EUROPEAN UNIONTHE EUROPEAN PARLIAMENT

THE COUNCIL
Brussels, 13 May 2024
(OR. en)2022/0051(COD)

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DRS 12CODEC 237

LEGISLATIVE ACTS AND OTHER INSTRUMENTS
Subject:

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on corporate sustainability due diligence and amending Directive(EU) 2019/1937 and Regulation (EU) 2023/2859

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DIRECTIVE (EU) 2024/…
OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
of …
on corporate sustainability due diligence
and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular
Article 50(1), Article 50(2), point (g), and Article 114 thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Having regard to the opinion of the European Economic and Social Committee1,
Acting in accordance with the ordinary legislative procedure2,

1
2

OJ C 443, 22.11.2022, p. 81.
Position of the European Parliament of 24 April 2024.

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ENWhereas:(1)

As stated in Article 2 of the Treaty on European Union (TEU), the Union is founded on thevalues of respect for human dignity, freedom, democracy, equality, the rule of law andrespect for human rights as enshrined in the Charter of Fundamental Rights of theEuropean Union (the ‘Charter’). Those core values, that have inspired the Union’s own
creation, as well as the universality and indivisibility of human rights, and respect for the
principles of the Charter of the United Nations (UN) and international law, should guidethe Union’s action on the international scene. Such action includes fostering thesustainable economic, social and environmental development of developing countries.

(2)

In line with Article 191 of the Treaty on the Functioning of the European Union (TFEU), ahigh level of protection and improvement of the quality of the environment and promoting
European core values are among the priorities of the Union, as set out in thecommunication of the Commission of 11 December 2019 on A European Green Deal.
These objectives require the involvement not only of public authorities but also of private
actors, in particular companies.

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(3)

In its Communication of 14 January 2020 on a Strong Social Europe for Just Transition,
the Commission committed to upgrading Europe’s social market economy to achieve a justtransition to sustainability, ensuring that no-one is left behind. This Directive will also
contribute to the European Pillar of Social Rights, which promotes rights ensuring fairworking conditions. It forms part of the Union policies and strategies relating to thepromotion of decent work worldwide, including in global value chains, as referred to in thecommunication of the Commission of 23 February 2022 on decent work worldwide.

(4)

The behaviour of companies across all sectors of the economy is key to success withregard to the Union’s sustainability objectives as Union companies, especially large ones,
rely on global value chains. It is also in the interest of companies to protect human rights
and the environment, in particular given the rising concern of consumers and investors
regarding these topics. Several initiatives fostering enterprises which support a valueoriented transformation already exist at Union, as well as national level.

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(5)

Existing international standards on responsible business conduct specify that companies
should protect human rights and set out how they should address the protection of theenvironment across their operations and value chains. The UN Guiding Principles on
Business and Human Rights (UN Guiding Principles) recognise the responsibility ofcompanies to exercise human rights due diligence by identifying, preventing andmitigating the adverse impacts of their operations on human rights and by accounting for
how they address those impacts. The UN Guiding Principles state that businesses should
avoid infringing human rights and should address adverse human rights impacts that they
have caused, contributed to or are linked with in their own operations, those of theirsubsidiaries and through their direct and indirect business relationships.

(6)

The concept of human rights due diligence was specified and further developed in the
Guidelines for Multinational Enterprises (MNE Guidelines) of the Organisation for
Economic Co-operation and Development (OECD) which extended the application of due
diligence to environmental and governance topics. The OECD Due Diligence Guidance for
Responsible Business Conduct (Guidance for Responsible Business Conduct) and sectoral
guidance are internationally recognised frameworks setting out practical due diligencesteps to help companies identify, prevent, mitigate and account for how they address actualand potential impacts in their operations, supply chains and other business relationships.
The concept of due diligence is also embedded in the recommendations of the International
Labour Organization’s (ILO) Tripartite Declaration of Principles concerning Multinational
Enterprises and Social Policy.

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(7)

All businesses have a responsibility to respect human rights, which are universal,
indivisible, interdependent and interrelated.

(8)

The UN Sustainable Development Goals, adopted by all UN Member States in 2015,
include the objectives to promote sustained, inclusive and sustainable economic growth.
The Union has set itself the objective to deliver on the UN Sustainable Development
Goals. The private sector contributes to those aims.

(9)

Global value chains, and in particular critical raw materials value chains, are impacted bydetrimental effects of natural or man-made hazards. The frequency and impact of shocks
involving risks to critical value chains are likely to increase in the future. The private
sector could play an important role in promoting sustained, inclusive and sustainableeconomic growth, while avoiding the creation of imbalances on the internal market. This
underlines the importance of strengthening the resilience of companies in relation toadverse scenarios related to their value chains, taking into account externalities as well associal, environmental and governance risks.

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(10)

International agreements under the UN Framework Convention on Climate Change, towhich the Union and its Member States are parties, such as the Paris Agreement under the
UN Framework Convention on Climate Change adopted on 12 December 2015 (the ‘Paris
Agreement’)3 and the recent Glasgow Climate Pact, set out precise avenues to address
climate change and keep global warming within 1.5 °C degrees. Besides specific actions
being expected from all signatory Parties, the role of the private sector, in particular its
investment strategies, is also considered central to achieve these objectives.

3

OJ L 282, 19.10.2016, p. 4.

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(11)

By way of Regulation (EU) 2021/1119 of the European Parliament and of the Council4, theUnion also legally committed to becoming climate-neutral by 2050 and to reducing
emissions by at least 55 % by 2030. Both these commitments require changing the way inwhich companies produce and procure. The Commission Staff Working Document
accompanying the communication of the Commission of 17 September 2020 on ʻStepping
up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit ofour peopleʼ (2030 Climate Target Plan) models various degrees of emission reductions
required from different economic sectors, though all need to see considerable reductions
under all scenarios for the Union to meet its climate objectives. That plan also underlinesthat ʻchanges in corporate governance rules and practices, including on sustainable finance,
will make company owners and managers prioritise sustainability objectives in theiractions and strategiesʼ. The communication of the Commission on the European Green
Deal sets out that all Union actions and policies should pull together to help the Unionachieve a successful and just transition towards a sustainable future. It also sets out thatsustainability should be further embedded into the corporate governance framework. The
framework for Union action in the field of the environment and climate set out in Decision(EU) 2022/591 of the European Parliament and of the Council5, aims to accelerate thegreen transition to a climate-neutral, sustainable, non-toxic, resource-efficient, renewableenergy-based, resilient and competitive circular economy in a just, equitable and inclusive
way, and to protect, restore and improve the state of the environment by, inter alia, halting
and reversing biodiversity loss.

4

5

Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021
establishing the framework for achieving climate neutrality and amending Regulations(EC) No 401/2009 and (EU) 2018/1999 (‘European Climate Law’) (OJ L 243, 9.7.2021,
p. 1).
Decision (EU) 2022/591 of the European Parliament and of the Council of 6 April 2022 on a
General Union Environment Action Programme to 2030 (OJ L 114, 12.4.2022, p. 22).

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(12)

According to the communication of the Commission of 24 February 2021 on Forging a
climate-resilient Europe presenting the Union Strategy on Adaptation to climate change,
new investment and policy decisions should be climate-informed and future-proof,
including for larger businesses managing value chains. This Directive should be consistent
with that strategy. Similarly, there should be consistency with Directive (EU) 2024/… of
the European Parliament and of the Council6+, which sets out clear requirements for banks’
governance rules including knowledge about environmental, social and governance risks atboard of directors level.

6+

Directive (EU) 2024/… of the European Parliament and of the Council, of …, amending
Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, andenvironmental, social and governance risks (Capital Requirements Directive) (OJ C […],[…], p. […]).
OJ: Please insert in the text the number of the Directive contained in document
PE-CONS 79/23 (2021/0341(COD)) and insert the number, date, title and OJ reference ofthat Directive in the footnote.

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(13)

The communication of the Commission of 11 March 2020 on A new Circular Economy
Action Plan For a cleaner and more competitive Europe (Action Plan on a Circular
Economy), the communication of the Commission of 20 March 2020 on the EU
Biodiversity Strategy for 2030: Bringing nature back into our lives (Biodiversity strategy),
the communication of the Commission of 20 March 2020 on A Farm to Fork Strategy for afair, healthy and environmentally-friendly food system (Farm to Fork strategy) and thecommunication of the Commission of 14 October 2020 on the Chemicals Strategy for
Sustainability Towards a Toxic-Free Environment (Chemicals strategy), thecommunication of the Commission of 12 May 2021 on the EU Action Plan Towards Zero
Pollution for Air, Water and Soil, the communication of the Commission of 5 May 2021
on Updating the 2020 New Industrial Strategy: Building a stronger Single Market for
Europe’s recovery, the Commission approach referred to as Industry 5.0, thecommunication of the Commission of 4 March 2021 on the European Pillar of Social
Rights Action Plan and the communication of the Commission of 18 February 2021 on
Trade Policy Review: An Open, Sustainable and Assertive Trade Policy list an initiative on
sustainable corporate governance among their elements. Due diligence requirements under
this Directive should contribute to achieving the objectives of the EU Action Plan Towards
Zero Pollution for Air, Water and Soil, of creating a toxic-free environment and ofprotecting the health and well-being of people, animals and ecosystems from environmentrelated risks and negative impacts.

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(14)

This Directive is consistent with the joint communication of the Commission on the EU
Action Plan on Human Rights and Democracy 2020-2024. That action plan defines as apriority strengthening the Union’s engagement to actively promote the global
implementation of the UN Guiding Principles and other relevant international guidelines
such as the MNE Guidelines, including by advancing relevant due diligence standards.

(15)

The European Parliament, in its resolution of 10 March 2021 with recommendations to theCommission on corporate due diligence and corporate accountability, calls upon theCommission to propose Union-level rules for comprehensive corporate due diligenceobligations, with consequences including civil liability for those companies that cause or
jointly cause harm by failing to carry out due diligence. The Council Conclusionsof 1 December 2020 on Human Rights and Decent Work in Global Supply Chains called
upon the Commission to table a proposal for a Union legal framework on sustainablecorporate governance, including cross-sector corporate due diligence obligations along
global supply chains. The European Parliament also calls for clarifying directors’ duties in
its own initiative report of 2 December 2020 on sustainable corporate governance. In their
Joint Declaration on EU Legislative Priorities for 2022 of 21 December 2021, theEuropean Parliament, the Council of the European Union and the Commission havecommitted, to deliver on an economy that works for people, and to improve the regulatory
framework on sustainable corporate governance.

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(16)

This Directive aims to ensure that companies active in the internal market contribute tosustainable development and the sustainability transition of economies and societies
through the identification, and where necessary, prioritisation, prevention and mitigation,bringing to an end, minimisation and remediation of actual or potential adverse humanrights and environmental impacts connected with companies’ own operations, operationsof their subsidiaries and of their business partners in the chains of activities of thecompanies, and ensuring that those affected by a failure to respect this duty have access tojustice and legal remedies. This Directive is without prejudice to the responsibility ofMember States to respect and protect human rights and the environment underinternational law.

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(17)

This Directive is without prejudice to obligations in the areas of human, employment andsocial rights, protection of the environment and climate change under other Union
legislative acts. If the provisions of this Directive conflict with provisions of another Union
legislative act pursuing the same objectives and providing for more extensive or more
specific obligations, the provisions of the other Union legislative act should prevail to theextent of the conflict and should apply to those specific obligations. Examples of suchobligations in Union legislative acts include the obligations set out in Regulation(EU) 2017/821 of the European Parliament and of the Council7, Regulation(EU) 2023/1542 of the European Parliament and of the Council8 and Regulation(EU) 2023/1115 of the European Parliament and of the Council9.

7

8

9

Regulation (EU) 2017/821 of the European Parliament and of the Council of 17 May 2017
laying down supply chain due diligence obligations for Union importers of tin, tantalum andtungsten, their ores, and gold originating from conflict-affected and high-risk areas(OJ L 130, 19.5.2017, p. 1).
Regulation (EU) 2023/1542 of the European Parliament and of the Council of 12 July 2023
concerning batteries and waste batteries, amending Directive 2008/98/EC and Regulation(EU) 2019/1020 and repealing Directive 2006/66/EC (OJ L 191, 28.7.2023, p. 1).
Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023
on the making available on the Union market and the export from the Union of certain
commodities and products associated with deforestation and forest degradation andrepealing Regulation (EU) No 995/2010 (OJ L 150, 9.6.2023, p. 206).

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(18)

This Directive does not apply to pension institutions operating social security systems
under Union law. Where a Member State has chosen not to apply Directive(EU) 2016/2341 of the European Parliament and of the Council10 in whole or in part to an
institution for occupational retirement provision in accordance with Article 5 of that
Directive, this Directive does not apply to those institutions for occupational retirement
provision.

(19)

Companies should take appropriate steps to set up and carry out due diligence measures,with respect to their own operations, those of their subsidiaries, as well as those of theirdirect and indirect business partners throughout their chains of activities in accordancewith this Directive. This Directive should not require companies to guarantee, in all
circumstances, that adverse impacts will never occur or that they will be stopped. For
example, with respect to business partners, where the adverse impact results from State
intervention, the company might not be in a position to arrive at such results. Therefore,
the main obligations in this Directive should be obligations of means. The company shouldtake appropriate measures which are capable of achieving the objectives of due diligenceby effectively addressing adverse impacts, in a manner commensurate to the degree ofseverity and the likelihood of the adverse impact. Account should be taken of thecircumstances of the specific case, the nature and extent of the adverse impact and relevantrisk factors, including, in preventing and minimising adverse impacts, the specificities of
the company’s business operations and its chain of activities, sector or geographical area inwhich its business partners operate, the company’s power to influence its direct andindirect business partners, and whether the company could increase its power of influence.

10

Directive (EU) 2016/2341 of the European Parliament and of the Councilof 14 December 2016 on the activities and supervision of institutions for occupational
retirement provision (IORPs) (OJ L 354, 23.12.2016, p. 37).

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(20)

The due diligence process set out in this Directive should cover the six steps defined by the
Guidance for Responsible Business Conduct, which include due diligence measures forcompanies to identify and address adverse human rights and environmental impacts. That
process encompasses the following steps: (1) integrating due diligence into policies andmanagement systems; (2) identifying and assessing adverse human rights andenvironmental impacts; (3) preventing, ceasing or minimising actual and potential adverse
human rights and environmental impacts; (4) monitoring and assessing the effectiveness ofmeasures; (5) communicating and (6) providing remediation.

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(21)

In order to make due diligence more effective and reduce the burden on companies, theyshould be entitled to share resources and information within their respective groups ofcompanies and with other legal entities. Parent companies falling under the scope of thisDirective should be allowed to fulfil some of the due diligence obligations also on behalfof their subsidiaries that fall under the scope of this Directive, if that ensures effective
compliance. This should be without prejudice to the subsidiaries being subject to theexercise of the supervisory authority’s powers and to them being subject to civil liability
under this Directive. Where a parent company fulfils the obligations with regard tocombatting climate change on behalf of a subsidiary, the subsidiary should comply withthose obligations in accordance with the parent company’s climate change mitigation plan
accordingly adapted to its business model and strategy. If the subsidiary does not fall under
the scope of this Directive, since the subsidiary is not obliged to carry out due diligence,the parent company should cover operations of the subsidiary as part of its own due
diligence obligations. If the subsidiaries fall under the scope of this Directive, but theparent company does not, they still should be allowed to share resources and information
within the group of companies. Nevertheless, the subsidiaries should be responsible forfulfilling due diligence obligations provided for in this Directive.

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(22)

The fulfilment of some of the due diligence obligations at a group level should be without
prejudice to the civil liability of subsidiaries under this Directive in respect of victims towhom the damage is caused. If the conditions for civil liability are met, the subsidiary
could be held liable for damage that occurred, irrespective of whether the due diligenceobligations were carried out by the subsidiary or by the parent company on behalf of thesubsidiary.

(23)

Business partners should not be obliged to disclose to a company which is complying withthe obligations resulting from this Directive information that is a trade secret as defined in
Directive (EU) 2016/943 of the European Parliament and of the Council11, without
prejudice to the disclosure of the identity of direct and indirect business partners, oressential information needed to identify actual or potential adverse impacts, where
necessary and duly justified for the company’s compliance with due diligence obligations.
This should be without prejudice to the possibility for the business partners to protect theirtrade secrets through the mechanisms established in Directive (EU) 2016/943. Business
partners should never be obliged to disclose classified information or other information thedisclosure of which would cause a risk to the essential interests of a state’s security.

11

Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on
the protection of undisclosed know-how and business information (trade secrets) against
their unlawful acquisition, use and disclosure (OJ L 157, 15.6.2016, p. 1).

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(24)

Adverse human rights and environmental impacts might occur in companies’ own
operations, operations of their subsidiaries and of their business partners in the chains ofactivities of the companies, in particular at the level of raw material sourcing andmanufacturing. In order for the due diligence to have a meaningful impact, it should coverhuman rights and environmental adverse impacts generated throughout the majority of thelife-cycle of production, distribution, transport and storage of a product or provision ofservices, at the level of companies’ own operations, operations of their subsidiaries and of
their business partners in their chains of activities.

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(25)

The chain of activities should cover activities of a company’s upstream business partners
related to the production of goods or the provision of services by the company, including
the design, extraction, sourcing, manufacture, transport, storage and supply of raw
materials, products or parts of the products and development of the product or the service,
and activities of a company’s downstream business partners related to the distribution,transport and storage of the product, where the business partners carry out those activities
for the company or on behalf of the company. This Directive should not cover the disposalof the product. In addition, under this Directive the chain of activities should notencompass the distribution, transport, storage and disposal of a product that is subject toexport control by a Member State, meaning either the export control under Regulation(EU) 2021/821 of the European Parliament and of the Council12 or the export control of
weapons, munitions or war material under national export controls, after the export of the
product is authorised. This Directive is complemented by other legislative acts which also
address negative adverse impacts in the field of human rights or environmental protection.
In particular, Regulation (EU) 2021/821 sets up a regime for the control of exports,
brokering, technical assistance, transit and transfer of dual-use items, covering inter alia
software and technologies that can be used for cyber‑ surveillance purposes.

12

Regulation (EU) 2021/821 of the European Parliament and of the Council of 20 May 2021
setting up a Union regime for the control of exports, brokering, technical assistance, transit
and transfer of dual-use items (OJ L 206, 11.6.2021, p. 1).

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Under this regime, Member States should consider in particular the risk of such goods
being used in connection with internal repression or the commission of serious violationsof human rights and international humanitarian law. In addition, Regulation (EU) 2019/125
of the European Parliament and the Council13 prohibits or regulates, as the case may be,
the export of goods such as chemical substances that are used or could be used for the
purpose of capital punishment or for the purpose of torture or other cruel, inhuman ordegrading treatment or punishment. Moreover, several other legislative initiatives are
aimed at mitigating the environmental impacts of products during their whole lifecycle,
including by setting ecodesign requirements based on the sustainability and circularity
aspects of products. Compliance with this Directive should facilitate compliance with theprovisions and objectives of these other legislative acts, and with the terms and conditionsof the applicable authorisations implemented thereunder. Exporters should take into
account the results of their due diligence findings under this Directive in their compliancewith those other legislative acts. The term ‘chain of activities’ as defined in this Directive
is without prejudice to the terms ‘value chain’ or ‘supply chain’ as defined in or within themeaning of other Union legislation.

13

Regulation (EU) 2019/125 of the European Parliament and of the Councilof 16 January 2019 concerning trade in certain goods which could be used for capital
punishment, torture or other cruel, inhuman or degrading treatment or punishment (OJ L 30,
31.1.2019, p. 1).

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(26)

The definition of the term ‘chain of activities’ should not include the activities of acompany’s downstream business partners related to the services of the company. For
regulated financial undertakings, the definition of the term ‘chain of activities’ should notinclude downstream business partners that receive their services and products. Therefore,
as regards regulated financial undertakings, only the upstream but not the downstream partof their chains of activities should be covered by this Directive.

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(27)

Under this Directive, companies formed in accordance with the law of a Member Stateshould be subject to due diligence requirements when they meet certain conditions,
including turnover and, in certain cases, employee thresholds. While those conditions are
expressed with regard to single financial years, this Directive should only apply if thecompany has met them for each of the last two consecutive financial years and should nolonger apply where they cease to be met for each of the last two relevant financial years.
This is also true for companies formed in accordance with the law of a third country whichshould fulfil the relevant Union turnover criterion for each of the last two financial years.
For the sake of clarity, and taking into account the staggered application of this Directive,
the scope criteria need to be fulfilled for two consecutive financial years by both Unionand third-country companies preceding the relevant application dates established inaccordance with the rules on the transposition of this Directive. As regards the employee
thresholds, temporary agency workers, and workers posted under Article 1(3), point (c), of
Directive 96/71/EC of the European Parliament and of the Council14 should be included in
the calculation of the number of employees in the user company. Posted workers under
Article 1(3), points (a) and (b), of Directive 96/71/EC should only be included in thecalculation of the number of employees of the sending company. Other workers in nonstandard forms of employment should also be included in the calculation of the number of
employees insofar as they meet the criteria for determining the status of worker establishedby the Court of Justice of the European Union (CJEU). Seasonal workers should be
included in the calculation of the number of employees proportionally to the number ofmonths that they are employed for. The calculation of the thresholds provided for in thisDirective should include the number of employees and the turnover of a company’s
branches, which are places of business, other than the head office, that are legallydependent on it, and therefore considered as part of the company, in accordance with
Union and national law. This should also apply for the group of companies in the event thethresholds are calculated on a consolidated basis. Where not specified otherwise, thethresholds to be met in order for a company to be covered by this Directive should beunderstood as thresholds calculated on an individual basis.

