EU Directive on Corporate Sustainability Due Diligence Enters into Force

The European Union's Directive on Corporate Sustainability Due Diligence officially entered into force today. This significant piece of legislation aims to foster sustainable and responsible corporate behavior by ensuring that companies identify and address adverse human rights and environmental impacts throughout their operations and global value chains.

For citizens, the directive enhances the protection of human rights, including labor rights, and promotes a healthier environment for present and future generations. It increases transparency, enabling more informed consumer choices, and provides better access to justice for victims of corporate misconduct.

For companies, the directive creates a harmonized legal framework within the EU, providing legal certainty and a level playing field. It builds greater customer trust and employee commitment, increases awareness of negative human rights and environmental impacts, and reduces liability risks. Furthermore, it improves risk management, resilience, and competitiveness, making companies more attractive to talent, sustainability-focused investors, and public procurers. The directive also incentivizes innovation and provides better access to finance.

In developing countries, the directive enhances the protection of human rights and the environment, encourages sustainable investment, and supports capacity building and value chain companies. It also promotes improved sustainability practices and international standards, contributing to better living conditions for local populations.

Obligations for Companies

The directive establishes a corporate due diligence duty, requiring companies to identify and address potential and actual adverse human rights and environmental impacts within their operations, subsidiaries, and value chains. Large companies must also adopt a transition plan for climate change mitigation, aligned with the 2050 climate neutrality objective of the Paris Agreement and intermediate targets under the European Climate Law.

The directive applies to approximately 6,000 large EU limited liability companies and partnerships with over 1,000 employees and a global turnover exceeding EUR 450 million. It also covers around 900 large non-EU companies with a turnover exceeding EUR 450 million within the EU. While micro companies and SMEs are not directly covered, the directive provides support and protection for SMEs that may be indirectly affected as business partners in value chains.

Businesses will incur costs related to establishing and operating due diligence processes and adapting their operations and value chains to comply with the new obligations. The directive will be enforced through administrative supervision by national authorities and the European Network of Supervisory Authorities. This network will ensure a coordinated approach, while civil liability measures will guarantee that victims receive compensation for damages resulting from non-compliance.

Next Steps

The directive responds to the urgent need for mandatory due diligence rules, reflecting calls from civil society, EU citizens, businesses, and business associations. A uniform legal framework will ensure a level playing field and foster international competitiveness, innovation, and legal certainty. The directive aims to become a global standard for mandatory environmental and human rights due diligence.

Member States must transpose the directive into national law by July 26, 2026, with the first group of companies required to comply by July 26, 2027. Full application of the rules will be achieved by July 26, 2029. The European Commission will issue guidelines to assist companies in conducting due diligence.

As this directive takes effect, it represents a critical step towards a sustainable economy where businesses play a pivotal role in protecting human rights and the environment. The new rules promise to steer companies towards more responsible practices, ultimately benefiting citizens, companies, and developing countries alike.

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