Fines equal to 5% of turnover: final ok to the EU directive on sustainable business due diligence

MEPs and Council today approved a new directive

Large European companies become responsible for environmental and climate damage and human rights violations throughout the supply chain. For those who miss, incoming fines are up to 5% of turnover. Each company will have to align its business model with the goal of not exceeding 1.5 degrees of global warming. This is established by the new EU directive on sustainable business due diligence, approved today by the Council and Parliament.

Who applies the new sustainable business due diligence

The new rules apply to all European companies and parent companies with more than 500 employees and a global turnover of more than 150 million euros, regardless of the sector in which they operate. But sustainable business due diligence is also triggered for large companies with at least 250 employees and a turnover of over 40 million euros, if half of the turnover is generated in a list of sectors considered particularly vulnerable. Including textiles, clothing, agriculture and forestry, food processing, mining and trade in mineral resources. For companies not based in the EU, due diligence applies if European turnover exceeds 300 million.

EU arsenal: obligations, fines, naming & shaming

What specifically does the EU Sustainable Business Due Diligence Directive provide for? Each interested company will have to integrate its risk management policies identifying the possible negative impacts of its operations on the environment, climate and human rights. In practice, the business plan will have to be aligned to a trajectory for 1.5 C, while there will have to be protection policies of the ecosystems affected by the business to prevent deforestation, pollution, degradation of natural ecosystems, excessive withdrawal of water, but also child labor exploitation and slavery. Business policies will also need to assess the current impact and determine how to prevent it and mitigate its effects.

This process will be anchored in third-party control mechanisms. Each EU Member State must establish a supervisory authority responsible for monitoring compliance with the directive, to which the companies concerned must send periodic reports and updates. In addition, the Sustainable Business Due Diligence Directive requires companies to communicate their policies to their business partners and establishes the possibility, for citizens affected by negative impacts arising from the operations of companies in their countries, to formally request compensation. For those who do not comply with the new regulatory framework, fines are provided for up to 5% of global turnover and there is the possibility, by the supervisory authorities, to publicly communicate the failure to comply with obligations (naming & shaming).

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