Draft Directive on Corporate Sustainability Due Diligence
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Key takeaways:
- On 23 February 2022, the European Commission issued a long-awaited and much-anticipated draft Directive on Corporate Sustainability Due Diligence (the “Draft Directive”).
- If adopted, the Draft Directive will require large companies, both within and outside of the European Union that generate a threshold level of turnover in the EU, to conduct corporate due diligence that includes identifying, preventing and mitigating human rights and environmental impacts by a company, its subsidiaries and through established business relationships in its value chain.
- While small and medium sized enterprises (“SMEs”) are excluded from the scope of the Draft Directive, they are likely to be caught indirectly through requirements placed on them by their ‘in-scope’ business partners.
- The Draft Directive will provide for civil liability and regulatory sanctions if in-scope companies violate their due diligence obligations.
- The Draft Directive will also expand directors’ duty of care to include sustainability issues and the scope of their duties to make them responsible for putting in place and overseeing compliance with a company’s due diligence obligations.
- Companies that are directly or indirectly caught by the Draft Directive should start to prepare now to comply with its due diligence obligations.