Parliament approved by 374 votes in favor, 235 against and 19 abstentions the new directive on the “duty of diligence”, agreed with the Council, which requires companies and their upstream and downstream partners to prevent, stop or mitigate their negative impact on human rights and the environment, including at the levels of supply, production and distribution. This includes slavery, child labor, labor exploitation, erosion of biodiversity, pollution or destruction of natural heritage.
A risk-based approach, a transition plan
The rules will apply to European businesses and parent companies employing more than 1,000 people and with a worldwide turnover of more than €450 million, as well as franchises in the EU with a worldwide turnover greater than 80 million euros if at least 22.5 million euros were generated by royalties. They will also apply to non-EU companies, parent companies and franchises from third countries that reach the same turnover thresholds in the EU. These companies will have to integrate the duty of vigilance into their policies, make the necessary investments, obtain contractual guarantees from their partners, improve their management plan or provide support to small and medium-sized partner companies in order to ensure that they comply with the new obligations. Companies will also have to adopt a transition plan to make their economic model compatible with the limit of 1.5°C of global warming set by the Paris Agreement.
Fines and compensation for victims
Member States will need to provide businesses with detailed information online on their due diligence obligations via convenient portals containing Commission guidance. They will also have to create or designate a supervisory authority responsible for investigating and imposing sanctions on companies that fail to comply with their obligations. This will include denouncing these companies and imposing fines of up to 5% of their global net turnover. The Commission will set up a European network of supervisory authorities to support cooperation and enable the exchange of good practices. Companies will be liable for damages caused by failure to comply with their duty of care obligations and must fully compensate their victims.
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Following the vote in plenary, rapporteur Lara Wolters (S&D, NL) said: “Today’s vote is an important step for responsible business conduct and a considerable step towards ending the exploitation of people and the planet by corporate cowboys This legislation is a hard-fought compromise and the result of many years of difficult negotiations. I am proud of what we have accomplished with our progressive allies during the next legislature. Parliament, we will fight not only for its rapid implementation, but also to make the European economy even more sustainable.”
Next steps
The directive must now be officially approved by the Council and signed before being published in the EU’s official journal. It will come into force 20 days later. Member States will have two years to transpose it into their national legislation.
The new rules (apart from reporting obligations) will gradually apply to European companies (and non-European companies reaching the same turnover thresholds in the EU):
- from 2027 for companies with more than 5,000 employees and a global turnover of more than 1,500 million euros;
- from 2028 for companies with more than 3,000 employees and a global turnover of more than €900 million;
- from 2029 for all other companies falling within the scope of the directive (including those with more than 1,000 employees and a global turnover above €450 million).
Context
Parliament has consistently called for greater corporate accountability and mandatory due diligence legislation. The Commission proposal introduced on 23 February 2022 complements other existing and future legislative acts, such as the Deforestation Regulation, the Conflict Minerals Regulation and the Regulation banning products from forced labor.
By adopting this legislation, Parliament is responding to citizens’ expectations expressed in the conclusions of the Conference on the Future of Europe regarding sustainable consumption (proposal 5(13)), strengthening the ethical dimension of trade ( Propositions 19(2) and 19(3)) and the sustainable growth model (Propositions 11(1) and 11(8)).
