EU Companies: 
  • providing goods or services in the EU which generated a net turnover of EUR 150 million in the EU in the financial year preceding the last financial year; or
  • providing goods or services in the EU which generated a net turnover of more than EUR 40 million, but not more than EUR 150 million, in the EU in the financial year preceding the last financial year, provided that at least 50% of its net worldwide turnover was generated in specified high impact sectors.

STATUS AND TIMEFRAME

The Directive on Corporate Sustainability Due Diligence is currently a proposal and does not yet have legislative effect.  The proposal will be considered by the European Parliament and Council as part of the EU legislative process. 

Once adopted, Member States, including Ireland, will have two years to transpose the directive into national law.  For companies which are in-scope due to their operations in high impact sectors, the obligations will commence two years later.