14

Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996
concerning the posting of workers in the framework of the provision of services (OJ L 18,
21.1.1997, p. 1).

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(28)

Companies established in the Union with more than 1 000 employees on average and a net
worldwide turnover exceeding EUR 450 000 000 in the last financial year for which annual
financial statements have been or should have been adopted, should be required to comply
with the due diligence obligations provided for in this Directive. Companies having
entered into franchising or licensing agreements in the Union in return for royalties withindependent third-party companies, where those agreements ensure a common identity, acommon business concept and the application of uniform business methods, and where
those royalties amount to more than EUR 22 500 000 in the last financial year for whichannual financial statements have been or should have been adopted, and provided that thecompany had a net worldwide turnover of more than EUR 80 000 000 in the last financial
year for which annual financial statements have been or should have been adopted should
also be required to comply with the due diligence obligations provided for in thisDirective. The same applies to ultimate parent companies of groups of companies thattaken together fulfil those conditions. As regards such ultimate parent companies, theobligations of this Directive should be met by the ultimate parent company or, in the eventthe latter has as its main activity the holding of shares in operational subsidiaries and does
not engage in the taking of management, operational or financial decisions affecting thegroup or one or more of its subsidiaries, instead of that ultimate parent company by one
operational subsidiary established in the Union, in accordance with the conditions provided
for in this Directive.

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(29)

In order to achieve fully the objectives of this Directive addressing adverse human rights
and environmental impacts with respect to companies’ operations, operations of theirsubsidiaries and their business partners in chains of activities of the companies,
third-country companies with significant operations in the Union should also be covered.
More specifically, this Directive should apply to third-country companies which generated
a net turnover of at least EUR 450 000 000 in the Union in the financial year preceding thelast financial year. Companies having entered into franchising or licensing agreements in
the Union in return for royalties with independent third-party companies, where thoseagreements ensure a common identity, a common business concept and the application of
uniform business methods, and where those royalties amount to more than
EUR 22 500 000 in the Union in the financial year preceding the last financial year, andprovided that the company had a net turnover of more than EUR 80 000 000 in the Union
in the financial year preceding the last financial year should also be required to comply
with the due diligence obligations provided for in this Directive. The same applies toultimate parent companies of groups of companies that taken together fulfil thoseconditions. As regards such ultimate parent companies, the obligations of this Directive
should be met by the ultimate parent company or, in the event the latter has as its main
activity the holding of shares in operational subsidiaries and does not engage in the taking
of management, operational or financial decisions affecting the group or one or more of its
subsidiaries, instead of the ultimate parent company by one operational subsidiaryestablished in the Union, in accordance with the conditions provided for in this Directive.

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(30)

For the purpose of defining the scope of application of this Directive in relation to thirdcountry companies, the described turnover criterion should be chosen as it creates a
territorial connection between the third-country companies and the Union territory.
Turnover is a proxy for the effects that the activities of those companies could have on theinternal market. In accordance with international law, such effects justify the application ofUnion law to third-country companies. To ensure identification of the relevant turnover ofcompanies concerned, the methods for calculating net turnover for third-country
companies as laid down in Directive 2013/34/EU of the European Parliament and of theCouncil15 should be used. To ensure effective enforcement of this Directive, an employee
threshold should, in turn, not be applied to determine which third-country companies fallunder this Directive, as the notion of ‘employees’ retained for the purposes of thisDirective is based on Union law and could not be easily transposed outside of the Union.
In the absence of a clear and consistent methodology, including in accounting frameworks,
to determine the employees of third-country companies, such employee threshold would
therefore create legal uncertainty and would be difficult to apply for supervisory
authorities. The definition of the term ʻturnoverʼ should be based on Directive 2013/34/EU
which has already established the methods for calculating net turnover for third-country
companies, as turnover and revenue definitions are similar in international accounting
frameworks.

15

Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on theannual financial statements, consolidated financial statements and related reports of certain
types of undertakings, amending Directive 2006/43/EC of the European Parliament and of
the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182,
29.6.2013, p. 19).

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With a view to ensuring that the supervisory authority knows which third-country
companies generate the turnover in the Union required to fall within the scope of thisDirective, this Directive should require that the third-country company’s authorised
representative or the company itself informs a supervisory authority in the Member State
where the third-country company’s authorised representative is domiciled or establishedand, where it is different, a supervisory authority in the Member State in which thecompany generated most of its net turnover in the Union in the financial year preceding thelast financial year that the company is a company that falls under the scope of thisDirective. If necessary for determining in which Member State the third-country company
generated most of its net turnover in the Union, the Member State should be able to request
the Commission to inform the Member State about the net turnover of the third-country
company generated in the Union. The Commission should set up a system to ensure suchan exchange of information.

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(31)

It is essential to establish a Union framework for a responsible and sustainable approach toglobal value chains, given the importance of companies as a pillar in the construction of asustainable society and economy. The emergence of binding law in several Member States
has given rise to the need for a level playing field for companies in order to avoid
fragmentation and to provide legal certainty for businesses operating in the internal market.
Nonetheless, this Directive should not preclude Member States from introducing more
stringent provisions of national law diverging from those laid down in Articles other than
Article 8(1) and (2), Article 10(1) and Article 11(1), including where such provisions may
indirectly raise the level of protection of Article 8(1) and (2), Article 10(1) and
Article 11(1), such as the provisions on the scope, on the definitions, on the appropriate
measures for the remediation of actual adverse impacts, on the carrying out of meaningful
engagement with stakeholders and on civil liability; or from introducing provisions ofnational law that are more specific in terms of their objective or the field covered, such asprovisions of national law regulating specific adverse impacts or specific sectors ofactivity, in order to achieve a different level of protection of human, employment andsocial rights, the environment or the climate.

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(32)

This Directive aims to comprehensively cover human rights, including all five fundamental
principles and rights at work as defined in the 1998 ILO Declaration on fundamental
principles and rights at work. In order to achieve a meaningful contribution to thesustainability transition, due diligence under this Directive should be carried out withrespect to adverse human rights impacts on persons resulting from the abuse of one of therights as enshrined in the international instruments listed in Part I, Section 1, of the Annex
to this Directive. The term ‘abuse’ should be interpreted in line with international humanrights law. In order to ensure comprehensive coverage of human rights, an abuse of ahuman right not specifically listed in Part I, Section 1, of the Annex to this Directive which
can be abused by a company or legal entity, and which directly impairs a legal interest
protected in the human rights instruments listed in Part I, Section 2, of the Annex to thisDirective should also form part of the adverse human rights impacts covered by thisDirective, provided that the company concerned could have reasonably foreseen the risk ofsuch human right abuse, taking into account all relevant circumstances of the specific case,including the nature and extent of the company’s business operations and its chain of
activities, economic sector and geographical and operational context. Due diligence should
further encompass adverse environmental impacts resulting from the violation of one of theprohibitions and obligations listed in Part II of the Annex to this Directive, as well as
adverse impacts resulting from the breach of one of the prohibitions listed in Part I,
points 15 and 16, of the Annex to this Directive taking into account national legislation
linked to the provisions of the instruments listed in the Annex. Those prohibitions andobligations should be interpreted and applied in line with international law and generalprinciples of Union environmental law, as set out in Article 191 TFEU.

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Those prohibitions include the prohibition of causing any measurable environmental
degradation, such as harmful soil change, water or air pollution, harmful emissions,excessive water consumption, degradation of land, or any other impact on natural
resources, such as deforestation, that substantially impairs the natural bases for thepreservation and production of food, or that denies a person access to safe and clean
drinking water, or that makes it difficult for a person to access sanitary facilities ordestroys them, or that harms a person’s health, safety, normal use of land or lawfullyacquired possessions, or that substantially adversely affects ecosystem services throughwhich an ecosystem contributes directly or indirectly to human wellbeing. In order toassess whether the damage to ecosystem services is substantial, the following elements
should be taken into account where relevant: the baseline condition of the environment
affected, whether the damage is long-lasting, medium-term or short-term, the spread of thedamage, and the reversibility of the damage. Due diligence requirements under thisDirective should therefore contribute to preserving and restoring biodiversity andimproving the state of the environment, in particular the air, water and soil, including tobetter protect human rights. The Commission should be empowered to adopt delegated actsin order to amend the Annex to this Directive for the purposes laid down in Article 3(2),including by adding the reference, once ratified by all Member States, to the ILO
Occupational Safety and Health Convention, 1981 (No. 155), and the ILO Promotional
Framework for Occupational Safety and Health, 2006 (No 187), which form part of the
ILO fundamental instruments.

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(33)

Depending on the circumstances, companies may need to consider additional standards.
For instance, taking account of specific contexts or intersecting factors, including among
others, gender, age, race, ethnicity, class, caste, education, migration status, disability, as
well as social and economic status, as part of a gender- and culturally responsive approachto due diligence, companies should pay special attention to any particular adverse impacts
on individuals who may be at heightened risk due to marginalisation, vulnerability or othercircumstances, individually or as members of certain groupings or communities, including
indigenous peoples, as protected under the UN Declaration on the Rights of Indigenous
Peoples, including in relation to fee, prior and informed consent (FPIC). In doing so,companies may need to take into consideration, where relevant, international instruments
such as the International Convention on the Elimination of All Forms of Racial
Discrimination, the Convention on the Elimination of All Forms of Discrimination Against
Women, the Convention on the Rights of Persons with Disabilities.

(34)

Companies should also be responsible for using their influence to contribute to an adequate
standard of living in chains of activities. This is understood to include a living wage for
employees and a living income for self-employed workers and smallholders, which theyearn in return for their work and production.

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(35)

This Directive acknowledges the ‘One Health’ approach as recognised by the World
Health Organization, an integrated and unifying approach that aims to sustainably balanceand optimise the health of people, animals and ecosystems. The ‘One Health’ approach
recognises that the health of humans, domestic and wild animals, plants, and the wider
environment, including ecosystems, are closely interlinked and interdependent. It istherefore appropriate to provide that environmental due diligence should encompass
avoiding environmental degradation that results in adverse health effects such as
epidemics, and should respect the right to a clean, healthy and sustainable environment.

(36)

Adverse human rights and environmental impacts can be intertwined with or underpinned
by factors such as corruption and bribery. It may therefore be necessary for companies totake into account those factors when carrying out human rights and environmental due
diligence, in a manner that is consistent with the UN Convention against Corruption.

(37)

When assessing adverse human rights impacts, companies have guidance at their disposalthat illustrates how their activities may impact human rights and which corporate
behaviour is prohibited in accordance with internationally recognised human rights. Suchguidance is included for instance in the UN Guiding Principles Reporting Framework, andthe Interpretive Guide ʻThe corporate responsibility to respect human rightsʼ.

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(38)

In order to conduct appropriate human rights and environmental due diligence with respect
to their operations, the operations of their subsidiaries, and the operations of their business
partners in the chains of activities of the companies, companies covered by this Directive
should integrate due diligence into their policies and risk management systems, identify
and assess, where necessary prioritise, prevent and mitigate as well as bring to an end andminimise the extent of actual and potential adverse human rights and environmental
impacts, provide remediation in relation to actual adverse impacts, carry out meaningful
engagement with stakeholders, establish and maintain a notification mechanism andcomplaints procedure, monitor the effectiveness of the measures taken in accordance withthe requirements that are provided for in this Directive and communicate publicly on theirdue diligence. In order to ensure clarity for companies, in particular the steps of preventing
and mitigating potential adverse impacts and of bringing to an end, or when this is notpossible, minimising the extent of actual adverse impacts, should be clearly distinguishedin this Directive.

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(39)

In order to ensure that due diligence forms part of companies’ policies and risk
management systems, and in line with the relevant international framework, companies
should integrate due diligence into their relevant policies and risk management systems
and at all relevant levels of operation, and have in place a due diligence policy. The due
diligence policy should be developed in prior consultation with the company’s employees
and their representatives and should contain a description of the company’s approach,including in the long term, to due diligence, a code of conduct describing the rules andprinciples to be followed throughout the company and its subsidiaries, and, where relevant,the company’s direct or indirect business partners and a description of the processes put inplace to integrate due diligence into the relevant policies and to carry out due diligence,
including the measures taken to verify compliance with the code of conduct and to extend
its application to business partners. The due diligence policy should ensure a risk-based
due diligence. The code of conduct should apply in all relevant corporate functions andoperations, including procurement, employment and purchasing decisions. For the
purposes of this Directive, employees should be understood as including temporary agency
workers, and other workers in non-standard forms of employment provided that they fulfil
the criteria for determining the status of worker established by the CJEU.

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(40)

To comply with due diligence obligations, companies need to take appropriate measureswith respect to the identification, prevention, bringing to an end, minimisation andremediation of adverse impacts, and the carrying out of meaningful engagement withstakeholders throughout the due diligence process. The term ‘appropriate measures’ should
be understood to mean measures that are capable of achieving the objectives of due
diligence, by effectively addressing adverse impacts in a manner commensurate to thedegree of severity and the likelihood of the adverse impact, and reasonably available to thecompany, taking into account the circumstances of the specific case, including the natureand extent of the adverse impact and relevant risk factors. If necessary information,
including information that is deemed to be a trade secret, cannot be reasonably obtained
due to factual or legal obstacles, for instance because a business partner refuses to provide
information and there are no legal grounds to enforce this, such circumstances cannot beheld against the company, but it should be able to explain why such information could not
be obtained and should take the necessary and reasonable steps to obtain it as soon as
possible.

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(41)

Under the due diligence obligations provided for in this Directive, a company should
identify and assess actual or potential adverse human rights and environmental impacts. In
order to allow for a comprehensive identification and assessment of adverse impacts, such
identification and assessment should be based on quantitative and qualitative information,
including the relevant disaggregated data that can be reasonably obtained by a company.
Companies should make use of appropriate methods and resources, including public
reports. For instance, as regards adverse environmental impacts, the company should
obtain information about baseline conditions at higher risk sites or facilities in its chain of
activities. As part of the obligation to identify adverse impacts, companies should takeappropriate measures to map their own operations, those of their subsidiaries and, whererelated to their chains of activities, those of their business partners, in order to identify
general areas where adverse impacts are most likely to occur and to be most severe. Basedon the results of such mapping, companies should carry out an in-depth assessment of theirown operations, those of their subsidiaries and, where related to their chains of activities,
those of their business partners, in the areas where adverse impacts were identified to be
most likely to occur and most severe. When identifying, and assessing adverse impacts, thecompany should take into account, based on an overall assessment, possible relevant risk
factors, including company-level risk factors, such as whether the business partner is not acompany covered by this Directive; business operation risk factors; geographic andcontextual risk factors, such as the level of law enforcement with respect to the type ofadverse impacts; product and service risk factors; and sectoral risk factors. When
identifying and assessing adverse impacts, companies should also identify and assess theimpact of a business partner’s business model and strategies, including trading,
procurement and pricing practices.

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With a view to limiting the burden on smaller companies created by requests for
information, where information necessary for the identification of adverse impacts can beobtained from business partners at different levels of their chains of activities, companies
should exercise restraint with regard to business partners that do not themselves presentrisks of adverse impacts and favour reaching out, where reasonable, directly for moredetailed information to business partners at levels in their chains of activities where, basedon the mapping, actual or potential adverse impacts are most likely to occur. Identificationof adverse impacts should include assessing the human rights and environmental context ina dynamic way and at regular intervals: without undue delay after a significant change
occurs, but at least every 12 months, throughout the life cycle of an activity or relationship,
and whenever there are reasonable grounds to believe that new risks may arise. A
significant change should be understood as a change to the status quo of the company’s
own operations, operations of its subsidiaries or business partners, the legal or businessenvironment or any other substantial shift from the situation of the company or its
operating context. Examples of a significant change could be cases when the company
starts to operate in a new economic sector or geographical area, starts producing new
products or changes the way of producing the existing products using technology withpotentially higher adverse impacts, or changes its corporate structure via restructuring or
via mergers or acquisitions. Reasonable grounds to believe that there are new risks may
arise in different ways, including learning about the adverse impact from publicly available
information, through stakeholder engagement, or through notifications. If, despite having
taken appropriate measures to identify adverse impacts, companies do not have all thenecessary information regarding their chains of activities, they should be able to explain
why that information could not be obtained and should take the necessary and reasonable
steps to obtain it as soon as possible.

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(42)

In conflict-affected and high-risk areas, as defined in accordance with Regulation(EU) 2017/821, human rights abuses are more likely to occur and to be severe. Companies
should take this into account when integrating due diligence into their policies and risk
management systems to ensure that codes of conduct and processes put in place to carryout due diligence are adapted to conflict-affected and high-risk areas, in a manner that is
consistent with international humanitarian law, as laid out in the Geneva Conventionsof 1949 and their additional protocols. Companies should take into account that suchsituations constitute particular geographic and contextual risk factors when performing indepth assessments as part of the identification and assessment process, when taking
appropriate measures to prevent, mitigate, bring to an end and minimise identified adverse
impacts, and when engaging with stakeholders. For this purpose, companies may rely on
the Commission’s guidance on the assessment of risk factors associated with conflictaffected and high-risk areas, which should take into account the UN Development
Programme’s guidance ʻHeightened Human Rights Due Diligence for Business inConflict-Affected Contexts. A Guideʼ.

(43)

This Directive should be without prejudice to the rules on professional secrecy applicableto lawyers or to other certified professionals who are authorised to represent their clients injudicial proceedings, in accordance with Union and national law.

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(44)

Where a company cannot prevent, mitigate, bring to an end or minimise the extent of all
the identified actual and potential adverse impacts at the same time to the full extent, it
should prioritise the adverse impacts based on their severity and likelihood. The severity ofan adverse impact should be assessed based on the scale, scope or irremediable characterof the adverse impact, taking into account the gravity of the impact, including the numberof individuals that are or will be affected, the extent to which the environment is or may bedamaged or otherwise affected, its irreversibility and the limits on the ability to restore
affected individuals or the environment to a situation equivalent to their situation prior to
the impact within a reasonable period of time. Once the most severe and likely adverse
impacts are addressed in reasonable time, the company should address less severe and lesslikely adverse impacts. On the other hand, actual or potential influence of the company on
its business partners, the level of involvement of the company in the adverse impact, theproximity to the subsidiary or the business partner, or its potential liability should not be
considered relevant factors in the prioritisation of adverse impacts.

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(45)

Under the due diligence obligations provided for in this Directive, if a company identifies
potential adverse human rights or environmental impacts, it should take appropriate
measures to prevent or adequately mitigate them. To provide companies with legal clarity
and certainty, this Directive should set out the actions companies should be expected totake for prevention and mitigation of potential adverse impacts, where relevant dependingon the circumstances. When assessing the appropriate measures to prevent or adequately
mitigate adverse impacts, due account should be taken of the so-called ‘level ofinvolvement of the company in an adverse impact’ in line with the internationalframeworks and the company’s ability to influence the business partner causing or jointly
causing the adverse impact. Companies should take appropriate measures to prevent or
mitigate the adverse impacts that they cause by themselves (so-called ‘causing’ the adverse
impact as referred to in the international framework) or jointly with their subsidiaries orbusiness partners (so-called ‘contributing’ to the adverse impact as referred to in theinternational framework). This applies irrespective of whether third parties outside of thecompany’s chain of activities are also causing the adverse impact. Jointly causing theadverse impact is not limited to equal implication of the company and its subsidiary or
business partner in the adverse impact, but should cover all cases of the company’s acts oromissions, causing the adverse impact in combination with the acts or omissions ofsubsidiaries or business partners, including where the company substantially facilitates or
incentivises a business partner to cause an adverse impact, that is, excluding minor ortrivial contributions.

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ENWhen companies are not causing the adverse impacts occurring in their chains of activities
themselves or jointly with other legal entities, but the adverse impact is caused only by
their business partner in the chains of activities of the companies (so-called ‘being directly
linked to’ the adverse impact, as referred to in the international framework), they shouldstill aim to use their influence to prevent or mitigate the adverse impact caused by theirbusiness partners or to increase their influence to do so. Using only the notion of ‘causing’
the adverse impact instead of the aforementioned terms used in the internationalframeworks avoids confusion with existing legal terms in national legal systems while
covering the same causal relationships described in those frameworks. In this context, inline with the international frameworks, the company’s influence on a business partner
should include on the one hand its ability to persuade the business partner to prevent
adverse impacts, (for example through market power, pre-qualification requirements or
linking business incentives to human rights and environmental performance), and, on theother hand, the degree of influence or leverage that the company could reasonably
exercise, for example through cooperation with the business partner in question or
engagement with another company which is the direct business partner of the business
partner associated with the adverse impact.

