EU: Directive 2024/1760 of 13 June 2024 on corporate sustainability due diligence

Finally, on 15 March 2024, Member States adopted the proposal for a due diligence directive (see Due diligence), after Parliament’s negotiators gave way on its scope of application: the future directive covers companies with more than 1,000 employees and a turnover of more than 450 million euros. It will then have to be transposed within two years. Both the European Commission’s proposal and the position reached by the Council and Parliament on 14 December 2023, were aimed at companies with more than 500 employees and a turnover of at least 150 million euros (see IR Notes 221). Previously, in its general approach adopted on 30 November 2022, the Council had agreed on a threshold of 1,000 employees, with a turnover of 300 million euros. For its part, in June 2023, Parliament fixed these thresholds at a much lower level: more than 250 employees and a turnover in excess of 40 million (see IR Notes 196). The outcome is a long way from the threshold of 5,000 employees that France suddenly proposed before the meeting on 15 March, but at the risk of torpedoing the directive’s adoption, (see IR Notes 225), under pressure from the employers’ organisations, Member States managed to water down the text significantly: it will now apply to just under 7,000 companies, compared to the expected figure of 16,000, according to the European Trade Union Confederation (see press release). The directive’s effects will also be phased in gradually: it will apply in the first instance to companies with more than 5,000 employees and a turnover of at least 1500 million euros in 2029 (covering financial year 2028), then in 2030 to those with 3,000 employees and a turnover of at least 900 million euros (for FY 2029) before being extended to include those with more than 1,000 employees and a turnover of 450 million euros in 2031 (for FY 2030). In addition to reducing its scope of application and gradually phasing in its application, the directive no longer specifies lower thresholds for certain activities carrying specific risks, and all of its provisions seeking to link executive pay with meeting climate targets, have been dropped. The definition of “value chain” to which the due diligence obligations apply, has also been reduced in scope. In concrete terms, the companies concerned will have to: 1/ map the risks of potential adverse impacts on human rights and the environment, assess and prevent them, and if applicable, ensure that they are brought to an end or, failing this, minimise them via the use of prevention plans and corrective action plans; 2/ remediate adverse impacts caused by their own actions or those of companies in their value chain; 3/ publish an annual statement relating to their exercising of due diligence; 4/ adopt a transition plan for climate change mitigation, to ensure that their business is compatible with the transition to a sustainable economy and with limiting global warming to 1.5 °C. The directive assigns an important role to workforce representatives and trade unions. The company’s due diligence implementation policy is to be developed in prior consultation with its employees and their representatives. The text states that this consultation must be conducted in accordance with relevant EU law, where applicable, and with domestic law and collective labour agreements, without prejudice to workers’ rights to information, consultation and participation, and in particular those covered by Directives 2002/14/EC (Information and Consultation), 2009/38/EC (European Works Council) and 2001/86/EC (Worker involvement in the European Company).