‘Green Deal for Europe’: business in the new age of sustainability

'Green Deal for Europe': business in the new age of sustainability

On the 23rd February 2022, the European Commission adopted a proposal for a Corporate Sustainability Due Diligence Directive, with the aim of promoting sustainable and responsible corporate conduct. The proposed Directive is one of the key initiatives that form part of the ‘Green Deal for Europe’, and is part of a wider regulatory framework that includes non-financial disclosure obligations for capital market participants, as well as for financial advisors and large corporations. Under this legislation, companies will be required to identify, and if necessary avert, terminate or mitigate any business activities that jeopardise human rights (such as child labour or worker exploitation), and the environment (such as pollution or the loss of biodiversity).

The new rules will apply to:

1. EU companies

• Group 1: Limited liability companies with more than 500 employees and a global net turnover of more than 150 million euros;
• Group 2: Limited liability companies that operate in certain high-impact sectors (e.g. the manufacturing of textiles, leather and related products; agriculture, forestry, fishing; extraction of mineral resources; the manufacturing of basic metal products and other non-metallic mineral products; etc.), with over 250 employees and a global net turnover of 40 million euros or more. For these companies, the regulations will come into force two years after those in Group 1.

2. NON-EU companies that operate within the European Union, and with a turnover threshold in line with Groups 1 and 2.

Small and Medium Enterprises (SMEs) do not directly fall under the proposal, however the Commission has nonetheless made provision for accompanying measures to assist all companies, including SMEs, that may be affected indirectly. The proposal is to be applied to the operations carried out by the companies themselves, their subsidiaries as well as their value chains.

Each EU Member State will appoint an official responsible for supervising the correct implementation of the Director’s new regulations (and its relevant rules on national transposition), and for imposing sanctions in the event of any violations.

To ensure that due diligence duties become an integral part of the overall running of businesses, it will be necessary to have managers’ cooperation. To this end, the proposal will include an obligation for managers to enforce and monitor due diligence activities, and to integrate them into their business strategy, whilst considering the impact that their actions carry on human rights, climate change, and the environment.