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(46)

So as to comply with the prevention and mitigation obligation provided for in thisDirective, companies should be required to take the following appropriate measures, where
relevant. Where necessary due to the complexity of prevention measures, companies
should develop and implement a prevention action plan. Companies should seek to obtain
contractual assurances from a direct business partner that it will ensure compliance withthe code of conduct and, as necessary, the prevention action plan, including by seeking
corresponding contractual assurances from its partners to the extent that their activities arepart of the chains of activities of the companies. Contractual assurances should be designed
to ensure that responsibilities are shared appropriately by the company and the business
partners. The contractual assurances should be accompanied by appropriate measures toverify compliance. However, the company should only be obliged to seek the contractual
assurances, as obtaining them may depend on the circumstances. To ensure comprehensive
prevention of potential adverse impacts, companies should also make financial or nonfinancial investments, adjustments or upgrades which aim to prevent adverse impacts, andcollaborate with other companies, in compliance with Union law. Where relevant,companies should adapt business plans, overall strategies and operations, including
purchasing practices, and develop and use purchasing policies that contribute to living
wages and incomes for their suppliers, and that do not encourage potential adverse impacts
on human rights or the environment.

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ENTo conduct their due diligence in an effective and efficient manner, companies should also
make necessary modifications of, or improvements to, their design and distribution
practices, to address adverse impacts arising both in the upstream part and the downstream
part of their chains of activities, before and after the product has been made. Adopting andadapting such practices, as necessary, could be particularly relevant for the company, toavoid an adverse impact in the first instance. Such measures could also be relevant toaddress adverse impacts that are jointly caused by the company and its business partners,
for instance due to the deadlines or specifications imposed on them by the company. In
addition, by better sharing the value along the chain of activities, responsible purchasing or
distribution practices contribute to fighting against child labour, which often arises incountries or territories with high poverty levels. Companies should also provide targeted
and proportionate support for a small and medium-sized enterprise (SME) which is abusiness partner of the company, where necessary in light of the resources, knowledge andconstraints of the SME, including by providing or enabling access to capacity-building,training or upgrading management systems, and, where compliance with the code of
conduct or the prevention action plan would jeopardise the viability of the SME, providing
targeted and proportionate financial support, such as direct financing, low-interest loans,guarantees of continued sourcing, or assistance in securing financing. The notion of‘jeopardising the viability of an SME’ should be interpreted as possibly causing abankruptcy of the SME or putting the SME in a situation where bankruptcy is imminent.

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(47)

Tackling harmful purchasing practices and price pressures on producers, particularly
smaller operators is especially important in relation to sales of agricultural and foodproducts. In order to address the power imbalances in the agricultural sector and ensure fair
prices at all links in the food supply chain and strengthen the position of farmers, large
food processors and retailers should adapt their purchasing practices, and develop and usepurchasing policies that contribute to living wages and incomes for their suppliers. By
applying only to the business conduct of the largest operators, that is, those with a net
worldwide turnover of more than EUR 450 000 000, this Directive should benefit
agricultural producers with less bargaining power. Moreover, given companies formed inaccordance with the law of a third country are equally subject to this Directive, this would
protect agricultural producers in the Union against unfair competition and against harmful
practices by operators established not only inside but also outside the Union.

(48)

In order to reflect the full range of options for the company in cases where potential
adverse impacts could not be addressed by the described prevention or mitigation
measures, this Directive should also refer to the possibility for the company to seek
contractual assurances from the indirect business partner, with a view to achieving
compliance with the company’s code of conduct or a prevention action plan, and conduct
appropriate measures to verify compliance of the indirect business partner with thecontractual assurances.

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(49)

It is possible that prevention of potential adverse impacts would require collaboration withanother company, for example, at the level of an indirect business partner with a company,
which has a direct contractual relationship with the indirect business partner in question. In
some instances, a collaboration with other entities could be the only realistic way of
preventing potential adverse impacts being caused even by direct business partners if theinfluence of the company is not sufficient. The company should collaborate with the entity
which can most effectively prevent or mitigate potential adverse impacts solely or jointlywith the company, or other legal entities, while respecting applicable law, in particularcompetition law.

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(50)

In order to ensure that appropriate measures for the prevention and mitigation of potential
adverse impacts are effective, companies should prioritise engagement with business
partners in their chains of activities, instead of terminating the business relationship, as alast resort after attempting to prevent and mitigate adverse potential impacts without
success. However, this Directive should also, for cases where potential adverse impacts
could not be addressed by such appropriate measures, refer to the obligation forcompanies, as a last resort, to refrain from entering into new or extending existing relations
with the partner in question and, where there is a reasonable prospect of change, by using
or increasing the company’s leverage through the temporary suspension of the business
relationship with respect to the activities concerned, adopt and implement an enhanced
prevention action plan for the specific adverse impact without undue delay including a
specific and appropriate timeline for the adoption and implementation of all actions
therein, during which the company may also seek alternative business partners. Factors
determining the appropriateness of the timeline for adoption and implementation of suchactions could include the severity of the adverse impact, the need to identify and take steps
to prevent or mitigate any additional adverse impacts, including impacts on SMEs or
smallholders. Companies should suspend their business relationships with the business
partner, thereby increasing their leverage and increasing the chances that the impact isaddressed.

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Where there is no reasonable expectation that these efforts would succeed, for instance, in
situations of state-imposed forced labour, or where the implementation of the enhanced
prevention action plan failed to prevent or mitigate the adverse impact, the company
should be required to terminate the business relationship with respect to the activities
concerned if the potential adverse impact is severe. In order to allow companies to fulfilthat obligation, Member States should provide for the availability of an option to terminate
the business relationship in contracts governed by their laws. In deciding to terminate orsuspend a business relationship, the company should assess whether the adverse impacts ofdoing so could be reasonably expected to be manifestly more severe than the adverse
impact that could not be prevented or adequately mitigated. Where companies temporarilysuspend or terminate the business relationship, they should take steps to prevent, mitigate,or bring to an end the impacts of suspension or termination, provide reasonable notice tothe business partner and keep that decision under review. It is possible that prevention ofadverse impacts at the level of indirect business relationships requires collaboration withanother entity. In some instances, collaboration with another company could be the only
realistic way of preventing adverse impacts at the level of indirect business relationships,
in particular, where the indirect business partner is not ready to enter into a contract withthe company.

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(51)

Although regulated financial undertakings are only subject to due diligence obligations forthe upstream part of their chains of activities, the specificities of financial services as wellas the MNE Guidelines provide indications of the types of measures that are appropriate
and effective for financial undertakings to take in due diligence processes. As it ishighlighted also in the MNE Guidelines, the specificities of financial services need to beacknowledged. Regulated financial undertakings are expected to consider adverse impacts
and to use their so-called ‘leverage’ to influence companies. The exercise of shareholders’rights can be a way to exercise leverage.

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(52)

As regards direct and indirect business partners, industry and multi-stakeholder initiatives
can help create additional leverage to identify, mitigate, and prevent adverse impacts.
Therefore it should be possible for companies to participate in such initiatives to support
the implementation of obligations laid down in Articles 7 to 16 of this Directive to theextent that such initiatives are appropriate to support the fulfilment of those obligations.
The meaning of the term ʻinitiativesʼ is broad and includes a combination of voluntary due
diligence procedures, tools and mechanisms, developed and overseen by governments,
industry associations, interested organisations, including civil society organisations, orgroupings or combinations thereof, that companies could participate in in order to support
the implementation of due diligence obligations. Companies could, after having assessed
their appropriateness, make use of or join relevant risk analysis carried out by industry or
multi-stakeholder initiatives or by members of those initiatives and could take or join
effective appropriate measures through such initiatives. When doing so, companies should
monitor the effectiveness of such measures and continue to take appropriate measures
where necessary to ensure the fulfilment of their obligations. In order to ensure full
information on such initiatives, this Directive should also refer to the possibility for theCommission and the Member States to facilitate the dissemination of information on suchinitiatives and their outcomes. The Commission, in collaboration with Member States,
should issue guidance setting out fitness criteria and a methodology for companies toassess the fitness of industry and multi-stakeholder initiatives.

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Companies could also use independent third-party verification on and from companies intheir chains of activities to support the implementation of due diligence obligations to theextent that such verification is appropriate to support the fulfilment of the relevant
obligations. Independent third-party verification could be carried out by other companies
or by an industry or multi-stakeholder initiative. Independent third-party verifiers should
act with objectivity and complete independence from the company, be free from any
conflict of interests, remain free from external influence, whether direct or indirect, andshould refrain from any action incompatible with their independence. Depending on thenature of the adverse impact, they should have experience and competence inenvironmental or human rights matters and should be accountable for the quality andreliability of the verification. The Commission, in collaboration with Member States,
should issue guidance setting out fitness criteria and a methodology for companies toassess the fitness of third-party verifiers, and guidance for monitoring the accuracy,effectiveness and integrity of third-party verification. This guidance is essential to address
the shortcomings of ineffective audits. Companies participating in industry or multistakeholder initiatives or using third-party verification or contractual clauses to support theimplementation of due diligence obligations should still be able to be penalised or foundliable for violations of this Directive and damage suffered by victims as a result.

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(53)

Under the due diligence obligations provided for in this Directive, if a company identifies
actual adverse human rights or environmental impacts, it should take appropriate measures
to bring those to an end. It can be expected that a company is able to bring to an end actual
adverse impacts in its own operations and those of its subsidiaries. However, it should beclarified that, where adverse impacts cannot be brought to an end, companies should
minimise the extent of such impacts. Minimisation of the extent of adverse impacts should
require an outcome that is the closest possible to bringing the adverse impact to an end.
Therefore, the company should periodically reassess the circumstances that prevented itfrom bringing the adverse impact to an end, and whether the adverse impact can be brought
to an end. To provide companies with legal clarity and certainty, this Directive should
specify which actions companies should be required to take for bringing actual humanrights and environmental adverse impacts to an end and for minimising their extent, where
relevant depending on the circumstances. When assessing the appropriate measures tobring to an end or minimise the extent of the adverse impacts, due account should be takenof the so-called ‘level of involvement of the company in an adverse impact’ in line with theinternational frameworks and the company’s ability to influence the business partner
causing or jointly causing the adverse impact. Companies should take appropriate
measures to bring to an end or minimise the extent of the adverse impacts that they causeby themselves (so-called ‘causing’ the adverse impact as referred to in the internationalframework) or jointly with their subsidiaries or business partners (so-called ‘contributing’to the adverse impact as referred to in the international framework).

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This applies irrespective of whether third parties outside of the company’s chain of
activities are also causing the adverse impact. Jointly causing the adverse impact is not
limited to equal implication of the company and its subsidiary or business partner in theadverse impact, but should cover all cases of the company’s acts or omissions, causing theadverse impact in combination with the acts or omissions of subsidiaries or business
partners, including where the company substantially facilitates or incentivises a business
partner to cause an adverse impact, that is, excluding minor or trivial contributions. When
companies are not causing the adverse impacts occurring in their chains of activities
themselves or jointly with other legal entities, but the adverse impact is caused only by
their business partner in the chains of activities of the companies (so-called ‘being directly
linked to’ the adverse impact as referred to in the international framework), they shouldstill aim to use their influence to bring to an end or minimise the extent of the adverse
impact caused by their business partners or to increase their influence to do so. Using only
the notion of ‘causing’ the adverse impact instead of the aforementioned terms used in theinternational frameworks avoids confusion with existing legal terms in national legal
systems while covering the same causal relationships described in those frameworks. In
this context, in line with the international frameworks, the company’s influence on abusiness partner should include on the one hand its ability to persuade the business partner
to bring to an end or minimise the extent of the adverse impacts (for example throughmarket power, pre-qualification requirements or linking business incentives to humanrights and environmental performance) and, on the other hand, the degree of influence orleverage that the company could reasonably exercise, for example, through cooperation
with the business partner in question or engagement with another company which is the
direct business partner of the business partner associated with the adverse impact.

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(54)

So as to comply with the obligation to bring to an end or minimise the extent of actual
adverse impacts provided for in this Directive, companies should be required to take thefollowing appropriate measures, where relevant. Where necessary due to the fact that theadverse impact cannot be immediately brought to an end, companies should develop andimplement a corrective action plan. Companies should seek to obtain contractual
assurances from a direct business partner that it will ensure compliance with the code of
conduct and, as necessary, the corrective action plan, including by seeking corresponding
contractual assurances from its partners to the extent that their activities are part of thechains of activities of the companies. Contractual assurances should be designed to ensurethat responsibilities are shared appropriately by the company and the business partners.
The contractual assurances should be accompanied by appropriate measures to verify
compliance. However, the company should only be obliged to seek the contractual
assurances, as obtaining them may depend on the circumstances. Companies should also
make financial or non-financial investments, adjustments or upgrades aiming at ceasing or
minimising the extent of adverse impacts, and collaborate with other companies, incompliance with Union law. Where relevant, companies should adapt business plans,
overall strategies and operations, including purchasing practices, and develop and usepurchasing policies that contribute to living wages and incomes for their suppliers, and that
do not encourage actual adverse impacts on human rights or the environment.

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To conduct their due diligence in an effective and efficient manner, companies should also
make necessary modifications of, or improvements to, their design and distribution
practices, to address adverse impacts arising both in the upstream part and the downstream
part of their chains of activities, before and after the product has been made. Adopting andadapting such practices, as necessary, could be particularly relevant for the company to
avoid an adverse impact in the first instance. Such measures could also be relevant toaddress adverse impacts that are jointly caused by the company and its business partners,
for instance due to the deadlines or specifications imposed on them by the company. In
addition, by better sharing the value along the chain of activities, responsible purchasing or
distribution practices contribute to fighting against child labour, which often arises incountries or territories with high poverty levels. Companies should also provide targeted
and proportionate support for an SME which is a business partner of the company, where
necessary in light of the resources, knowledge and constraints of the SME, including by
providing or enabling access to capacity-building, training or upgrading management
systems, and, where compliance with the code of conduct or the corrective action plan
would jeopardise the viability of the SME, providing targeted and proportionate financial
support, such as direct financing, low-interest loans, guarantees of continued sourcing, or
assistance in securing financing. The notion of ‘Jeopardising the viability of an SME’
should be interpreted as possibly causing a bankruptcy of the SME or putting the SME in asituation where bankruptcy is imminent.

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(55)

In order to reflect the full range of options for the company in cases where actual adverse
impacts could not be addressed by the described measures, this Directive should also referto the possibility for the company to seek contractual assurances with the indirect business
partner, with a view to achieving compliance with the company’s code of conduct or acorrective action plan, and conduct appropriate measures to verify compliance of theindirect business partner with the contractual assurances.

(56)

When contractual assurances are obtained from an SME that is an indirect business partner,companies should assess whether the contractual assurances should be accompanied byappropriate measures for SMEs. When the SME requests to pay part of the cost, or inagreement with the company, the SME should be able to share the results of verification
with other companies.

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(57)

In order to ensure that appropriate measures for the bringing to an end or minimising ofactual adverse impacts are effective, companies should prioritise engagement with business
partners in their chains of activities, instead of terminating the business relationship, as alast resort after attempting to bring actual adverse impacts to an end or to minimise theirextent without success. However, this Directive should also, for cases where actual adverse
impacts could not be brought to an end or the extent adequately minimised by suchappropriate measures, refer to the obligation for companies, as a last resort, to refrain fromentering into new or extending existing relations with the partner in question and, where
there is a reasonable prospect of change, by using or increasing the company’s leveragethrough the temporary suspension of the business relationship with respect to the activities
concerned, adopt and implement an enhanced corrective action plan for the specificadverse impact without undue delay including a specific and appropriate timeline for the
adoption and implementation of all actions therein, during which the company may alsoseek alternative business partners. Factors determining the appropriateness of the timeline
for adoption and implementation of those actions could include the severity of the adverse
impact, the need to identify and take steps to bring to an end or minimise the extent of any
additional adverse impacts, as well as impacts on SMEs or smallholders. Companies
should suspend their business relationships with the business partner, thereby increasing
their leverage and increasing the chances that the impact is addressed.

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Where there is no reasonable expectation that those efforts would succeed, for instance, in
situations of state-imposed forced labour, or where the implementation of the enhanced
corrective action plan failed to bring to an end or minimise the extent of the adverse
impact, the company should be required to terminate the business relationship with respect
to the activities concerned if the actual adverse impact is severe. In order to allow
companies to fulfil that obligation, Member States should provide for the availability of an
option to terminate the business relationship in contracts governed by their laws. In
deciding to terminate or suspend a business relationship, the company should assess
whether the adverse impacts of doing so could be reasonably expected to be manifestly
more severe than the adverse impact that could not be brought to an end or the extent of
which could not be adequately minimised. Where companies temporarily suspend or
terminate the business relationship, they should take steps to prevent, mitigate, or bring toan end the impacts of suspension or termination, provide reasonable notice to the business
partner and keep that decision under review. It is possible that bringing to an end adverse
impacts at the level of indirect business relationships requires collaboration with anotherentity. In some instances, collaboration with another company could be the only realistic
way of bringing to an end actual adverse impacts at the level of indirect business
relationships, in particular where the indirect business partner is not ready to enter into acontract with the company.

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(58)

Where a company has caused or jointly caused an actual adverse impact, the company
should provide remediation. The term ʻremediationʼ means restoring the affected person or
persons, communities or environment to a situation equivalent or as close as possible to thesituation they would have been in had the actual adverse impact not occurred,
proportionate to the company’s implication in the adverse impact, including throughfinancial or non-financial compensation provided by the company to a person or persons
affected by the actual adverse impact and, where applicable, reimbursement of the costs
incurred by public authorities for any necessary remedial measures. Member States should
ensure that stakeholders affected by an adverse impact are not required to seek remediation
prior to filing claims in court. Member States should ensure that, where the company fails
to provide remediation in case it has caused or jointly caused the actual adverse impact, thecompetent supervisory authority has the power, on its own initiative or as a result of
substantiated concerns communicated to it in accordance with this Directive, to order thecompany to provide appropriate remediation. This is without prejudice in such a situation
to the imposition of penalties for the infringement of provisions of national law adopted
pursuant to this Directive and to civil liability being sought before a national court. Where
the actual adverse impact is caused only by the company’s business partner, voluntary
remediation may be provided by the company. The company may also use its ability to
influence the business partner causing or jointly causing the adverse impact to enable
remediation.

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(59)

Companies should provide the possibility for persons and organisations to submit
complaints directly to them in case of legitimate concerns regarding actual or potential
human rights and environmental adverse impacts. Persons and organisations who could
submit such complaints should include persons who are affected or have reasonablegrounds to believe that they might be affected and the legitimate representatives of such
persons on behalf of them, such as civil society organisations and human rights defenders;
trade unions and other workers’ representatives representing individuals working in the
chain of activities concerned; and civil society organisations active and experienced in theareas related to the environmental adverse impact that is the subject matter of thecomplaint. Companies should establish a fair, publicly available, accessible, predictable
and transparent procedure for dealing with those complaints and inform the relevant
workers, trade unions and other workers’ representatives about such procedures.
Companies should also establish an accessible mechanism for the submission of
notifications by persons and organisations where they have information or concerns
regarding actual or potential adverse impacts. In order to reduce the burden on companies,
they should be able to participate in collaborative complaints procedures and notification
mechanisms, such as those established jointly by companies, for example, by a group ofcompanies, through industry associations, multi-stakeholder initiatives or global
framework agreements. The submission of a notification or complaint should not be aprerequisite or preclude the person submitting them from having access to the substantiatedconcerns procedure or to judicial or other non-judicial mechanisms, such as the OECDnational contact points where they exist.

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The provisions on the complaints procedure and notification mechanism under thisDirective should be such as to avoid that access to a company’s representatives leading to
unreasonable solicitation. In accordance with international standards, persons submitting
complaints, where they do not submit them anonymously, should be entitled to requestfrom the company timely and appropriate follow-up and to meet with the company’s
representatives at an appropriate level to discuss actual or potential severe adverse impacts
that are the subject matter of the complaint and potential remediation, to be provided withthe reasoning as to why a complaint has been considered founded or unfounded and, whereconsidered founded, to be provided with information on the steps and actions taken or to betaken by the company. Companies should also take reasonably available measures toprevent any form of retaliation by ensuring the confidentiality of the identity of the personor organisation submitting the complaint or notification, in accordance with national law.
The terms ‘fair, publicly available, accessible, predictable and transparent’ should beunderstood in line with principle 31 of the UN Guiding Principles requiring procedures tobe legitimate, accessible, predictable, equitable, transparent, rights-compatible and a sourceof continuous learning, as also referred to in the UN Committee on the Rights of the Child
General Comment No 16. Workers and their representatives should also be properly
protected, and any non-judicial remediation efforts should be without prejudice toencouraging collective bargaining and recognition of trade unions, and should by no means
undermine the role of legitimate trade unions or workers’ representatives in addressing
labour-related disputes. Companies should ensure accessibility of the notification
mechanisms and complaint procedures for stakeholders, taking due account of relevantbarriers.

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(60)

Due to a broader list of persons or organisations being entitled to submit a complaint and abroader scope of subject-matter of complaints, the complaints procedure under thisDirective should be legally understood as a mechanism that is separate from the internalreporting procedure set up by companies in accordance with Directive (EU) 2019/1937 of
the European Parliament and of the Council16. If the breach of Union or national law
included in the material scope of that Directive can be considered to be an adverse impact
and the reporting person is a company employee that is directly affected by the adverse
impact, then that person could use both procedures: the complaints mechanism inaccordance with this Directive and an internal reporting procedure set out in accordancewith Directive (EU) 2019/1937. Nevertheless, if one of the conditions above is not met,then the person should be able to proceed only via one of the procedures.

