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Proposed new EU Directive requiring companies to integrate human rights and environmental impact into their management systems

On February 23, 2022, the European Commission introduced a proposal for a directive on the companies’ duty of care in terms of sustainability.

After much debate, the European Parliament and the Council finally agreed on a final text on December 14, 2023.

The new directive aims at imposing an obligation on companies to monitor their impact:

  • On human rights: particularly with respect to child labor, slavery or human exploitation;
  • On the environment: particularly with respect to pollution, deforestation, excessive water consumption or damage caused to ecosystems.

From now on, EU companies and parent companies with more than 500 employees and a global turnover of more than €150 million will be bound to:

  • integrate the vigilance duty into their policies and their risk management systems and describe their approaches in these regards, their operations, and their codes of conduct;
  • adopt a plan to ensure that their model is consistent with efforts to contain global warming to 1.5°C maximum.

The scope of this legislation also includes companies with more than 250 employees withtoal sales above 40 million euros if at least 20 million are generated in one of the following sectors:

  • manufacturing and wholesale trade of textiles, clothing and shoes;
  • agriculture, including forestry and fishing;
  • manufacturing of food and trading of agricultural raw materials;
  • extraction and wholesale trading of mineral resources;
  • manufacturing of related products and construction.

As a reminder, the vigilance duty already exists in France under Law No. 2017-399 relating to the duty of vigilance of parent companies and user companies, enacted in 2017.

The new directive will not only broaden the scope of these rules but also establish a supervisory authority and therefore strengthen the effectiveness of the company’s internal policies in this aspect.

Thus, a supervisory authority, designated by each EU country, will be entrusted with the mission of verifying that companies comply with these obligations.

This authority will have the power to launch control and investigations on companies, and to sanction non-compliance. In particular, it may impose a fine of up to 5% of global net turnover.

The draft directive is yet to be formally endorsed by the European Parliament and the Council.