After two years of negotiations, the European Parliament, the Commission and the European Council agreed on a joint proposal for a European Supply Chain Directive ("Corporate Sustainability Due Diligence Directive" - "CSDDD") on December 14, 2023. The next step is for the provisional agreement to be formally adopted. The member states and the EU Parliament must agree to this. Publication of the directive is planned for February or March 2024. After that, the member states still have to transpose the directive into national law.

Simply put, the aim of the directive is to impose certain due diligence obligations on companies with regard to the actual and potential impact of their business activities in terms of respecting human rights and protecting the environment. This is not only based on the direct activities of the company itself, but companies should also be responsible for the selection of their business partners along the supply chain ("business chain"). Failure to do so could result in severe penalties.

The most important key points are the following

1. Affected companies: All European companies with more than 500 employees and a global annual turnover of more than EUR 150 millionare directly affected. Companies that are not based in the EU are affected as soon as they achieve an annual turnover of EUR 300 million within the EU after a three-year transitional period. A lower threshold of 250 employees and EUR 40 million in annual turnover applies to companies that are active in the production and wholesale of textiles, clothing and footwear, agriculture, food production or the extraction/processing of raw materials, for example. Contrary to the original proposals, the financial sector is not currently covered by the directive. Smaller companies are indirectly affected if, for example, they are active as suppliers in the supply chain of larger companies.
2. Protected rights (scope of protection): The affected companies must check their supply chain for violations of environmental protection (de facto all negative environmental impacts are covered), health and human rights (including occupational health and safety regulations) and comply with due diligence obligations.
3. Due diligence obligations: Companies are obliged to identify actual or potential negative impacts on the protected area (or the protected rights) on an ongoing basis, take measures to prevent them, remedy (or at least limit) violations and rectify or otherwise compensate for any negative consequences (damage) that have occurred.
4. Civil liabn (limitation period: five years at most). Trade unions and representatives of civil organizations will be granted special rights of action and can sue on behalf of the victims. However, a "genuine" reversal of the burden of proof (as called for in the drafts) is not envisaged. However, courts will be able to order the release of internal company documents.
5. Penalties: Fines of up to five percent of global turnover are envisaged as possible sanctions, although the member states can also set higher penalties. In addition, "naming and shaming" is planned - this means that the names of companies acting in breach of due diligence are to be made public.

What preparations companies can already make:

For all companies - regardless of wility: In addition, companies will be subject to civil liability for breaches of due diligence: victims of breaches of environmental protection and human rights will have access to the courts of EU member states in order to claim compensatiohether they are directly covered by the legal text or indirectly affected, this means that they must now prepare for the implementation and measures. In particular, there is a need for adaptation and updating in the areas of compliance, purchasing and contract design (e.g. general terms and conditions). It is advisable to set up internal compliance management systems now and to expand and adapt existing systems and processes. This also includes setting up control, preventive and error detection mechanisms (to check compliance with due diligence obligations).

Companies can also start now to identify (potential) human rights and environmental risks and set up processes for risk analysis. This also includes setting up screening and monitoring of suppliers and subcontractors in order to evaluate risks (audits, on-site visits and inspections can already be planned for this purpose). The course can also already be set for cooperation and the possible regulations can be taken into account when selecting potential business partners. It is also advisable to draw up a code of conduct. It is also important to address liability issues and compliance with due diligence obligations and controls with (existing and potential) business partners at an early stage and to adapt contracts and general terms and conditions accordingly.