16

Directive (EU) 2019/1937 of the European Parliament and of the Councilof 23 October 2019 on the protection of persons who report breaches of Union law(OJ L 305, 26.11.2019, p. 17).

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(61)

Companies should monitor the implementation and effectiveness of their due diligencemeasures. They should carry out periodic assessments of their own operations, those of
their subsidiaries and, where related to the chain of activities of the company, those of theirbusiness partners, to assess the implementation and to monitor the adequacy andeffectiveness of the identification, prevention, minimisation, bringing to an end andmitigation of adverse impacts. Such assessments should verify that adverse impacts areproperly identified, due diligence measures are implemented and adverse impacts haveactually been prevented or brought to an end. In order to ensure that such assessments are
up-to-date, they should be carried out without undue delay after a significant change
occurs, but at least every 12 months and be revised in-between if there are reasonablegrounds to believe that new risks of adverse impact could have arisen. A significant change
should be understood as a change to the status quo of the company’s own operations,operations of its subsidiaries or business partners, the legal or business environment or any
other substantial shift from the situation of the company or its operating context. Examples
of a significant change could be cases when the company starts to operate in a new
economic sector or geographical area, starts producing new products or changes the way of
producing the existing products using technology with potentially higher adverse impact,
or changes its corporate structure via restructuring or via mergers or acquisitions.
Reasonable grounds to believe that there are new risks may arise in different ways,
including learning about the adverse impact from publicly available information, throughstakeholder engagement, or through notifications.

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Companies should retain documentation demonstrating their compliance with thisrequirement for at least five years. Such documentation should at least include, where
relevant, the identified impacts and in-depth assessments pursuant to Article 8, theprevention and/or corrective action plan pursuant to Articles 10(2), point (a), and 11(3),point (b), contractual provisions obtained or contracts concluded pursuant to
Articles 10(2), point (b), Article 10(4) and 11(3)(c), Article 11(5), verifications pursuant to
Articles 10(5) and 11(6), remediation measures, periodic assessments as part of thecompany’s monitoring obligation, as well as notifications and complaints. Financial
undertakings should carry out periodic assessment only of their own operations, those of
their subsidiaries and those of their upstream business partners.

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(62)

As is the case in the existing international standards set by the UN Guiding Principles andthe OECD framework, it forms part of the due diligence requirement to communicate
externally relevant information on due diligence policies, processes and activities
conducted to identify and address actual or potential adverse impacts, including thefindings and outcomes of those activities. Directive 2013/34/EU sets out relevant reporting
obligations for the companies covered by this Directive. In addition, Regulation(EU) 2019/2088 of the European Parliament and of the Council17 sets out further reporting
obligations on sustainability-related disclosures in the financial services sector, forfinancial undertakings. In order to avoid duplicating reporting obligations, this Directive
should therefore not introduce any new reporting obligations in addition to those underDirective 2013/34/EU for the companies covered by Directive 2013/34/EU as well as thereporting standards that should be developed under it. In order to comply with their
obligation of communicating as part of the due diligence under this Directive, companies
should publish on their website an annual statement in at least one of the official languagesof the Union, within a reasonable period of time, but no later than 12 months after thebalance sheet date of the financial year for which the statement is drawn up, unless thecompany is subject to the sustainability reporting requirements provided for in Directive
2013/34/EU. In cases where a company is not required to report in accordance with Article
19a or 29a of Directive 2013/34/EU, the statement should be published by the date of
publication of the annual financial statements.

17

Regulation (EU) 2019/2088 of the European Parliament and of the Councilof 27 November 2019 on sustainability-related disclosures in the financial services sector(OJ L 317, 9.12.2019, p. 1).

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The annual statement should be submitted to the designated collection body for the
purpose of making it accessible on the European single access point (ESAP) as establishedby Regulation (EU) 2023/2859 of the European Parliament and of the Council18. In orderto ensure uniform conditions for the implementation of the rules on accessibility of
information on the ESAP, implementing powers should be conferred on the Commission.
To enhance legal certainty, the Annex to Regulation (EU) 2023/2859 should be amended
by introducing the reference to this Directive.
(63)

The requirement on companies which are under the scope of this Directive and at the sametime are subject to reporting requirements under Articles 19a, 29a and 40a of Directive
2013/34/EU to report on their due diligence process as stipulated in Articles 19a, 29aand 40a of Directive 2013/34/EU should be understood as a requirement for companies to
describe how they carry out due diligence as provided for in this Directive.

18

Regulation (EU) 2023/2859 of the European Parliament and of the Councilof 13 December 2023 establishing a European single access point providing centralised
access to publicly available information of relevance to financial services, capital markets
and sustainability (OJ L, 2023/2859, 20.12.2023).

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(64)

It is not the objective of this Directive to require companies to publicly disclose intellectual
capital, intellectual property, know-how or the results of innovation that would qualify as
trade secrets, as defined in Directive (EU) 2016/943. Reporting requirements provided forin this Directive should therefore be without prejudice to Directive (EU) 2016/943. This
Directive should also apply without prejudice to Regulation (EU) No 596/2014 of theEuropean Parliament and of the Council19.

19

Regulation (EU) No 596/2014 of the European Parliament and of the Councilof 16 April 2014 on market abuse (market abuse regulation) and repealing Directive
2003/6/EC of the European Parliament and of the Council and Commission Directives
2003/124/EC, 2003/125/EC and 2004/72/EC (OJ L 173, 12.6.2014, p. 1).

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(65)

In order to conduct meaningful human rights and environmental due diligence, companies
should take appropriate measures to carry out effective engagement with stakeholders, forthe process of carrying out the due diligence actions. Without prejudice to Directive(EU) 2016/943, effective engagement should cover providing consulted stakeholders with
relevant and comprehensive information, as well as ongoing consultation that allows forgenuine interaction and dialogue at the appropriate level, such as project or site level, andwith appropriate periodicity. Meaningful engagement with consulted stakeholders shouldtake due account of barriers to engagement, ensure that stakeholders are free from
retaliation and retribution, including by maintaining confidentiality and anonymity, andparticular attention should be paid to the needs of vulnerable stakeholders, and tooverlapping vulnerabilities and intersecting factors, including by taking into accountpotentially affected groupings or communities, for example those protected under the UN
Declaration on the Rights of Indigenous People and those covered in the UN Declarationon Human Rights Defenders. There are situations in which it will not be possible to carryout meaningful engagement with consulted stakeholders, or where engagement withadditional expert perspectives is useful to allow the company to comply fully with therequirements of this Directive. In such cases, companies should additionally consult withexperts, such as civil society organisations or natural or legal persons defending humanrights or the environment in order to gain credible insights into actual or potential adverse
impacts.

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The consultation of employees and their representatives should be conducted in accordancewith relevant Union law, and where applicable, national law and collective agreements,
and without prejudice to their applicable rights to information, consultation andparticipation, and in particular those covered by relevant Union legislation in the field of
employment and social rights, including Council Directive 2001/86/EC20 and Directives
2002/14/EC21 and 2009/38/EC22 of the European Parliament and of the Council. For the
purposes of this Directive, employees should be understood as including temporary agency
workers, and other workers in non-standard forms of employment provided that they fulfil
the criteria for determining the status of worker established by the CJEU. When carryingout consultations, it should be possible for companies to rely on industry initiatives to theextent that they are appropriate to support effective engagement. The use of industry or
multi-stakeholder initiatives is not in itself sufficient to fulfil the obligation to consult
workers and their representatives.

20
21

22

Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European
company with regard to the involvement of employees (OJ L 294, 10.11.2001, p. 22).
Directive 2002/14/EC of the European Parliament and of the Council of 11 March 2002
establishing a general framework for informing and consulting employees in the European
Community - Joint declaration of the European Parliament, the Council and the Commission
on employee representation (OJ L 80, 23.3.2002, p. 29).
Directive 2009/38/EC of the European Parliament and of the Council of 6 May 2009 on theestablishment of a European Works Council or a procedure in Community-scale
undertakings and Community-scale groups of undertakings for the purposes of informing
and consulting employees (OJ L 122, 16.5.2009, p. 28).

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(66)

In order to give companies tools to help them comply with their due diligence requirements
through their chains of activities, the Commission, in consultation with Member States andstakeholders, should provide guidance on model contractual clauses, which can be usedvoluntarily by companies as a tool to help fulfil their obligations in Articles 10 and 11. The
guidance should aim to facilitate a clear allocation of tasks between contracting parties andongoing cooperation, in a way that avoids the transfer of the obligations provided for inthis Directive to a business partner and automatically rendering the contract void in case ofa breach. The guidance should reflect the principle that the mere use of contractual
assurances cannot, on its own, satisfy the due diligence standards provided for in thisDirective.

(67)

In order to provide support and practical tools to companies or to Member State authorities
on how companies should fulfil their due diligence obligations in a practical manner, andto provide support to stakeholders, the Commission, using relevant international guidelines
and standards as a reference, and in consultation with Member States and stakeholders, theEuropean Union Agency for Fundamental Rights, the European Environment Agency, theEuropean Labour Authority, and where appropriate with international organisations andother bodies having expertise in due diligence, should issue guidelines, including general
guidelines and guidelines for specific sectors or specific adverse impacts and the interplay
between this Directive and other Union legislative acts pursuing the same objectives andproviding for more extensive or more specific obligations.

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(68)

Digital tools and technologies, such as those used for tracking, surveillance or tracing raw
materials, goods and products throughout value chains, for instance satellites, drones,
radars, or platform-based solutions, could support and reduce the cost of data gathering forvalue chain management, including the identification and assessment of adverse impacts,
prevention and mitigation, and monitoring of the effectiveness of due diligence measures.
In order to help companies fulfil their due diligence obligations along their value chain, theuse of such tools and technologies should be encouraged and promoted. To that end, theCommission should issue guidelines with useful information and references to appropriate
resources. When using digital tools and technologies, companies should take into accountand appropriately address possible risks associated therewith, and put in place mechanisms
to verify the appropriateness of the information obtained.

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(69)

Although SMEs are not included in the scope of this Directive, they could be impacted byits provisions as contractors or subcontractors to the companies which are in the scope. The
aim is nevertheless to mitigate financial or administrative burden on SMEs, many of which
are already struggling in the context of the global economic and sanitary crisis. In order tosupport SMEs, Member States, with the support of the Commission, should set up andoperate, either individually or jointly, dedicated user-friendly websites, portals or
platforms, to provide information and support to companies, and Member States could alsofinancially support SMEs and help them build capacity. Such support could also be madeaccessible and, where necessary, adapted and extended to upstream economic operators inthird countries. Companies whose business partners are SMEs are also encouraged tosupport them to comply with due diligence measures and use fair, reasonable, nondiscriminatory and proportionate requirements vis-a-vis the SMEs.

(70)

The Commission should establish a single helpdesk on corporate sustainability due
diligence. That single helpdesk should be able to collaborate with and request informationfrom relevant national authorities in each Member State, including national helpdesks
where they exist, for instance to assist in tailoring the information and guidance to national
contexts and its dissemination, without prejudice to the allocation of functions and powers
among the authorities within national systems. The single helpdesk and relevant national
authorities should also liaise with each other to ensure cross-border cooperation.

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(71)

In order to complement Member State support to companies, including SMEs, in theirimplementation of due diligence obligations, the Commission may build on existing Union
tools, projects and other actions helping with the due diligence implementation in theUnion and in third countries. It may set up new support measures that provide help tocompanies, including SMEs, on due diligence requirements, including an observatory forchain of activities transparency and the facilitation of industry or multi-stakeholder
initiatives.

(72)

The Commission could complement Member States’ support measures building on existing
Union action to support upstream economic operators to build the capacity to effectively
prevent and mitigate adverse human rights and environmental impacts of their operations
and business relationships, paying specific attention to the challenges faced bysmallholders. The Union and its Member States within their respective competences areencouraged to use their neighbourhood, development and international cooperation
instruments, including trade agreements, to support third-country governments andupstream economic operators in third countries to address adverse human rights andenvironmental impacts of their operations and upstream business relationships. This could
include working with partner country governments, the local private sector andstakeholders on addressing the root causes of adverse human rights and environmental
impacts.

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(73)

This Directive is an important legislative tool to ensure corporate transition to a sustainableeconomy, including to reduce the existential harms and costs of climate change, to ensurealignment with ‘global net zero’ by 2050, to avoid any misleading claims regarding suchalignment and to stop greenwashing, disinformation and fossil fuels expansion worldwide
in order to achieve international and European climate objectives. In order to ensure that
this Directive effectively contributes to combating climate change, companies should adopt
and put into effect a transition plan for climate change mitigation which aims to ensure,through best efforts, that the business model and strategy of the company are compatible
with the transition to a sustainable economy and with the limiting of global warming
to 1.5 °C in line with the Paris Agreement and the objective of achieving climate neutrality
as established in Regulation (EU) 2021/1119, including its intermediate and 2050 climate
neutrality targets. The plan should address, where relevant, the exposure of the company tocoal-, oil- and gas- related activities. Such requirements should be understood as an
obligation of means and not of results. Being an obligation of means, due account should
be given to the progress companies make, and the complexity and evolving nature ofclimate transitioning. While companies should strive to achieve the greenhouse gas
emission reduction targets contained in their plans, specific circumstances may lead tocompanies not being able to reach these targets, where this is no longer reasonable. The
plan should include time-bound targets related to climate change for 2030 and in five-year
steps up to 2050 based on conclusive scientific evidence and, where appropriate, absoluteemission reduction targets for greenhouse gas for scope 1, scope 2 and scope 3 greenhousegas emissions.

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The plan should develop implementing actions to achieve the company’s climate targets
and be based on conclusive scientific evidence, meaning evidence with independentscientific validation that is consistent with the limiting of global warming to 1,5 °C as
defined by the Intergovernmental Panel on Climate Change (IPCC) and taking into accountthe recommendations of the European Scientific Advisory Board on Climate Change.
Supervisory authorities should be required to at least supervise the adoption and design ofthe plan and the updates thereof, in accordance with the requirements laid down in thisDirective. Since the content of the transition plan for climate change mitigation should bein line with the reporting requirements under Directive 2013/34/EU as regards corporate
sustainability reporting, companies that report such a plan under Directive 2013/34/EU
should be deemed to have complied with the specific obligation to adopt a plan under thisDirective. While the adoption obligation will be considered to have been met, companies
should still abide by their obligation to put that transition plan for climate change
mitigation into effect and to update it every 12 months to assess progress made towards its
targets.

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(74)

In order to allow for the effective oversight of and, where necessary, enforcement of thisDirective in relation to third-country companies, those companies should designate asufficiently mandated authorised representative in the Union and provide information
relating to their authorised representatives. It should be possible for the authorised
representative to also function as a point of contact, provided the relevant requirements ofthis Directive are complied with. If the third-country company does not designate theauthorised representative, all Member States in which the company operates should becompetent to enforce the fulfilment of this obligation, especially to designate a natural or
legal person in one of the Member States where it operates, in accordance with theenforcement framework set in national law. The Member States initiating suchenforcement should inform supervisory authorities of other Member States through aEuropean Network of Supervisory Authorities so that other Member States do not enforce
them.

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(75)

In order to ensure the monitoring of the correct implementation of companies’ due
diligence obligations and ensure the proper enforcement of this Directive, Member Statesshould designate one or more national supervisory authorities. These supervisory
authorities should be of a public nature, independent from the companies falling within thescope of this Directive or other market interests, and free from conflicts of interest andexternal influence, whether direct or indirect. In order to exercise their powers impartially,
these supervisory authorities should neither seek nor take instructions from anybody. In
accordance with national law, Member States should ensure that each supervisory authority
is provided with the human and financial resources necessary for the effective performanceof its tasks and exercise of its powers. They should be entitled to carry out investigations,on their own initiative or based on substantiated concerns raised under this Directive.
Those investigations could include, where appropriate, on-site inspections and the hearingof relevant stakeholders. Where competent authorities under sectoral legislation exist,
Member States could identify those as responsible for the application of this Directive intheir areas of competence. Supervisory authorities should publish and make available on a
website an annual report on their past activities, including the most serious breaches
identified. Member States should establish an accessible mechanism for receiving
substantiated concerns, free of charge or with a fee limited to covering administrative costs
only, and ensure that practical information is made available to the public on how to
exercise this right.

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(76)

In order to ensure effective enforcement of the provisions of national law transposing thisDirective, Member States should provide for dissuasive, proportionate and effective
penalties for infringements of those measures. In order for such penalties regime to beeffective, penalties to be imposed by the national supervisory authorities should include
pecuniary penalties and a public statement indicating the company responsible and thenature of the infringement if the company fails to comply with a decision imposing apecuniary penalty within the applicable timeframe. That penalties regime is without
prejudice to the power to withdraw and to prohibit the placing, making available on themarket and export of products under other Union legislative acts providing for more
extensive or more specific due diligence obligations, such as Regulation (EU) 2023/1115.
Member States should ensure that the pecuniary penalty is commensurate to the company’s
worldwide net turnover when being imposed. However, that should not oblige the Member
States to base the pecuniary penalty solely on the net turnover of the company in everycase. The Member States should decide in accordance with national law whether the
penalties should be imposed directly by supervisory authorities, in collaboration with otherauthorities or by application to the competent judicial authorities. In order to ensure public
oversight of the application of the rules set out in this Directive, the decisions of thesupervisory authorities imposing penalties on companies due to a failure to comply withthe provisions of national law transposing this Directive should be published, sent to theEuropean Network of Supervisory Authorities and remain publicly available for at least
three years. The published decision should not contain any personal data in accordancewith Regulation (EU) 2016/679 of the European Parliament and of the Council23. The
publication of the company’s name should be allowed even if it contains the name of anatural person.

23

Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016
on the protection of natural persons with regard to the processing of personal data and on thefree movement of such data, and repealing Directive 95/46/EC (General Data Protection
Regulation) (OJ L 119, 4.5.2016, p. 1).

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(77)

In order to prevent an artificial reduction of potential administrative fines, Member Statesshould ensure that, when imposing a pecuniary penalty on a company belonging to agroup, such penalties are calculated taking into account the consolidated turnover
calculated at the level of the ultimate parent company.

(78)

In order to ensure consistent application and enforcement of provisions of national law
adopted pursuant to this Directive, national supervisory authorities should cooperate andcoordinate their action. For that purpose a European Network of Supervisory Authorities
should be set up by the Commission and the supervisory authorities should assist eachother in performing their tasks and provide mutual assistance.

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(79)

In order to ensure that victims of adverse impacts have effective access to justice andcompensation, Member States should be required to lay down rules governing the civil
liability of companies for damage caused to a natural or legal person, on condition that thecompany intentionally or negligently failed to prevent or mitigate potential adverse
impacts or to bring actual impacts to an end or minimise their extent and, as a result ofsuch a failure, damage was caused to the natural or legal person. Damage caused to aperson’s protected legal interests should be understood in accordance with national law, forexample death, physical or psychological injury, deprivation of personal liberty, loss ofhuman dignity, or damage to a person’s property. The condition that the damage has to becaused to a person as a result of the company’s failure to comply with the obligation toaddress the adverse impact, when the right, prohibition or obligation listed in the Annex tothis Directive, the abuse or violation of which is resulting in the adverse impact that shouldhave been addressed, is aimed to protect the natural or legal person to whom the damage iscaused, should be understood as meaning that derivative damage (caused indirectly toother persons who are not the victims of adverse impacts and who are not protected by therights, prohibitions or obligations listed in the Annex to this Directive) is not covered. For
example, if an employee of a company suffered damage due to the company’s violation ofsafety standards in the workplace, the landlord of such an employee should not be allowed
to bring a claim against the company for an economic loss caused by the employee notbeing able to pay the rent. Causality within the meaning of civil liability is not regulated bythis Directive, with the exception that the companies should not be held liable under thisDirective if the damage is caused only by the business partners in the chains of activities of
the companies (so-called ‘being directly linked to’ as referred to in the internationalframework). Victims should have the right to full compensation for the damage caused inaccordance with national law and in line with such common principle. Deterrence throughdamages (punitive damages) or any other form of overcompensation should be prohibited.

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(80)

As the adverse impacts should be prioritised according to their severity and likelihood andaddressed gradually, if it is not possible to address at the same time to the full extent all
adverse impacts it has identified, a company should not be liable under this Directive forany damage stemming from any less significant adverse impacts that were not yet
addressed. The correctness of the company’s prioritisation of adverse impacts should,
however, be assessed when determining whether the conditions for the company’s liability
were met as part of the assessment of whether the company breached its obligation toadequately address the adverse impacts it identified.

(81)

The liability regime does not regulate who should prove the fulfilment of the conditions forliability under the circumstances of the case, or upon which conditions civil proceedings
can be initiated, therefore those questions are left to national law.

(82)

In order to ensure the right to an effective remedy, as enshrined in Article 2(3) of theInternational Covenant on Civil and Political Rights, Article 8 of the Universal Declarationof Human Rights and Article 9(3) of the Convention on Access to Information, Public
Participation in Decision-making and Access to Justice in Environmental Matters (Aarhus
Convention), this Directive addresses certain practical and procedural barriers to justice forvictims of adverse impacts, including difficulties in accessing evidence, the limited
duration of limitation periods, the absence of adequate mechanisms for representative
actions, and the prohibitive costs of civil liability proceedings.

