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After being postponed twice, the EU Commission is expected to finally present its proposal for the “Sustainable Corporate Governance Initiative” on 15 February. The goal of the initiative is to embed sustainability as an integral aspect of corporate governance and trigger behavioural change in businesses by addressing due diligence for environmental and human rights impacts.
According to the proposal, the Directive will apply to companies with more than 500 employees and a net worldwide turnover of €150 million. In addition, companies with more than 250 employees and a net turnover of more than €40 million will have to comply with the new rules, if at least half of their turnover comes from a high risk sector, such as the textile industry, mining or agriculture.
The proposal is still subject to negotiations between the Council of the EU and the European Parliament, so these requirements may still change in the coming months.
The goal of the initiative, similar to the German supply chain law (“Lieferkettengesetz”) is to mandate companies to introduce due diligence processes regarding potential or actual adverse impacts of their operations, value chains and business relationships on human rights, the environment, and good corporate governance. In addition, companies should publicly disclose their due diligence strategy, engage with stakeholders and implement an adequate complaints mechanisms for any stakeholders to voice concerns. In addition, companies affected should provide means of remediation for harm done.
To ensure adequate supervision and enforcement of the rules, European member states will be required to establish an adequate supervision system and provide proportionate sanctions. The penalties in the German supply chain law can amount to up to 2 percent of the annual turnover.
Together with experts from large, medium-sized and small companies with experience in sustainability reporting, we provide software solutions that makes it easier for you to implement the new directive.