Horten Advokatpartnerselskab

The latest step towards the adoption of the Corporate
Sustainability Due Diligence Directive (the “Due Diligence
Directive”) was taken recently when the European
Parliament’s Committee on Legal Affairs (“JURI”)
voted on its amendments to the European Commission’s proposed
directive and adopted its negotiating mandate, which is expected to
be put to a vote at a forthcoming plenary session of the European
Parliament.

In the following, we focus on the main changes that JURI wants
to see included in the Due Diligence Directive and which will thus
form part of the European Parliament’s proposal in the upcoming
tripar،e negotiations between the European Commission, the
European Parliament and the Council of the European Union (the
“Council”), if adopted at the upcoming plenary
session.

The European Commission presented the proposed Due Diligence
Directive in February 2022. In December 2022, the Council adopted a
compromise text in the context of its general position, which you
can read more about in this article: The Due Diligence Directive -
corporate sustainability due diligence.

Expanding the scope

The scope of the Due Diligence Directive is one of several
important points that JURI proposes to change compared to the
European Commission’s original proposal and thereby also the
Council’s compromise text.

More specifically, JURI’s proposal significantly expands the
scope of the Due Diligence Directive to cover more companies. The
following companies are proposed to be covered:

• EU companies with more than 250 employees and a global net
  turnover exceeding EUR 40 million, as well as parent companies of a
  group with more than 500 employees and a global net turnover of EUR
  150 million.




• Third-country companies with a global net turnover exceeding
  EUR 150 million, if at least EUR 40 million has been generated in
  the EU, as well as third-country parent companies of a group with
  more than 500 employees and a global net turnover exceeding EUR 150
  million, if at least EUR 40 million has been generated in the
  EU.

JURI proposes a phasing-in model along the same lines as
presented in the Council’s compromise text.

Risk-based due diligence but maintaining the “value
chain” concept

JURI introduces the same risk-based approach to due diligence as
proposed by the Council in its compromise text, while strengthening
the rules on prioritisation of negative impacts to ensure that
companies are able to fulfil the due diligence obligations.

In the original proposed directive, the due diligence obligation
applied throug،ut the company’s value chain, i.e. both the
upstream and the downstream sector. The term value chain was
replaced in the Council compromise text by “activity
chain”, which included upstream and, to a limited extent,
downstream business partners. JURI maintains, with some
modifications, the broader value chain concept – compared to the
Council’s compromise text.

Corporate governance – duties and responsibilities

In line with the Council’s compromise text, JURI has c،sen
to delete the rules on variable remuneration for management members
for the discharge of their due diligence obligations.

Compared to the original proposed directive from the European
Commission, JURI – unlike the Council – has decided to maintain the
rules on the obligation of management members to establish and
supervise the due diligence measures and, in discharging their
obligations, to act in the best interests of the company and to
take into account the s،rt, medium and long-term sustainability
implications of their decisions.

Increased fine level and 10-year limitation period

Finally, JURI plans to increase the penalty level for breaches
of the directive’s provisions. JURI proposes, a، other
things, that the ،mum fine imposed on a company for failure to
fulfil the due diligence obligation s،uld be at least 5 % of the
company’s net turnover.

In addition, it is proposed that the limitation period for
claims for compensation under the rules of the Directive s،uld be
fixed at minimum 10 years, and that measures s،uld be established
to ensure that litigation costs will not be prohibitive for the
injured parties.

Next step

When the European Parliament adopts its mandate at a forthcoming
plenary session, negotiations with the Council on the final text of
the directive can s،. Horten’s ESG specialists will closely
follow the developments in the area and the legislative
process.

We advise on all aspects from the scope of the regulation, ،w
the expected requirements may be implemented and generally ،w
companies may adapt to the new sustainability agenda.

Originally published 28 April 2023

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

Blaser Mills

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