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(83)

When a claimant presents a reasoned justification containing reasonably available facts andevidence sufficient to support the plausibility of its claim for damages and indicates that
additional evidence lies in the control of the company, Member States should ensure thatcourts can order that such evidence be disclosed by the company in accordance withnational procedural law, while limiting such disclosure to that which is necessary andproportionate. For that purpose, national courts should consider the extent to which theclaim or defence is supported by available facts and evidence justifying the disclosure
request; the scope and cost of disclosure as well as the legitimate interests of all parties
concerned, including preventing non-specific searches for information which is unlikely to
be of relevance for the parties in the procedure. Where such evidence contains confidential
information, national courts should be able to order its disclosure only where they consider
it relevant to the action for damages, and should put in place effective measures to protect
such information.

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(84)

Member States should provide for the reasonable conditions under which any alleged
injured party should be able to authorise a trade union, a non-governmental human rights
or environmental organisation or other non-governmental organisation, and, in accordancewith national law, national human rights’ institutions, based in any Member State, to bringcivil liability actions to enforce victims’ rights, where such entities comply with therequirements laid down in national law, for instance, where they maintain a permanent
presence of their own and, in accordance with their statutes, are not engaged commerciallyand not only temporarily in the realisation of rights protected under this Directive or thecorresponding rights in national law. That could be achieved by provisions of national civil
procedure on authorisation to represent the victim in the context of a third-party
intervention, based on the explicit consent of the alleged injured party, and should not beinterpreted as requiring the Member States to extend the provisions of their national law on
representative actions as defined in Directive (EU) 2020/1828 of the European Parliamentand of the Council24.

(85)

Limitation periods for bringing civil liability claims for damages should be at least five
years and, in any case, not shorter than the limitation period laid down under general civil
liability national regimes. National rules on the beginning, duration, suspension orinterruption of limitation periods should not unduly hamper the bringing of actions fordamages and, in any case, should not be more restrictive than the rules on national generalcivil liability regimes.

24

Directive (EU) 2020/1828 of the European Parliament and of the Councilof 25 November 2020 on representative actions for the protection of the collective interestsof consumers and repealing Directive 2009/22/EC (OJ L 409, 4.12.2020, p. 1).

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(86)

Moreover, in order to ensure legal remedies, claimants should be able to seek injunctive
measures in the form of a definitive or provisional measure to cease infringements of theprovisions of national law adopted pursuant to this Directive by performing an action orceasing conduct.

(87)

As regards civil liability rules, the civil liability of a company for damages arising due toits failure to carry out adequate due diligence should be without prejudice to civil liabilityof its subsidiaries or the respective civil liability of direct and indirect business partners in
its chain of activities. Where the company caused the damage jointly with its subsidiary or
business partner, it should be jointly and severally liable with that subsidiary or business
partner. This should be in accordance with national law on the conditions of joint andseveral liability, and without prejudice to any Union or national law on joint and several
liability, and on rights of recourse for the full compensation paid by one jointly andseverally liable party.

(88)

The civil liability rules under this Directive should be without prejudice to Union or
national rules on civil liability related to adverse human rights impacts or to adverse
environmental impacts that provide for liability in situations not covered by or providing
for stricter liability than this Directive. A stricter liability regime should also be understoodas a civil liability regime that provides for liability also in cases where the application of
the liability rules under this Directive would not result in the liability of the company.

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(89)

As regards civil liability arising from adverse environmental impacts, persons who suffer
damage can claim compensation under this Directive even where such claims overlap withhuman rights claims.

(90)

In order to ensure that victims of human rights and environmental harm can bring an action
for damages and claim compensation for damage caused when the company intentionallyor negligently failed to comply with the due diligence obligations stemming from thisDirective, this Directive should require Member States to ensure that the provisions ofnational law transposing the civil liability regime provided for in this Directive are ofoverriding mandatory application in cases where the law applicable to such claims is not
the national law of a Member State, as could for instance be the case in accordance withinternational private law rules when the damage occurs in a third country. This means that
the Member States should also ensure that the requirements in respect of which natural or
legal persons can bring the claim, the statute of limitations and the disclosure of evidence
are of overriding mandatory application. When transposing the civil liability regime
provided for in this Directive and choosing the methods to achieve such results, Member
States should also be able to take into account all related national rules to the extent they
are necessary to ensure the protection of victims and crucial for safeguarding the Member
States’ public interests, such as its political, social or economic organisation.

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(91)

The civil liability regime under this Directive should be without prejudice to Directive
2004/35/EC of the European Parliament and of the Council25. This Directive should notprevent Member States from imposing further, more stringent obligations on companies orfrom otherwise taking further measures having the same objectives as Directive
2004/35/EC.

25

Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on
environmental liability with regard to the prevention and remedying of environmental
damage (OJ L 143, 30.4.2004, p. 56).

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(92)

Member States should ensure that compliance with the obligations resulting from theprovisions of national law transposing this Directive, or their voluntary implementation,
qualifies as an environmental and/or social aspect or element that contracting authorities
may, in accordance with Directives 2014/23/EU26, 2014/24/EU27 and 2014/25/EU28 of theEuropean Parliament and of the Council, take into account as part of the award criteria for
public and concession contracts or lay down in relation to the performance of suchcontracts. Contracting authorities and contracting entities may exclude or may be required
by Member States to exclude from participation in a procurement procedure, including a
concession award procedure, where applicable, any economic operator, where they candemonstrate by any appropriate means a violation of applicable obligations in the fields ofenvironmental, social and labour law, including those stemming from certain international
agreements ratified by all Member States and listed in those Directives, or that theeconomic operator is guilty of grave professional misconduct, which renders its integrity
questionable. To ensure consistency of Union legislation and support implementation, theCommission should consider whether it is relevant to update any of those directives, inparticular with regard to the requirements and measures Member States are to adopt toensure compliance with the sustainability and due diligence obligations throughout
procurement and concession processes.

26
27
28

Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014
on the award of concession contracts (OJ L 94, 28.3.2014, p. 1).
Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014
on public procurement and repealing Directive 2004/18/EC (OJ L 94, 28.3.2014, p. 65).
Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014
on procurement by entities operating in the water, energy, transport and postal services
sectors and repealing Directive 2004/17/EC (OJ L 94, 28.3.2014, p. 243).

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(93)

Persons who work for companies subject to due diligence obligations provided for in thisDirective or who are in contact with such companies in the context of their work-related
activities can play a key role in exposing breaches of the provisions of national law
transposing this Directive. They can thus contribute to preventing and deterring suchbreaches and strengthening the enforcement of this Directive. Directive (EU) 2019/1937
should therefore apply to the reporting of all breaches of the provisions of national law
transposing this Directive and to the protection of persons reporting such breaches.

(94)

To enhance legal certainty, the applicability, pursuant to this Directive, of Directive(EU) 2019/1937 to the reporting of breaches of the provisions of national law transposing
this Directive and to the protection of persons reporting such breaches, should be reflected
in Directive (EU) 2019/1937. The Annex to Directive (EU) 2019/1937 should therefore beamended accordingly. It is for the Member States to ensure that that amendment isreflected in their transposition measures adopted in accordance with Directive(EU) 2019/1937.

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(95)

In order to specify the information that companies not subject to reporting requirements
under the provisions on corporate sustainability reporting under Directive 2013/34/EU
should be communicating on the matters covered by this Directive, the power to adopt acts
in accordance with Article 290 TFEU should be delegated to the Commission in respect ofdetermining additional rules concerning the content and criteria of such reporting,specifying information on the description of due diligence, actual and potential impacts
and actions taken on those. It is of particular importance that the Commission carry out
appropriate consultations during its preparatory work, including at expert level, and thatthose consultations be conducted in accordance with the principles laid down in theInterinstitutional Agreement of 13 April 2016 on Better Law-Making29. In particular, toensure equal participation in the preparation of delegated acts, the European Parliament
and the Council receive all documents at the same time as Member States’ experts, andtheir experts systematically have access to meetings of Commission expert groups dealing
with the preparation of delegated acts.

(96)This Directive should be applied in compliance with Union data protection law and theright to the protection of privacy and personal data as enshrined in Articles 7 and 8 of theCharter. Any processing of personal data under this Directive is to be undertaken inaccordance with Regulation (EU) 2016/679, including the requirements of purpose
limitation, data minimisation and storage limitation.

29

OJ L 123, 12.5.2016, p. 1.

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(97)

The European Data Protection Supervisor was consulted in accordance with Article 28(2)of Regulation (EU) 2018/1725 of the European Parliament and of the Council30 anddelivered an opinion on 17 March 2022.

30

Regulation (EU) 2018/1725 of the European Parliament and of the Councilof 23 October 2018 on the protection of natural persons with regard to the processing of
personal data by the Union institutions, bodies, offices and agencies and on the freemovement of such data, and repealing Regulation (EC) No 45/2001 and Decision
No 1247/2002/EC (OJ L 295, 21.11.2018, p. 39).

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(98)

The Commission should periodically report to the European Parliament and to the Council
on the implementation of this Directive and its effectiveness in reaching its objectives, inparticular in addressing adverse impacts. The first report should cover, among others, theimpacts of this Directive on SMEs, the scope of application of this Directive in terms ofthe companies covered, whether the definition of the term ‘chain of activities’ needs to berevised, whether the Annex to this Directive needs to be modified and the list of relevantinternational conventions referred to in this Directive should be amended, in particular in
the light of international developments, whether the rules on combatting climate change
and the powers of supervisory authorities related to those rules need to be revised, theeffectiveness of the enforcement mechanisms put in place at national level, of the penalties
and the rules on civil liability, and whether changes to the level of harmonisation of thisDirective are required to ensure a level-playing field for companies in the internal market.
At the earliest possible opportunity after the date of entry into force of this Directive, but
no later than two years after that date, the Commission should also submit a report to theEuropean Parliament and to the Council on the necessity of laying down additionalsustainability due diligence requirements tailored to regulated financial undertakings withrespect to the provision of financial services and investment activities, and the options forsuch due diligence requirements as well as their impacts, in line with the objectives of thisDirective, while taking into account other Union legislative acts that apply to regulated
financial undertakings. That report should be accompanied, if appropriate, by a legislative
proposal.

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(99)

Since the objectives of this Directive, namely better exploiting the potential of the single
market to contribute to the transition to a sustainable economy and contributing tosustainable development through the prevention and mitigation of actual or potential
human rights and environmental adverse impacts in companies’ chains of activities, cannot
be sufficiently achieved by the Member States, but can rather, by reason of the scale andeffects of the action, in particular, the fact that the problems and the causes of those
problems addressed by this Directive are of a transnational dimension, as many companies
are operating Union wide or globally and their value chains extend to other Member States
and to third countries, and the fact that individual Member States’ measures risk being
ineffective and leading to fragmentation of the internal market, be better achieved at Unionlevel, the Union may adopt measures, in accordance with the principle of subsidiarity as set
out in Article 5 TEU. In accordance with the principle of proportionality, as set out in that
Article, this Directive does not go beyond what is necessary in order to achieve thoseobjectives,

HAVE ADOPTED THIS DIRECTIVE:

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Article 1
Subject matter
1.

This Directive lays down rules on:(a)obligations for companies regarding actual and potential human rights adverse
impacts and environmental adverse impacts, with respect to their own operations, theoperations of their subsidiaries, and the operations carried out by their business
partners in the chains of activities of those companies;(b)liability for violations of the obligations as referred to in point (a); and(c)the obligation for companies to adopt and put into effect a transition plan for climatechange mitigation which aims to ensure, through best efforts, compatibility of thebusiness model and of the strategy of the company with the transition to a sustainableeconomy and with the limiting of global warming to 1,5 °C in line with the Paris
Agreement.

2.

This Directive shall not constitute grounds for reducing the level of protection of human,
employment and social rights, or of protection of the environment or of protection of theclimate provided for by the national law of the Member States or by the collective
agreements applicable at the time of the adoption of this Directive.

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3.

This Directive shall be without prejudice to obligations in the areas of human, employment
and social rights, and of protection of the environment and climate change under other
Union legislative acts. If a provision of this Directive conflicts with a provision of another
Union legislative act pursuing the same objectives and providing for more extensive or
more specific obligations, the provision of that other Union legislative act shall prevail tothe extent of the conflict and shall apply as regards those specific obligations.

Article 2
Scope
1.

This Directive shall apply to companies which are formed in accordance with thelegislation of a Member State and which fulfil one of the following conditions:(a)the company had more than 1 000 employees on average and had a net worldwide
turnover of more than EUR 450 000 000 in the last financial year for which annual
financial statements have been or should have been adopted;(b)

the company did not reach the thresholds as referred to in point (a) but is the ultimate
parent company of a group that reached those thresholds in the last financial year forwhich consolidated annual financial statements have been or should have been
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(c)

the company entered into or is the ultimate parent company of a group that enteredinto franchising or licensing agreements in the Union in return for royalties withindependent third-party companies, where those agreements ensure a common
identity, a common business concept and the application of uniform businessmethods, and where those royalties amounted to more than EUR 22 500 000 in thelast financial year for which annual financial statements have been or should havebeen adopted, and provided that the company had or is the ultimate parent company
of a group that had a net worldwide turnover of more than EUR 80 000 000 in thelast financial year for which annual financial statements have been or should havebeen adopted.

2.

This Directive shall also apply to companies which are formed in accordance with thelegislation of a third country and fulfil one of the following conditions:(a)the company generated a net turnover of more than EUR 450 000 000 in the Union in
the financial year preceding the last financial year;(b)

the company did not reach the threshold as referred to in point (a) but is the ultimate
parent company of a group that on a consolidated basis reached that threshold in thefinancial year preceding the last financial year;

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(c)

the company entered into or is the ultimate parent company of a group that enteredinto franchising or licensing agreements in the Union in return for royalties withindependent third-party companies, where those agreements ensure a common
identity, a common business concept and the application of uniform businessmethods, and where those royalties amounted to more than EUR 22 500 000 in theUnion in the financial year preceding the last financial year; and provided that thecompany generated, or is the ultimate parent company of a group that generated, a
net turnover of more than EUR 80 000 000 in the Union in the financial year
preceding the last financial year.

3.

Where the ultimate parent company has as its main activity the holding of shares inoperational subsidiaries and does not engage in taking management, operational or
financial decisions affecting the group or one or more of its subsidiaries, it may be
exempted from carrying out the obligations under this Directive. That exemption is subject
to the condition that one of the ultimate parent company’s subsidiaries established in theUnion is designated to fulfil the obligations set out in Articles 6 to 16 and Article 22 onbehalf of the ultimate parent company, including the obligations of the ultimate parent
company with respect to the activities of its subsidiaries. In such a case, the designatedsubsidiary is given all the necessary means and legal authority to fulfil those obligations inan effective manner, in particular to ensure that the designated subsidiary obtains from thecompanies of the group the relevant information and documents to fulfil the obligations of
the ultimate parent company under this Directive.

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The ultimate parent company shall apply for the exemption referred to in thefirst subparagraph of this paragraph to the competent supervisory authority, in accordancewith Article 24, to assess whether the conditions referred to in the first subparagraph of thisparagraph are met. Where the conditions are met, the competent supervisory authority shall
grant the exemption. Where applicable, such authority shall duly inform the competentsupervisory authority of the Member State where the designated subsidiary is establishedof the application and then of its decision.
The ultimate parent company shall remain jointly liable with the designated subsidiary fora failure of the latter to comply with its obligations in accordance with the firstsubparagraph of this paragraph.
4.

For the purposes of paragraph 1, the number of part-time employees shall be calculated ona full-time equivalent basis. Temporary agency workers and other workers in non-standard
forms of employment, provided that they fulfil the criteria for determining the status ofworker as established by the Court of Justice of the European Union, shall be included in
the calculation of the number of employees in the same way as if they were workers
employed directly for the same period of time by the company.

5.

Where a company meets the conditions laid down in paragraph 1 or 2, this Directive shall
only apply if those conditions are met in two consecutive financial years. This Directive
shall no longer apply to a company referred to in paragraph 1 or 2 where the conditions
laid down in paragraph 1 or 2 cease to be met for each of the last two relevant financial
years.

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6.

As regards the companies referred to in paragraph 1, the Member State competent toregulate matters covered by this Directive shall be the Member State in which the company
has its registered office.

7.

As regards a company as referred to in paragraph 2, the Member State competent toregulate matters covered by this Directive shall be the Member State in which thatcompany has a branch. If a company does not have a branch in any Member State, or has
branches located in different Member States, the Member State competent to regulatematters covered by this Directive shall be that in which that company generated the highest
net turnover in the Union in the financial year preceding the last financial year.

8.

This Directive shall not apply to AIFs, as defined in Article 4(1), point (a), of Directive
2011/61/EU of the European Parliament and of the Council31 or to undertakings forcollective investment in transferable securities (UCITS) within the meaning of Article 1(2)of Directive 2009/65/EC of the European Parliament and of the Council32.

31

32

Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on
Alternative Investment Fund Managers and amending Directives 2003/41/EC and2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174,
1.7.2011, p. 1).
Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on thecoordination of laws, regulations and administrative provisions relating to undertakings forcollective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).

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Article 3
Definitions
1.

For the purpose of this Directive, the following definitions shall apply:(a)‘company’ means any of the following:(i)a legal person constituted as one of the legal forms listed in Annexes I and II to
Directive 2013/34/EU;(ii)

a legal person constituted in accordance with the law of a third country in aform comparable to those listed in Annexes I and II to Directive 2013/34/EU;(iii) a regulated financial undertaking, regardless of its legal form, which is:–a credit institution, as defined in Article 4(1), point (1), of Regulation(EU) No 575/2013 the European Parliament and of the Council33;–

an investment firm, as defined in Article 4(1), point (1), of Directive
2014/65/EU the European Parliament and of the Council34;

33

34

Regulation (EU) No 575/2013 of the European Parliament and of the Councilof 26 June 2013 on prudential requirements for credit institutions and investment firms andamending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on
markets in financial instruments and amending Directive 2002/92/EC and Directive
2011/61/EU (OJ L 173, 12.6.2014, p. 349).

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–

an alternative investment fund manager (AIFM), as defined in
Article 4(1), point (b), of Directive 2011/61/EU, including a manager ofEuropean venture capital funds (EuVECA), as referred to in Regulation(EU) No 345/2013 of the European Parliament and of the Council35, amanager of European social entrepreneurship funds (EuSEF), as referred
to in Regulation (EU) No 346/2013 of the European Parliament and of
the Council36, and a manager of European long-term investment funds(ELTIF), as referred to in Regulation (EU) 2015/760 of the European
Parliament and of the Council37;–

a management company, as defined in Article 2(1), point (b), of
Directive 2009/65/EC;–

an insurance undertaking, as defined in Article 13, point (1), of Directive
2009/138/EC of the European Parliament and of the Council38;–

a reinsurance undertaking, as defined in Article 13, point (4), of Directive
2009/138/EC;

35
36
37
38

Regulation (EU) No 345/2013 of the European Parliament and of the Councilof 17 April 2013 on European venture capital funds (OJ L 115, 25.4.2013, p. 1).
Regulation (EU) No 346/2013 of the European Parliament and of the Councilof 17 April 2013 on European social entrepreneurship funds (OJ L 115, 25.4.2013, p. 18).
Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015
on European long-term investment funds (OJ L 123, 19.5.2015, p. 98).
Directive 2009/138/EC of the European Parliament and of the Councilof 25 November 2009 on the taking-up and pursuit of the business of Insurance andReinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).

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–

an institution for occupational retirement provision within the scope of
Directive (EU) 2016/2341 in accordance with Article 2 thereof, unless a
Member State has chosen not to apply that Directive in whole or in partto those institutions for occupational retirement provision in accordancewith Article 5 of that Directive;–a central counterparty, as defined in Article 2, point (1), of Regulation(EU) No 648/2012 of the European Parliament and of the Council39;–

a central securities depository, as defined in Article 2(1), point (1), ofRegulation (EU) No 909/2014 of the European Parliament and of theCouncil40;–

an insurance or reinsurance special purpose vehicle authorised inaccordance with Article 211 of Directive 2009/138/EC;–

a securitisation special purpose entity, as defined in Article 2, point (2),of Regulation (EU) 2017/2402 of the European Parliament and of theCouncil41;

39

40

41

Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012
on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012,p. 1).
Regulation (EU) No 909/2014 of the European Parliament and of the Councilof 23 July 2014 on improving securities settlement in the European Union and on central
securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation(EU) No 236/2012 (OJ L 257, 28.8.2014, p. 1).
Regulation (EU) 2017/2402 of the European Parliament and of the Councilof 12 December 2017 laying down a general framework for securitisation and creating a
specific framework for simple, transparent and standardised securitisation, and amending
Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009
and (EU) No 648/2012 (OJ L 347, 28.12.2017, p. 35).

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–

a financial holding company, as defined in Article 4(1), point (20), ofRegulation (EU) No 575/2013, an insurance holding company, as definedin Article 212(1), point (f), of Directive 2009/138/EC, or a mixed
financial holding company, as defined in Article 212(1), point (h), of
Directive 2009/138/EC, which is part of an insurance group that is
subject to supervision at the level of the group pursuant to Article 213 ofthat Directive and which is not exempted from group supervision
pursuant to Article 214(2) of Directive 2009/138/EC;–

a payment institution, as referred to in Article 1(1), point (d), of Directive(EU) 2015/2366 of the European Parliament and of the Council42;–

an electronic money institution, as defined in Article 2, point (1), of
Directive 2009/110/EC of the European Parliament and of the Council43;

42

43

Directive (EU) 2015/2366 of the European Parliament and of the Councilof 25 November 2015 on payment services in the internal market, amending Directives
2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, andrepealing Directive 2007/64/EC (OJ L 337, 23.12.2015, p. 35).
Directive 2009/110/EC of the European Parliament and of the Councilof 16 September 2009 on the taking up, pursuit and prudential supervision of the business ofelectronic money institutions amending Directives 2005/60/EC and 2006/48/EC andrepealing Directive 2000/46/EC (OJ L 267, 10.10.2009, p. 7).

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–

a crowdfunding service provider, as defined in Article 2(1), point (e), ofRegulation (EU) 2020/1503 of the European Parliament and of theCouncil44;–

a crypto-asset service provider, as defined in Article 3(1), point (15), ofRegulation (EU) 2023/1114 of the European Parliament and of theCouncil45, where performing one or more crypto-asset services, as
defined in Article 3(1), point (16), of that Regulation;(b)‘adverse environmental impact’ means an adverse impact on the environment
resulting from the breach of the prohibitions and obligations listed in Part I,
Section 1, points 15 and 16, and Part II of the Annex to this Directive, taking into
account national legislation linked to the provisions of the instruments listed therein;(c)‘adverse human rights impact’ means an impact on persons resulting from:(i)an abuse of one of the human rights listed in Part I, Section 1, of the Annex tothis Directive, as those human rights are enshrined in the international
instruments listed in Part I, Section 2, of the Annex to this Directive;

44

45

Regulation (EU) 2020/1503 of the European Parliament and of the Councilof 7 October 2020 on European crowdfunding service providers for business, and amending
Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (OJ L 347, 20.10.2020, p. 1).
Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023
on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and(EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (OJ L 150, 9.6.2023,
p. 40).

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(ii)

an abuse of a human right not listed in Part I, Section 1, of the Annex to thisDirective, but enshrined in the human rights instruments listed in Part I,
Section 2, of the Annex to this Directive, provided that:–the human right can be abused by a company or legal entity;–

the human right abuse directly impairs a legal interest protected in thehuman rights instruments listed in Part I, Section 2, of the Annex to thisDirective; and–the company could have reasonably foreseen the risk that such humanright may be affected, taking into account the circumstances of thespecific case, including the nature and extent of the company’s business
operations and its chain of activities, the characteristics of the economic
sector and the geographical and operational context;(d)‘adverse impact’ means an adverse environmental impact or adverse human rights
impact;(e)‘subsidiary’ means a legal person, as defined in Article 2, point (10), of Directive
2013/34/EU, and a legal person through which the activity of a controlled
undertaking, as defined in Article 2(1), point (f), of Directive 2004/109/EC of theEuropean Parliament and of the Council46, is exercised;

46

Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004
on the harmonisation of transparency requirements in relation to information about issuers
whose securities are admitted to trading on a regulated market and amending Directive
2001/34/EC (OJ L 390, 31.12.2004, p. 38).

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(f)

‘business partner’ means an entity:(i)with which the company has a commercial agreement related to the operations,products or services of the company or to which the company provides services
pursuant to point (g) (‘direct business partner’); or(ii)

which is not a direct business partner but which performs business operations
related to the operations, products or services of the company (‘indirectbusiness partner’);(g)‘chain of activities’ means:(i)activities of a company’s upstream business partners related to the productionof goods or the provision of services by that company, including the design,
extraction, sourcing, manufacture, transport, storage and supply of raw
materials, products or parts of products and the development of the product or
the service; and(ii)

activities of a company’s downstream business partners related to the
distribution, transport and storage of a product of that company, where thebusiness partners carry out those activities for the company or on behalf of thecompany, and excluding the distribution, transport and storage of a product thatis subject to export controls under Regulation (EU) 2021/821 or to the export
controls relating to weapons, munitions or war materials, once the export of the
product is authorised;

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(h)

‘independent third-party verification’ means verification of the compliance by acompany, or parts of its chain of activities, with human rights and environmental
requirements resulting from this Directive by an expert that is objective, completely
independent from the company, free from any conflicts of interest and from external
influence, has experience and competence in environmental or human rights matters,
according to the nature of the adverse impact, and is accountable for the quality andreliability of the verification;(i)‘SME’ means a micro, small or a medium-sized undertaking, irrespective of its legal
form, that is not part of a large group, as those terms are defined according to
Article 3(1), (2), (3) and (7) of Directive 2013/34/EU;(j)‘industry or multi-stakeholder initiative’ means a combination of voluntary due
diligence procedures, tools and mechanisms, developed and overseen by
governments, industry associations, interested organisations, including civil society
organisations, or groupings or combinations thereof, that companies may participate
in in order to support the implementation of due diligence obligations;(k)‘authorised representative’ means a natural or legal person resident or established in
the Union that has a mandate from a company within the meaning of point (a)(ii) toact on its behalf in relation to compliance with that company’s obligations pursuant
to this Directive;

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(l)

‘severe adverse impact’ means an adverse impact that is especially significant on
account of its nature, such as an impact that entails harm to human life, health orliberty, or on account of its scale, scope or irremediable character, taking into
account its gravity, including the number of individuals that are or may be affected,
the extent to which the environment is or may be damaged or otherwise affected, its
irreversibility and the limits on the ability to restore affected individuals or theenvironment to a situation equivalent to their situation prior to the impact within areasonable period of time;(m) ‘net turnover’ means:(i)the ‘net turnover’, as defined in Article 2, point (5), of Directive 2013/34/EU;
or

(ii)

where the company applies international accounting standards adopted on thebasis of Regulation (EC) No 1606/2002 of the European Parliament and of theCouncil47 or is a company within the meaning of point (a)(ii), the revenue as
defined by or within the meaning of the financial reporting framework on thebasis of which the financial statements of the company are prepared;

47

Regulation (EC) No 1606/2002 of the European Parliament and of the Councilof 19 July 2002 on the application of international accounting standards (OJ L 243,11.9.2002, p. 1).

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(n)

‘stakeholders’ means the company’s employees, the employees of its subsidiaries,
trade unions and workers’ representatives, consumers and other individuals,
groupings, communities or entities whose rights or interests are or could be affectedby the products, services and operations of the company, its subsidiaries and its
business partners, including the employees of the company’s business partners andtheir trade unions and workers’ representatives, national human rights andenvironmental institutions, civil society organisations whose purposes include theprotection of the environment, and the legitimate representatives of those individuals,
groupings, communities or entities;(o)‘appropriate measures’ means measures that are capable of achieving the objectivesof due diligence by effectively addressing adverse impacts in a mannercommensurate to the degree of severity and the likelihood of the adverse impact, andreasonably available to the company, taking into account the circumstances of thespecific case, including the nature and extent of the adverse impact and relevant risk
factors;(p)‘business relationship’ means the relationship of a company with a business partner;(q)‘parent company’ means a company that controls one or more subsidiaries;(r)‘ultimate parent company’ means a parent company that controls, either directly or
indirectly in accordance with the criteria set out in Article 22(1) to (5) of Directive
2013/34/EU, one or more subsidiaries and is not controlled by another company;

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(s)

‘group of companies’ or ‘group’ means a parent company and all its subsidiaries;(t)‘remediation’ means restoration of the affected person or persons, communities orenvironment to a situation equivalent or as close as possible to the situation theywould have been in had an actual adverse impact not occurred, in proportion to thecompany’s implication in the adverse impact, including by financial or non-financial
compensation provided by the company to a person or persons affected by the actual
adverse impact and, where applicable, reimbursement of the costs incurred by publicauthorities for any necessary remedial measures;(u)‘risk factors’ means facts, situations or circumstances that relate to the severity andlikelihood of an adverse impact, including company-level, business operations,geographic and contextual, product and service, and sectoral facts, situations or
circumstances;(v)‘severity of an adverse impact’ means the scale, scope or irremediable character of
the adverse impact, taking into account the gravity of an adverse impact, including
the number of individuals that are or may be affected, the extent to which theenvironment is or may be damaged or otherwise affected, its irreversibility and thelimits on the ability to restore affected individuals or the environment to a situationequivalent to their situation prior to the impact within a reasonable period of time.

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2.

The Commission is empowered to adopt delegated acts in accordance with Article 34 inorder to amend the Annex to this Directive by:(a)adding references to articles of international instruments ratified by all Member
States and falling within the scope of a specific right, prohibition or obligation
related to the protection of human rights, fundamental freedoms and of theenvironment listed in the Annex to this Directive;(b)modifying, where appropriate, the references to international instruments referred toin the Annex to this Directive, in view of the modification, supersession or
abrogation of such instruments;(c)in accordance with developments within the relevant international fora concerning
the instruments listed in Part 1, Section 2, of the Annex to this Directive:(i)replacing the references to the listed instruments with references to new
instruments covering the same subject matter and ratified by all Member
States; or(ii)adding references to new instruments covering the same subject matter as thelisted instruments and ratified by all Member States.

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Article 4
Level of harmonisation
1.

Without prejudice to Article 1(2) and (3), Member States shall not introduce, in theirnational law, provisions within the field covered by this Directive laying down humanrights and environmental due diligence obligations diverging from those laid down in
Article 8(1) and (2), Article 10(1) and Article 11(1).

2.

Notwithstanding paragraph 1, this Directive shall not preclude Member States fromintroducing, in their national law, more stringent provisions diverging from those laid
down in provisions other than Article 8(1) and (2), Article 10(1) and Article 11(1), or
provisions that are more specific in terms of the objective or the field covered, in order toachieve a different level of protection of human, employment and social rights, theenvironment or the climate.

Article 5
Due diligence
1.

Member States shall ensure that companies conduct risk-based human rights andenvironmental due diligence as laid down in Articles 7 to 16 (‘due diligence’) by carryingout the following actions:(a)integrating due diligence into their policies and risk management systems inaccordance with Article 7;

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(b)

identifying and assessing actual or potential adverse impacts in accordance with
Article 8 and, where necessary, prioritising actual and potential adverse impacts inaccordance with Article 9;(c)preventing and mitigating potential adverse impacts, and bringing actual adverse
impacts to an end and minimising their extent in accordance with Articles 10 and 11;(d)providing remediation for actual adverse impacts in accordance with Article 12;(e)carrying out meaningful engagement with stakeholders in accordance with
Article 13;(f)establishing and maintaining a notification mechanism and a complaints procedure inaccordance with Article 14;(g)monitoring the effectiveness of their due diligence policy and measures inaccordance with Article 15;(h)2.

publicly communicating on due diligence in accordance with Article 16.

Member States shall ensure that, for the purposes of due diligence, companies are entitledto share resources and information within their respective groups of companies and withother legal entities.

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3.

Member States shall ensure that a business partner is not obliged to disclose to a company
that is complying with the obligations resulting from this Directive information that is atrade secret, as defined in Article 2, point (1), of Directive (EU) 2016/943, without
prejudice to the disclosure of the identity of direct and indirect business partners, oressential information needed to identify actual or potential adverse impacts, where
necessary and duly justified for the company’s compliance with due diligence obligations.
This shall be without prejudice to the possibility for the business partners to protect theirtrade secrets through the mechanisms established in Directive (EU) 2016/943. Business
partners shall never be obliged to disclose classified information or other information thedisclosure of which would cause a risk to the essential interests of a state’s security.

4.

Member States shall require companies to retain documentation regarding the actions
carried out to fulfil their due diligence obligations for the purpose of demonstratingcompliance, including supporting evidence, for at least 5 years from the moment whensuch documentation was produced or obtained.
Where, upon expiry of the retention period provided for in the first subparagraph, there are
ongoing judicial or administrative proceedings under this Directive, the retention period
shall be extended until the conclusion of the matter.

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ENArticle 6
Due diligence support at a group level
1.

Member States shall ensure that parent companies falling under the scope of this Directive
are allowed to fulfil the obligations set out in Articles 7 to 11 and Article 22 on behalf ofcompanies which are subsidiaries of those parent companies and fall under the scope of
this Directive, if this ensures effective compliance. This is without prejudice to such
subsidiaries being subject to the exercise of the supervisory authority’s powers inaccordance with Article 25 and to their civil liability in accordance with Article 29.

2.

The fulfilment of the due diligence obligations set out in Articles 7 to 16 by a parent
company in accordance with paragraph 1 of this Article shall be subject to all of thefollowing conditions:(a)the subsidiary and parent company provide each other with all the necessary
information and cooperate to fulfil the obligations resulting from this Directive;(b)the subsidiary abides by its parent company’s due diligence policy accordingly
adapted to ensure that the obligations laid down in Article 7(1) are fulfilled withrespect to the subsidiary;(c)the subsidiary integrates due diligence into all its policies and risk management
systems in accordance with Article 7, clearly describing which obligations are to be
fulfilled by the parent company, and, where necessary, so informs the relevant
stakeholders;

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(d)

where necessary, the subsidiary continues to take appropriate measures in accordancewith Articles 10 and 11 and to fulfil its obligations under Articles 12 and 13;(e)where relevant, the subsidiary seeks contractual assurances from a direct business
partner in accordance with Article 10(2), point (b), or Article 11(3), point (c), seeks
contractual assurances from an indirect business partner in accordance with
Article 10(4) or Article 11(5) and temporarily suspends or terminates the business
relationship in accordance with Article 10(6) or Article 11(7).

3.

Where the parent company fulfils the obligation set out in Article 22 on behalf of thesubsidiary in accordance with paragraph 1 of this Article, the subsidiary shall comply withthe obligations laid down in Article 22 in accordance with the parent company’s transition
plan for climate change mitigation accordingly adapted to its business model and strategy.

Article 7
Integrating due diligence into company policies and risk management systems
1.

Member States shall ensure that companies integrate due diligence into all their relevant
policies and risk management systems and have in place a due diligence policy that ensuresrisk-based due diligence.

2.

The due diligence policy referred to in paragraph 1 shall be developed in prior consultation
with the company’s employees and their representatives, and contain all of the following:(a)a description of the company’s approach, including in the long term, to due
diligence;

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(b)

a code of conduct describing rules and principles to be followed throughout thecompany and its subsidiaries, and the company’s direct or indirect business partners
in accordance with Article 10(2), point (b), Article 10(4), Article 11(3), point (c), or
Article 11(5); and(c)a description of the processes put in place to integrate due diligence into thecompany’s relevant policies and to implement due diligence, including the measurestaken to verify compliance with the code of conduct referred to in point (b) and toextend that code’s application to business partners.

3.

Member States shall ensure that companies update their due diligence policies without
undue delay after a significant change occurs, and review and, where necessary, updatesuch policies at least every 24 months.
For the purposes referred to in the first subparagraph, companies shall take into account theadverse impacts already identified in accordance with Article 8, as well as the appropriate
measures taken to address such adverse impacts in accordance with Articles 10 and 11 andthe outcome of the assessments carried out in accordance with Article 15.

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Article 8
Identifying and assessing actual and potential adverse impacts
1.

Member States shall ensure that companies take appropriate measures to identify andassess actual and potential adverse impacts arising from their own operations or those of
their subsidiaries and, where related to their chains of activities, those of their business
partners, in accordance with this Article.

2.

As part of the obligation set out in paragraph 1, taking into account relevant risk factors,
companies shall take appropriate measures to:(a)map their own operations, those of their subsidiaries and, where related to theirchains of activities, those of their business partners, in order to identify general areas
where adverse impacts are most likely to occur and to be most severe;(b)

based on the results of the mapping as referred to in point (a), carry out an in-depth
assessment of their own operations, those of their subsidiaries and, where related totheir chains of activities, those of their business partners, in the areas where adverse
impacts were identified to be most likely to occur and most severe.

3.

Member States shall ensure that, for the purposes of identifying and assessing the adverse
impacts referred to in paragraph 1 based on, where appropriate, quantitative and qualitative
information, companies are entitled to make use of appropriate resources, including
independent reports and information gathered through the notification mechanism and thecomplaints procedure provided for in Article 14.

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4.

Where information necessary for the in-depth assessment provided for in paragraph 2,
point (b), can be obtained from business partners at different levels of the chain of
activities, the company shall prioritise requesting such information, where reasonable,
directly from business partners where the adverse impacts are most likely to occur.

Article 9
Prioritisation of identified actual and potential adverse impacts
1.

Member States shall ensure that, where it is not feasible to prevent, mitigate, bring to an
end or minimise all identified adverse impacts at the same time and to their full extent,
companies prioritise adverse impacts identified pursuant to Article 8 in order to fulfil theobligations laid down in Article 10 or 11.

2.

The prioritisation referred to in paragraph 1 shall be based on the severity and likelihood of
the adverse impacts.

3.

Once the most severe and most likely adverse impacts are addressed in accordance with
Article 10 or 11 within a reasonable time, the company shall address less severe and lesslikely adverse impacts.

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Article 10
Preventing potential adverse impacts
1.

Member States shall ensure that companies take appropriate measures to prevent, or where
prevention is not possible or not immediately possible, adequately mitigate, potential
adverse impacts that have been, or should have been, identified pursuant to Article 8, in
accordance with Article 9 and with this Article.
To determine the appropriate measures referred to in the first subparagraph, due accountshall be taken of:(a)whether the potential adverse impact may be caused only by the company; whether it
may be caused jointly by the company and a subsidiary or business partner, throughacts or omissions; or whether it may be caused only by a company’s business partnerin the chain of activities;(b)whether the potential adverse impact may occur in the operations of a subsidiary,
direct business partner or indirect business partner; and(c)the ability of the company to influence the business partner that may cause or jointly
cause the potential adverse impact.

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2.

Companies shall be required to take the following appropriate measures, where relevant:(a)where necessary due to the nature or complexity of the measures required forprevention, without undue delay develop and implement a prevention action plan,with reasonable and clearly defined timelines for the implementation of appropriate
measures and qualitative and quantitative indicators for measuring improvement;
companies may develop their action plans in cooperation with industry or multistakeholder initiatives; the prevention action plan shall be adapted to companies’
operations and chains of activities;(b)seek contractual assurances from a direct business partner that it will ensurecompliance with the company’s code of conduct and, as necessary, a prevention
action plan, including by establishing corresponding contractual assurances from its
partners, to the extent that their activities are part of the company’s chain of
activities; when such contractual assurances are obtained, paragraph 5 shall apply;(c)make necessary financial or non-financial investments in, adjustments or upgradesof, for example, facilities, production or other operational processes andinfrastructures;(d)

make necessary modifications of, or improvements to, the company’s own businessplan, overall strategies and operations, including purchasing practices, design anddistribution practices;

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(e)

provide targeted and proportionate support to an SME which is a business partner ofthe company, where necessary in light of the resources, knowledge and constraints of
the SME, including by providing or enabling access to capacity-building, training or
upgrading management systems, and, where compliance with the code of conduct or
the prevention action plan would jeopardise the viability of the SME, by providing
targeted and proportionate financial support, such as direct financing, low-interest
loans, guarantees of continued sourcing, or assistance in securing financing;(f)in compliance with Union law, including competition law, collaborate with otherentities, including, where relevant, in order to increase the company’s ability toprevent or mitigate the adverse impact, in particular where no other measure issuitable or effective.

3.

Companies may take, where relevant, appropriate measures in addition to the measureslisted in paragraph 2, such as engaging with a business partner about the company’s
expectations with regard to preventing and mitigating potential adverse impacts, orproviding or enabling access to capacity-building, guidance, administrative and financial
support such as loans or financing, while taking into consideration the resources,
knowledge and constraints of the business partner.

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4.

As regards potential adverse impacts that could not be prevented or adequately mitigatedby the appropriate measures listed in paragraph 2, the company may seek contractual
assurances from an indirect business partner, with a view to achieving compliance with thecompany’s code of conduct or a prevention action plan. When such contractual assurances
are obtained, paragraph 5 shall apply.

5.

The contractual assurances referred to in paragraph 2, point (b), and in paragraph 4, shallbe accompanied by appropriate measures to verify compliance. For the purposes ofverifying compliance, the company may refer to independent third-party verification,
including through industry or multi-stakeholder initiatives.
When contractual assurances are obtained from, or a contract is entered into with, an SME,
the terms used shall be fair, reasonable and non-discriminatory. The company shall also
assess whether the contractual assurances of an SME should be accompanied by any of theappropriate measures for SMEs referred to in paragraph 2, point (e). Where measures toverify compliance are carried out in relation to SMEs, the company shall bear the cost of
the independent third-party verification. Where the SME requests to pay at least a part ofthe cost of the independent third-party verification, or in agreement with the company, that
SME may share the results of such verification with other companies.

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6.

As regards potential adverse impacts as referred to in paragraph 1 that could not be
prevented or adequately mitigated by the measures set out in paragraphs 2, 4 and 5, thecompany shall, as a last resort, be required to refrain from entering into new or extending
existing relations with a business partner in connection with which, or in the chain of
activities of which, the impact has arisen and shall, where the law governing their relations
so entitles them, take the following actions, as a last resort:(a)adopt and implement an enhanced prevention action plan for the specific adverse
impact without undue delay, by using or increasing the company’s leverage throughthe temporary suspension of business relationships with respect to the activities
concerned, provided that there is a reasonable expectation that those efforts will
succeed; the action plan shall include a specific and appropriate timeline for the
adoption and implementation of all actions therein, during which the company may
also seek alternative business partners;(b)

if there is no reasonable expectation that those efforts would succeed, or if theimplementation of the enhanced prevention action plan has failed to prevent or
mitigate the adverse impact, terminate the business relationship with respect to theactivities concerned if the potential adverse impact is severe.

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Prior to temporarily suspending or terminating a business relationship, the company shallassess whether the adverse impacts from doing so can be reasonably expected to be
manifestly more severe than the adverse impact that could not be prevented or adequately
mitigated. Should that be the case, the company shall not be required to suspend or toterminate the business relationship, and shall be in a position to report to the competentsupervisory authority about the duly justified reasons for such decision.
Member States shall provide for an option to temporarily suspend or terminate the business
relationship in contracts governed by their laws in accordance with the first subparagraph,
except for contracts where the parties are obliged by law to enter into them.
Where the company decides to temporarily suspend or to terminate the business
relationship, it shall take steps to prevent, mitigate or bring to an end the impacts of thesuspension or termination, shall provide reasonable notice to the business partner
concerned and shall keep that decision under review.
Where the company decides not to temporarily suspend or terminate the business
relationship pursuant to this Article, it shall monitor the potential adverse impact andperiodically assess its decision and whether further appropriate measures are available.

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Article 11
Bringing actual adverse impacts to an end
1.

Member States shall ensure that companies take appropriate measures to bring actual
adverse impacts that have been, or should have been, identified pursuant to Article 8 to anend, in accordance with Article 9 and with this Article.
To determine the appropriate measures referred to in the first subparagraph, due accountshall be taken of:(a)whether the actual adverse impact is caused only by the company; whether it iscaused jointly by the company and a subsidiary or business partner, through acts oromissions; or whether it is caused only by a company’s business partner in the chainof activities;(b)whether the actual adverse impact occurred in the operations of a subsidiary, directbusiness partner or indirect business partner; and(c)the ability of the company to influence the business partner that caused or jointly
caused the actual adverse impact.

2.

Where the adverse impact cannot immediately be brought to an end, Member States shallensure that companies minimise the extent of that impact.

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3.

Companies shall be required to take the following appropriate measures, where relevant:(a)neutralise the adverse impact or minimise its extent; such measures shall be
proportionate to the severity of the adverse impact and to the company’s implicationin the adverse impact;(b)where necessary due to the fact that the adverse impact cannot be immediately
brought to an end, without undue delay develop and implement a corrective action
plan with reasonable and clearly defined timelines for the implementation of
appropriate measures and qualitative and quantitative indicators for measuring
improvement; companies may develop their action plans in cooperation with industry
or multi-stakeholder initiatives; the corrective action plan shall be adapted tocompanies’ operations and chains of activities;(c)seek contractual assurances from a direct business partner that it will ensurecompliance with the company’s code of conduct and, as necessary, a corrective
action plan, including by establishing corresponding contractual assurances from its
partners, to the extent that their activities are part of the company’s chain of
activities; when such contractual assurances are obtained, paragraph 6 shall apply;(d)make necessary financial or non-financial investments in, adjustments or upgradesof, for example, facilities, production or other operational processes andinfrastructures;

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(e)

make necessary modifications of, or improvements to, the company’s own businessplan, overall strategies and operations, including purchasing practices, design anddistribution practices;(f)provide targeted and proportionate support to an SME which is a business partner ofthe company, where necessary in light of the resources, knowledge and constraints of
the SME, including by providing or enabling access to capacity-building, training or
upgrading management systems, and, where compliance with the code of conduct or
the corrective action plan would jeopardise the viability of the SME, by providing
targeted and proportionate financial support, such as direct financing, low-interest
loans, guarantees of continued sourcing, or assistance in securing financing;(g)in compliance with Union law, including competition law, collaborate with otherentities, including, where relevant, in order to increase the company’s ability to bringthe adverse impact to an end or minimise the extent of such impact, in particularwhere no other measure is suitable or effective;(h)4.

provide remediation in accordance with Article 12.

Companies may take, where relevant, appropriate measures in addition to the measureslisted in paragraph 3, such as engaging with a business partner about the company’s
expectations with regard to bringing actual adverse impacts to an end or minimising theextent of such impacts, or providing or enabling access to capacity-building, guidance,
administrative and financial support such as loans or financing, while taking into
consideration the resources, knowledge and constraints of the business partner.

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5.

As regards actual adverse impacts that could not be brought to an end or the extent of
which could not be adequately minimised by the appropriate measures listed in paragraph
3, the company may seek contractual assurances from an indirect business partner, with aview to achieving compliance with the company’s code of conduct or a corrective action
plan. When such contractual assurances are obtained, paragraph 6 shall apply.

6.

The contractual assurances referred to in paragraph 3, point (c), and in paragraph 5, shallbe accompanied by appropriate measures to verify compliance. For the purposes ofverifying compliance, the company may refer to independent third-party verification,
including through industry or multi-stakeholder initiatives.
When contractual assurances are obtained from, or a contract is entered into with, an SME,
the terms used shall be fair, reasonable and non-discriminatory. The company shall also
assess whether the contractual assurances of an SME should be accompanied by any of theappropriate measures for SMEs referred to in paragraph 3, point (f). Where measures toverify compliance are carried out in relation to SMEs, the company shall bear the cost of
the independent third-party verification. Where the SME requests to pay at least a part ofthe cost of the independent third-party verification, or in agreement with the company, theSME may share the results of such verification with other companies.

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7.

As regards actual adverse impacts as referred to in paragraph 1 that could not be brought toan end or the extent of which could not be minimised by the measures set out inparagraphs 3, 5 and 6, the company shall, as a last resort, be required to refrain fromentering into new or extending existing relations with a business partner in connection withwhich, or in the chain of activities of which, the impact has arisen and shall, where the law
governing their relations so entitles them, take the following actions, as a last resort:(a)adopt and implement an enhanced corrective action plan for the specific adverse
impact without undue delay, including by using or increasing the company’s
leverage through the temporary suspension of business relationships with respect tothe activities concerned, provided that there is a reasonable expectation that thoseefforts will succeed; the action plan shall include a specific and appropriate timeline
for the adoption and implementation of all actions therein, during which the company
may also seek alternative business partners;(b)

if there is no reasonable expectation that the efforts referred to in point (a) will
succeed, or if the implementation of the enhanced corrective action plan fails to bringto an end or minimise the extent of the adverse impact, terminate the business
relationship with respect to the activities concerned if the actual adverse impact issevere.

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Prior to temporarily suspending or terminating a business relationship, the company shallassess whether the adverse impacts of doing so can be reasonably expected to be
manifestly more severe than the adverse impact that could not be brought to an end or theextent of which could not be adequately minimised. Should that be the case, the company
shall not be required to suspend or to terminate the business relationship, and shall be in aposition to report to the competent supervisory authority about the duly justified reasonsfor such decision.
Member States shall provide for an option to temporarily suspend or terminate the business
relationship in contracts governed by their laws in accordance with the first subparagraph,
except for contracts where the parties are obliged by law to enter into them.
Where the company decides to temporarily suspend or to terminate the business
relationship, the company shall take steps to prevent, mitigate or bring to an end theimpacts of the suspension or termination, provide reasonable notice to the business partnerand keep that decision under review.
Where the company decides not to temporarily suspend or terminate the business
relationship pursuant to this Article, the company shall monitor the actual adverse impact
and periodically assess its decision and whether further appropriate measures are available.

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Article 12
Remediation of actual adverse impacts
1.

Member States shall ensure that, where a company has caused or jointly caused an actual
adverse impact, the company provides remediation.

2.

Where the actual adverse impact is caused only by the company’s business partner,
voluntary remediation may be provided by the company. The company may also use its
ability to influence the business partner that is causing the adverse impact to provide
remediation.

Article 13
Meaningful engagement with stakeholders
1.

Member States shall ensure that companies take appropriate measures to carry out effective
engagement with stakeholders, in accordance with this Article.

2.

Without prejudice to Directive (EU) 2016/943, when consulting with stakeholders,companies shall, as appropriate, provide them with relevant and comprehensive
information, in order to carry out effective and transparent consultations. Without
prejudice to Directive (EU) 2016/943, consulted stakeholders shall be allowed to make areasoned request for relevant additional information, which shall be provided by thecompany within a reasonable period of time and in an appropriate and comprehensible
format. If the company refuses a request for additional information, the consulted
stakeholders shall be entitled to a written justification for that refusal.

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3.

Consultation of stakeholders shall take place at the following stages of the due diligenceprocess:(a)when gathering the necessary information on actual or potential adverse impacts, inorder to identify, assess and prioritise adverse impacts pursuant to Articles 8 and 9;(b)when developing prevention and corrective action plans pursuant to Article 10(2) and
Article 11(3), and developing enhanced prevention and corrective action planspursuant to Article 10(6) and Article 11(7);(c)

when deciding to terminate or suspend a business relationship pursuant to
Article 10(6) and Article 11(7);(d)

when adopting appropriate measures to remediate adverse impacts pursuant to
Article 12;(e)

as appropriate, when developing qualitative and quantitative indicators for themonitoring required under Article 15.

4.

Where it is not reasonably possible to carry out effective engagement with stakeholders to
the extent necessary to comply with the requirements of this Directive, companies shallconsult additionally with experts who can provide credible insights into actual or potential
adverse impacts.

5.

In consulting stakeholders, companies shall identify and address barriers to engagement
and shall ensure that participants are not the subject of retaliation or retribution, including
by maintaining confidentiality or anonymity.

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6.

Member States shall ensure that companies are allowed to fulfil the obligations laid downin this Article through industry or multi-stakeholder initiatives, as appropriate, provided
that the consultation procedures meet the requirements set out in this Article. The use ofindustry and multi-stakeholder initiatives shall not be sufficient to fulfil the obligation to
consult the company’s own employees and their representatives.

7.

Engagement with employees and their representatives shall be without prejudice torelevant Union and national law in the field of employment and social rights as well as tothe applicable collective agreements.

Article 14
Notification mechanism and complaints procedure1.

Member States shall ensure that companies enable persons and entities listed in paragraph
2 to submit complaints to them where those persons or entities have legitimate concerns
regarding actual or potential adverse impacts with respect to the companies’ own
operations, the operations of their subsidiaries or the operations of their business partners
in the chains of activities of the companies.

2.

Member States shall ensure that complaints may be submitted by:(a)natural or legal persons who are affected or have reasonable grounds to believe thatthey might be affected by an adverse impact, and the legitimate representatives ofsuch persons on behalf of them, such as civil society organisations and human rights
defenders;

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(b)

trade unions and other workers’ representatives representing natural persons working
in the chain of activities concerned; and(c)civil society organisations that are active and experienced in related areas where an
adverse environmental impact is the subject matter of the complaint.

3.

Member States shall ensure that companies establish a fair, publicly available, accessible,
predictable and transparent procedure for dealing with the complaints referred to inparagraph 1, including a procedure where a company considers a complaint to be
unfounded, and inform the relevant workers representatives and trade unions of thatprocedure. Companies shall take reasonably available measures to prevent any form of
retaliation by ensuring the confidentiality of the identity of the person or organisation
submitting the complaint, in accordance with national law. Where information needs to beshared, it shall be in a manner that does not endanger the complainant’s safety, including
by not disclosing that complainant’s identity.
Member States shall ensure that, where the complaint is well-founded, the adverse impactthat is the subject matter of the complaint is deemed to be identified within the meaning of
Article 8 and the company shall take appropriate measures in accordance with Articles 10,
11 and 12.

4.

Member States shall ensure that complainants are entitled to:(a)request appropriate follow-up on the complaint from the company with which they
have filed a complaint pursuant to paragraph 1;

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(b)

meet with the company’s representatives at an appropriate level to discuss actual or
potential severe adverse impacts that are the subject matter of the complaint, andpotential remediation in accordance with Article 12;(c)be provided by the company with the reasons a complaint has been consideredfounded or unfounded and, where considered founded, with information on the steps
and actions taken or to be taken.

5.

Member States shall ensure that companies establish an accessible mechanism for thesubmission of notifications by persons and entities where they have information orconcerns regarding actual or potential adverse impacts with respect to their own
operations, the operations of their subsidiaries and the operations of their business partners
in the chains of activities of the companies.
The mechanism shall ensure that notifications can be made either anonymously or
confidentially in accordance with national law. Companies shall take reasonably available
measures to prevent any form of retaliation by ensuring that the identity of persons or
entities that submit notifications remains confidential, in accordance with national law. The
company may inform persons or entities that submit notifications about steps and actions
taken or to be taken, where relevant.

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6.

Member States shall ensure that companies are allowed to fulfil the obligations laid downin paragraph 1, the first subparagraph of paragraph 3, and paragraph 5, throughparticipation in collaborative complaints procedures and notification mechanisms,
including those established jointly by companies, through industry associations, multistakeholder initiatives or global framework agreements, provided that such collaborative
procedures and mechanisms meet the requirements set out in this Article.

7.

The submission of a notification or complaint under this Article shall not be a prerequisite
for, or preclude the persons submitting them from, having access to the procedures under
Article 26 and 29 or to other, non-judicial, mechanisms.

Article 15
Monitoring
Member States shall ensure that companies carry out periodic assessments of their own operations
and measures, those of their subsidiaries and, where related to the chain of activities of thecompany, those of their business partners, to assess the implementation and to monitor the adequacyand effectiveness of the identification, prevention, mitigation, bringing to an end and minimisationof the extent of adverse impacts. Such assessments shall be based, where appropriate, on qualitativeand quantitative indicators and be carried out without undue delay after a significant change occurs,
but at least every 12 months and whenever there are reasonable grounds to believe that new risks ofthe occurrence of those adverse impacts may arise. Where appropriate, the due diligence policy, theadverse impacts identified and the appropriate measures that derived shall be updated in accordancewith the outcome of such assessments and with due consideration of relevant information fromstakeholders.

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Article 16
Communicating
1.

Without prejudice to the exemption provided for in paragraph 2 of this Article, Member
States shall ensure that companies report on the matters covered by this Directive by
publishing on their website an annual statement. That annual statement shall be published:(a)in at least one of the official languages of the Union used in the Member State of thesupervisory authority designated pursuant to Article 24 and, where different, in alanguage that is customary in the sphere of international business;(b)

within a reasonable period of time, but no later than 12 months after the balance
sheet date of the financial year for which the statement is drawn up, or, forcompanies voluntarily reporting in accordance with Directive 2013/34/EU, by thedate of publication of the annual financial statements.

In the case of a company formed in accordance with the law of a third country, thestatement shall also include the information required pursuant to Article 23(2) regarding
the company’s authorised representative.
2.

Paragraph 1 of this Article shall not apply to companies that are subject to sustainability
reporting requirements in accordance with Article 19a, 29a or 40a of Directive
2013/34/EU, including those that are exempted in accordance with Article 19a(9) or
Article 29a(8) of that Directive.

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3.

By 31 March 2027, the Commission shall adopt delegated acts in accordance with
Article 34 in order to supplement this Directive by laying down the content and criteria forthe reporting under paragraph 1, specifying, in particular, sufficiently detailed informationon the description of due diligence, actual and potential adverse impacts identified, andappropriate measures taken with respect to those impacts. In preparing those delegatedacts, the Commission shall take due account of, and align them as appropriate with, thesustainability reporting standards adopted pursuant to Articles 29b and 40b of Directive
2013/34/EU.
When adopting the delegated acts referred to in the first subparagraph, the Commission
shall ensure that there is no duplication in reporting requirements for companies referred toin Article 3(1)point (a)(iii), that are subject to reporting requirements under Article 4 ofRegulation (EU) 2019/2088, while maintaining in full the minimum obligations stipulated
in this Directive.

Article 17
Accessibility of information on the European single access point
1.

From 1 January 2029, Member States shall ensure that, when making public the annual
statement referred to in Article 16(1) of this Directive, companies submit that statement at
the same time to the collection body referred to in paragraph 3 of this Article for the
purpose of making it accessible on the European single access point (ESAP), as establishedby Regulation (EU) 2023/2859.

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Member States shall ensure that the information contained in the annual statement referred
to in the first subparagraph complies with the following requirements:(a)

it is submitted in a data extractable format, as defined in Article 2, point (3), ofRegulation (EU) 2023/2859, or, where required by Union or national law, in amachine-readable format, as defined in Article 2, point (4), of that Regulation;(b)

it is accompanied by the following metadata:(i)all the names of the company to which the information relates;(ii)

the legal entity identifier of the company, as specified pursuant to Article 7(4),point (b), of Regulation (EU) 2023/2859;(iii) the size of the company by category, as specified pursuant to Article 7(4),point (d), of Regulation (EU) 2023/2859;(iv) the industry sector(s) of the economic activities of the company, as specified
pursuant to Article 7(4), point (e), of Regulation (EU) 2023/2859;(v)

the type of information, as specified pursuant to Article 7(4), point (c), ofRegulation (EU) 2023/2859;(vi) an indication of whether the information includes personal data.
2.

For the purposes of paragraph 1, point (b)(ii), Member States shall ensure that companies
obtain a legal entity identifier.

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3.

By 31 December 2028, for the purposes of making the information referred to inparagraph 1 of this Article accessible on ESAP, Member States shall designate at least
one collection body, as defined in Article 2, point (2), of Regulation (EU) 2023/2859, andnotify the European Securities and Markets Authority thereof.

4.

For the purposes of ensuring the efficient collection and management of information
submitted in accordance with paragraph 1, the Commission shall be empowered to adopt
implementing measures to specify:(a)any other metadata required to accompany the information;(b)

the structuring of data in the information; and(c)for which information a machine-readable format is required and, in such cases,
which machine-readable format is to be used.

Article 18
Model contractual clauses
In order to provide support to companies to facilitate their compliance with Article 10(2), point (b),and Article 11(3), point (c), the Commission, in consultation with Member States and stakeholders,shall adopt guidance about voluntary model contractual clauses, by … [30 months from the entry
into force of this Directive].

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Article 19
Guidelines
1.

In order to provide support to companies or to Member State authorities on how companies
should fulfil their due diligence obligations in a practical manner, and to provide support tostakeholders, the Commission, in consultation with Member States and stakeholders, theEuropean Union Agency for Fundamental Rights, the European Environment Agency, theEuropean Labour Authority, and where appropriate with international organisations andother bodies having expertise in due diligence, shall issue guidelines, including general
guidelines and sector-specific guidelines or guidelines for specific adverse impacts.

2.

The guidelines to be issued pursuant to paragraph 1 shall include:(a)guidance and best practices on how to conduct due diligence in accordance with the
obligations laid down in Articles 5 to 16, particularly, the identification process
pursuant to Article 8, the prioritisation of impacts pursuant to Article 9, appropriate
measures to adapt purchasing practices pursuant to Article 10(2) and Article 11(3),responsible disengagement pursuant to Article 10(6) and Article 11(7), appropriate
measures for remediation pursuant to Article 12, and on how to identify and engage
with stakeholders pursuant to Article 13, including through the notification
mechanism and complaints procedure established in Article 14;(b)practical guidance on the transition plan as referred to in Article 22;(c)sector-specific guidance;

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(d)

guidance on the assessment of company-level, business operations, geographic andcontextual, product and service, and sectoral risk factors, including those associatedwith conflict-affected and high-risk areas;(e)references to data and information sources available for the compliance with the
obligations provided for in this Directive, and to digital tools and technologies that
could facilitate and support compliance;(f)

information on how to share resources and information among companies and otherlegal entities for the purpose of compliance with the provisions of national law
adopted pursuant to this Directive, in a manner that is in accordance with theprotection of trade secrets pursuant to Article 5(3) and the protection from potential
retaliation and retribution as provided for in Article 13(5);(g)

information for stakeholders and their representatives on how to engage throughout
the due diligence process.

3.

The guidelines referred to in paragraph 2, points (a), (d), and (e), shall be made available
by … [insert the date: 30 months from the date of entry into force of this Directive]. The
guidelines in paragraph 2, points (b), (f) and (g), shall be made available by … [insert thedate: 36 months from the entry into force of this Directive.

4.

The guidelines referred to in this Article shall be made available in all the official
languages of the Union. The Commission shall periodically review the guidelines andadapt them where appropriate.

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Article 20
Accompanying measures
1.

Member States shall, in order to provide information and support to companies and theirbusiness partners and to stakeholders, set up and operate individually or jointly dedicatedwebsites, platforms or portals. Specific consideration shall be given, in that respect, to theSMEs that are present in the chains of activities of companies. Those websites, platforms
or portals shall, in particular, give access to:(a)the content and criteria for reporting as laid down by the Commission in thedelegated acts adopted pursuant to Article 16(3);(b)

the Commission’s guidance about voluntary model contractual clauses as provided
for in Article 18 and the guidelines it issues pursuant to Article 19;(c)the single helpdesk provided for in Article 21; and(d)information for stakeholders and their representatives on how to engage throughout
the due diligence process.

2.

Without prejudice to State aid rules, Member States may financially support SMEs.
Member States may also provide support to stakeholders for the purpose of facilitating theexercise of rights laid down in this Directive.

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3.

The Commission may complement Member State support measures, building on existing
Union action to support due diligence in the Union and in third countries, and may devise
new measures, including facilitation of industry or multi-stakeholder initiatives to help
companies fulfil their obligations.

4.

Without prejudice to Articles 25, 26 and 29, companies may participate in industry andmulti-stakeholder initiatives to support the implementation of the obligations referred to in
Articles 7 to 16 to the extent that such initiatives are appropriate to support the fulfilmentof those obligations. In particular, companies may, after having assessed theirappropriateness, make use of or join relevant risk analysis carried out by industry or multistakeholder initiatives or by members of those initiatives and may take or join effective
appropriate measures through such initiatives. When doing so, companies shall monitor theeffectiveness of such measures and, continue to take appropriate measures where necessary
to ensure the fulfilment of their obligations.
The Commission and the Member States may facilitate the dissemination of information onsuch initiatives and their outcome. The Commission, in collaboration with Member States,
shall issue guidance setting out fitness criteria and a methodology for companies to assess
the fitness of industry and multi-stakeholder initiatives.

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5.

Without prejudice to Articles 25, 26 and 29, companies may use independent third-party
verification on and from companies in their chains of activities to support theimplementation of due diligence obligations to the extent that such verification isappropriate to support the fulfilment of the relevant obligations. Independent third-party
verification may be carried out by other companies or by an industry or multi-stakeholder
initiative. Independent third-party verifiers shall act with objectivity and complete
independence from the company, be free from any conflicts of interest, remain free fromexternal influence, whether direct or indirect, and shall refrain from any action
incompatible with their independence. Depending on the nature of the adverse impact, theyshall have experience and competence in environmental or human rights matters and shallbe accountable for the quality and reliability of the verification they carry out.
The Commission, in collaboration with Member States, shall issue guidance setting out
fitness criteria and a methodology for companies to assess the fitness of third-party
verifiers, and guidance for monitoring the accuracy, effectiveness and integrity of thirdparty verification.

Article 21
Single helpdesk
1.

The Commission shall establish a single helpdesk through which companies may seek
information, guidance and support with regard to fulfilling their obligations provided for inthis Directive.

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2.

Relevant national authorities in each Member State shall collaborate with the single
helpdesk in order to assist in tailoring the information and guidance to national contexts
and in disseminating that information and guidance.

Article 22
Combating climate change
1.

Member States shall ensure that companies referred to in Article 2(1), points (a), (b)and (c), and Article 2(2), points (a), (b) and (c), adopt and put into effect a transition planfor climate change mitigation which aims to ensure, through best efforts, that the businessmodel and strategy of the company are compatible with the transition to a sustainableeconomy and with the limiting of global warming to 1.5 °C in line with the Paris
Agreement and the objective of achieving climate neutrality as established in Regulation(EU) 2021/1119, including its intermediate and 2050 climate neutrality targets, and where
relevant, the exposure of the company to coal-, oil- and gas-related activities.
The design of the transition plan for climate change mitigation referred to in the firstsubparagraph shall contain:(a)time-bound targets related to climate change for 2030 and in five-year steps up to
2050 based on conclusive scientific evidence and, where appropriate, absoluteemission reduction targets for greenhouse gas for scope 1, scope 2 and scope 3
greenhouse gas emissions for each significant category;

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(b)

a description of decarbonisation levers identified and key actions planned to reachthe targets referred to in point (a), including, where appropriate, changes in the
product and service portfolio of the company and the adoption of new technologies;(c)an explanation and quantification of the investments and funding supporting theimplementation of the transition plan for climate change mitigation; and(d)a description of the role of the administrative, management and supervisory bodies
with regard to the transition plan for climate change mitigation.

2.

Companies that report a transition plan for climate change mitigation in accordance with
Article 19a, 29a or 40a, as the case may be, of Directive 2013/34/EU shall be deemed tohave complied with the obligation to adopt a transition plan for climate change mitigationreferred to in paragraph 1 of this Article.
Companies that are included in the transition plan for climate change mitigation of theirparent undertaking reported in accordance with Article 29a or 40a, as the case may be, ofDirective 2013/34/EU, shall be deemed to have complied with the obligation to adopt atransition plan for climate change mitigation referred to in paragraph 1 of this Article.

3.

Member States shall ensure that the transition plan for climate change mitigation referred
to in paragraph 1 is updated every 12 months and contains a description of the progress thecompany has made towards achieving the targets referred to in paragraph 1,
second subparagraph, point (a).

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Article 23
Authorised representative
1.

Member States shall require that a company referred to in Article 2(2) operating in a
Member State designates as its authorised representative a natural or legal person that isestablished or domiciled in one of the Member States where it operates. The designation
shall be valid when confirmed as accepted by the authorised representative.

2.

Member States shall require that the authorised representative or the company notifies thename, address, email address and telephone number of the authorised representative to asupervisory authority in the Member State where the authorised representative is domiciled
or established and, where it is different, the competent supervisory authority, as specified
in Article 24(3). Member States shall ensure that the authorised representative is obliged toprovide, upon request, a copy of the designation in an official language of a Member State
to any of the supervisory authorities.

3.

Member States shall require that the authorised representative or the company informs asupervisory authority in the Member State where the authorised representative is domiciled
or established and, where it is different, the competent supervisory authority, as specified
in Article 24(3), that the company is a company referred to in Article 2(2).

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4.

Member States shall require that each company empowers its authorised representative to
receive communications from supervisory authorities on all matters necessary forcompliance with and enforcement of provisions of national law transposing this Directive.
Companies shall be required to provide their authorised representative with the necessary
powers and resources to cooperate with supervisory authorities.

5.

When a company referred to in Article 2(2) fails to comply with the obligations laid downin this Article, all Member States in which that company operates shall be competent toenforce the fulfilment of such obligations in accordance with their national law. A Member
State that intends to enforce the obligations laid down in this Article shall notify thesupervisory authorities through the European Network of Supervisory Authorities set up
under Article 28 so that other Member States do not enforce them.

Article 24
Supervisory authorities
1.

Each Member State shall designate one or more supervisory authorities to supervise
compliance with the obligations laid down in the provisions of national law adopted
pursuant to Articles 7 to 16 and Article 22.

2.

As regards a company referred to in Article 2(1), the competent supervisory authority shallbe that of the Member State in which the company has its registered office.

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3.

As regards a company referred to in Article 2(2), the competent supervisory authority shallbe that of the Member State in which the company has a branch. If the company does nothave a branch in any Member State, or has branches located in different Member States,
the competent supervisory authority shall be the supervisory authority of the Member Statein which the company generated most of its net turnover in the Union in the financial year
preceding the last financial year before the date indicated in Article 37 or the date on which
the company first fulfils the criteria laid down in Article 2(2), whichever comes last.
A company referred to in Article 2(2) may, on the basis of a change in circumstancesleading to it generating most of its turnover in the Union in a different Member State, makea duly reasoned request to change the supervisory authority that is competent to regulatematters covered by this Directive in respect of that company.

4.

Where a parent company fulfils the obligations resulting from this Directive on behalf of
its subsidiaries in accordance with Article 6, the competent supervisory authority of theparent company shall cooperate with the competent supervisory authority of the subsidiary,
which will remain competent to ensure that the subsidiary is subject to the exercise of
powers in accordance with Article 25. In this regard, the European Network of Supervisory
Authorities set up under Article 28 shall facilitate the necessary cooperation, coordinationand provision of mutual assistance in accordance with Article 28.

5.

Where a Member State designates more than one supervisory authority, it shall ensure thatthe respective competences of those supervisory authorities are clearly defined and thatthey cooperate closely and effectively with each other.

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6.

Member States may designate the authorities for the supervision of regulated financial
undertakings also as supervisory authorities for the purposes of this Directive.

7.

By … [2 years from the entry into force of this Directive], Member States shall inform theCommission of the names and contact details of the supervisory authorities designatedpursuant to this Article, as well as of their respective competences where there are several
designated supervisory authorities. They shall inform the Commission of any changes
thereto.

8.

The Commission shall make publicly available, including on its website, a list of thesupervisory authorities, and, where a Member State has several supervisory authorities, therespective competences of those authorities in relation to this Directive. The Commission
shall regularly update the list on the basis of the information received from the Member
States.

9.

Member States shall guarantee the independence of the supervisory authorities and ensurethat they, and all persons working for or who have worked for them, and auditors, experts
and any other persons acting on their behalf, exercise their powers impartially,transparently and with due respect for obligations of professional secrecy. In particular,
Member States shall ensure that the supervisory authorities are legally and functionallyindependent, free from external influence, whether direct or indirect, including from thecompanies falling within the scope of this Directive or other market interests, that theirstaff and the persons responsible for the management are free from conflicts of interest,
subject to confidentiality requirements, and refrain from any action incompatible with theirduties.

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10.

Member States shall ensure that supervisory authorities publish and make accessible online
an annual report on their activities under this Directive.

Article 25
Powers of supervisory authorities
1.

Member States shall ensure that the supervisory authorities have adequate powers andresources to carry out the tasks assigned to them under this Directive, including the power
to require companies to provide information and carry out investigations related tocompliance with the obligations set out in Articles 7 to 16. Member States shall require thesupervisory authorities to supervise the adoption and design of the transition plan forclimate change mitigation in accordance with the requirements provided for in
Article 22(1).

2.

A supervisory authority may initiate an investigation on its own initiative or as a result of
substantiated concerns communicated to it pursuant to Article 26, where it considers that it
has sufficient information indicating a possible breach by a company of the obligations
provided for in the provisions of national law adopted pursuant to this Directive.

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3.

Inspections shall be conducted in compliance with the national law of the Member State inwhich the inspection is carried out and after prior warning has been given to the company,
except where prior warning would hinder the effectiveness of the inspection. Where, aspart of its investigation, a supervisory authority wishes to carry out an inspection on the
territory of a Member State other than its own, it shall seek assistance from the supervisory
authority in that Member State pursuant to Article 28(3).

4.

If, as a result of the actions taken pursuant to paragraphs 1 and 2, a supervisory authority
identifies a failure to comply with the provisions of national law adopted pursuant to thisDirective, it shall grant the company concerned an appropriate period of time to takeremedial action, if such action is possible.
Taking remedial action shall not preclude the imposition of penalties or the triggering ofcivil liability, in accordance with Articles 27 and 29, respectively.

5.

When carrying out their tasks, supervisory authorities shall have at least the power to:(a)order the company to:(i)cease infringements of the provisions of national law adopted pursuant to thisDirective by performing an action or ceasing conduct;(ii)

refrain from any repetition of the relevant conduct; and(iii) where appropriate, provide remediation proportionate to the infringement andnecessary to bring it to an end;

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(b)

impose penalties in accordance with Article 27; and(c)adopt interim measures in the event of an imminent risk of severe and irreparable
harm.

6.

Supervisory authorities shall exercise the powers referred to in this Article in accordancewith national law:(a)directly;(b)in cooperation with other authorities; or(c)by application to the competent judicial authorities, which shall ensure that legal
remedies are effective and have an equivalent effect to the penalties imposed directly
by supervisory authorities.

7.

Member States shall ensure that each natural or legal person has the right to an effective
judicial remedy against a legally binding decision by a supervisory authority concerningthem, in accordance with national law.

8.

Member States shall ensure that the supervisory authorities keep records of theinvestigations referred to in paragraph 1, indicating, in particular, their nature and result, as
well as records of any enforcement action taken under paragraph 5.

9.

Decisions of supervisory authorities regarding a company’s compliance with the provisionsof national law adopted pursuant to this Directive shall be without prejudice to thecompany’s civil liability under Article 29.

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Article 26
Substantiated concerns
1.

Member States shall ensure that natural and legal persons are entitled to submit
substantiated concerns, through easily accessible channels, to any supervisory authority
when they have reasons to believe, on the basis of objective circumstances, that a company
is failing to comply with the provisions of national law adopted pursuant to this Directive.

2.

Member States shall ensure that, where persons submitting substantiated concerns so
request, the supervisory authority takes the necessary measures for the appropriate
protection of the identity of that person and their personal information, which, if disclosed,
would be harmful to that person.

3.

Where a substantiated concern falls under the competence of another supervisory authority,
the authority receiving the substantiated concern shall transmit it to that authority.

4.

Member States shall ensure that supervisory authorities assess the substantiated concerns
in an appropriate period of time and, where appropriate, exercise their powers as referred
to in Article 25.

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5.

The supervisory authority shall, as soon as possible and in accordance with the relevant
provisions of national law and in compliance with Union law, inform persons referred to inparagraph 1 of the result of the assessment of their substantiated concerns and shall provide
the reasoning for that result. The supervisory authority shall also inform persons
submitting such substantiated concerns who have, in accordance with national law, alegitimate interest in the matter, of its decision to accept or refuse any request for action, as
well as of a description of the further steps and measures, and practical information onaccess to administrative and judicial review procedures.

6.

Member States shall ensure that persons submitting substantiated concerns in accordancewith this Article and having, in accordance with national law, a legitimate interest in thematter, have access to a court or other independent and impartial public body competent toreview the procedural and substantive legality of the decisions, acts or failure to act of thesupervisory authority.

Article 27
Penalties
1.

Member States shall lay down the rules on penalties, including pecuniary penalties,
applicable to infringements of the provisions of national law adopted pursuant to thisDirective, and shall take all measures necessary to ensure that they are implemented. The
penalties provided for shall be effective, proportionate and dissuasive.

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2.

In deciding whether to impose penalties and, if such penalties are imposed, in determining
their nature and appropriate level, due account shall be taken of:(a)the nature, gravity and duration of the infringement, and the severity of the impacts
resulting from that infringement;(b)

any investments made and any targeted support provided pursuant to Articles 10
and 11;(c)

any collaboration with other entities to address the impacts concerned;(d)where relevant, the extent to which prioritisation decisions were made in accordancewith Article 9;(e)any relevant previous infringements by the company of the provisions of nationallaw adopted pursuant to this Directive found by a final decision;(f)the extent to which the company carried out any remedial action with regard to thesubject matter concerned;(g)

the financial benefits gained or losses avoided by the company due to theinfringement;(h)any other aggravating or mitigating factors applicable to the circumstances of thecase concerned.

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3.

Member States shall provide for at least the following penalties:(a)pecuniary penalties;(b)

if a company fails to comply with a decision imposing a pecuniary penalty within theapplicable time limit, a public statement indicating the company responsible for the
infringement and the nature of the infringement.

4.

When pecuniary penalties are imposed, they shall be based on the company’s net
worldwide turnover. The maximum limit of pecuniary penalties shall be not less than 5 %of the net worldwide turnover of the company in the financial year preceding that of thedecision to impose the fine.
Member States shall ensure that, with regard to companies referred to in Article 2(1),point (b), and Article 2(2), point (b), pecuniary penalties are calculated taking into accountthe consolidated turnover reported by the ultimate parent company.

5.

Member States shall ensure that any decision of the supervisory authorities concerning
penalties related to the infringements of the provisions of national law adopted pursuant tothis Directive is published, remains publicly available for at least five years and is sent to
the European Network of Supervisory Authorities set up under Article 28. The publisheddecision shall not contain any personal data within the meaning of Article 4(1) ofRegulation (EU) 2016/679.

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Article 28
European Network of Supervisory Authorities
1.

The Commission shall set up a European Network of Supervisory Authorities, composedof representatives of the supervisory authorities. The European Network of Supervisory
Authorities shall facilitate the cooperation of the supervisory authorities and thecoordination and alignment of regulatory, investigative, sanctioning and supervisory
practices of the supervisory authorities and, as appropriate, the sharing of information
among them.
The Commission may invite Union agencies with relevant expertise in the areas coveredby this Directive to join the European Network of Supervisory Authorities.

2.

Member States shall cooperate with the European Network of Supervisory Authorities inorder to identify the companies within their jurisdiction, in particular by providing allnecessary information in order to assess whether a third-country company fulfils thecriteria laid down in Article 2. The Commission shall set up a secured system for theexchange of information regarding the net turnover generated in the Union by a company
referred to in Article 2(2) that does not have a branch in any Member State or has branches
located in different Member States, through which Member States shall regularly
communicate information they have regarding the net turnover generated by suchcompanies. The Commission shall analyse that information within a reasonable period oftime and notify the Member State where the company generated most of its net turnover in
the Union in the financial year preceding the last financial year, that the company is acompany referred to in Article 2(2) and the supervisory authority of the Member State iscompetent in accordance with Article 24(3).

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3.

Supervisory authorities shall provide each other with relevant information and mutual
assistance in carrying out their duties and shall put in place measures for effective
cooperation with each other. Mutual assistance shall include collaboration with a view toexercising the powers referred to in Article 25, including in relation to inspections andinformation requests.

4.

Supervisory authorities shall take all appropriate steps needed to reply to a request forassistance by another supervisory authority without undue delay and no later than 1 monthafter receiving the request. Where necessary due to the circumstances of the case, theperiod may be extended by a maximum of two months based on a proper justification.
Such steps may include, in particular, the transmission of relevant information on the
conduct of an investigation.

5.

Requests for assistance shall contain all the necessary information, including the purposeof and reasons for the request. Supervisory authorities shall only use the information
received through a request for assistance for the purpose for which it was requested.

6.

The requested supervisory authority shall inform the requesting supervisory authority of
the results or, as the case may be, of the progress regarding the measures to be taken inorder to respond to the request for assistance.

7.

Supervisory authorities shall not charge each other fees for actions and measures taken
pursuant to a request for assistance.
However, supervisory authorities may agree on rules to indemnify each other for specificexpenditure arising from the provision of assistance in exceptional cases.

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8.

The supervisory authority that is competent pursuant to Article 24(3) shall inform theEuropean Network of Supervisory Authorities of that fact and of any request to change thecompetent supervisory authority.

9.

When doubts exist as to the attribution of competence, the information on which that
attribution is based will be shared with the European Network of Supervisory Authorities,
which may coordinate efforts to find a solution.

10.

The European Network of Supervisory Authorities shall publish:(a)the decisions of the supervisory authorities containing penalties, as referred to in
Article 27(5); and(b)

an indicative list of third-country companies subject to this Directive.

Article 29
Civil liability of companies and the right to full compensation
1.

Member States shall ensure that a company can be held liable for damage caused to anatural or legal person, provided that:(a)the company intentionally or negligently failed to comply with the obligations laid
down in Articles 10 and 11, when the right, prohibition or obligation listed in the
Annex to this Directive is aimed at protecting the natural or legal person; and(b)

as a result of the failure referred to in point (a), damage to the natural or legal
person’s legal interests that are protected under national law was caused.

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A company cannot be held liable if the damage was caused only by its business partners in
its chain of activities.
2.

Where a company is held liable in accordance with paragraph 1, a natural or legal person
shall have the right to full compensation for the damage, in accordance with national law.
Full compensation under this Directive shall not lead to overcompensation, whether bymeans of punitive, multiple or other types of damages.

3.

Member States shall ensure that:(a)national rules on the beginning, duration, suspension or interruption of limitation
periods do not unduly hamper the bringing of actions for damages and, in any case,are not more restrictive than the rules on national general civil liability regimes;
the limitation period for bringing actions for damages under this Directive shall be atleast five years and, in any case, not shorter than the limitation period laid down
under national general civil liability regimes;
limitation periods shall not begin to run before the infringement has ceased and theclaimant knows, or can reasonably be expected to know:(i)of the behaviour and the fact that it constitutes an infringement;(ii)of the fact that the infringement caused harm to them; and(iii) the identity of the infringer;(b)

the cost of proceedings is not prohibitively expensive for claimants to seek justice;

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(c)

claimants are able to seek injunctive measures, including through summary
proceedings; such injunctive measures shall be in the form of a definitive orprovisional measure to cease infringements of the provisions of national law adopted
pursuant to this Directive by performing an action or ceasing conduct;(d)reasonable conditions are provided for under which any alleged injured party may
authorise a trade union, non-governmental human rights or environmentalorganisation or other non-governmental organisation, and, in accordance withnational law, national human rights’ institutions, based in a Member State to bringactions to enforce the rights of the alleged injured party, without prejudice to nationalrules of civil procedure;a trade union or non-governmental organisation may be authorised under the firstsubparagraph of this point if it complies with the requirements laid down in national
law; those requirements may include maintaining a permanent presence of its own
and, in accordance with its statutes, not engaging commercially and not only
temporarily in the realisation of rights protected under this Directive or thecorresponding rights in national law;(e)when a claim is brought, and a claimant presents a reasoned justification containing
reasonably available facts and evidence sufficient to support the plausibility of theirclaim for damages and has indicated that additional evidence lies in the control of thecompany, courts are able to order that such evidence be disclosed by the company inaccordance with national procedural law;

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national courts shall limit the disclosure of the evidence sought to that which isnecessary and proportionate to support a potential claim or a claim for damages andthe preservation of evidence to that which is necessary and proportionate to support
such a claim for damages; in determining whether an order for the disclosure orpreservation of evidence is proportionate, national courts shall consider the extent towhich the claim or defence is supported by available facts and evidence justifying therequest to disclose evidence; the scope and cost of disclosure as well as thelegitimate interests of all parties, including any third parties concerned, including
preventing non-specific searches for information which is unlikely to be of relevancefor the parties in the procedure; whether the evidence the disclosure of which issought contains confidential information, especially concerning any third parties, andwhat arrangements are in place for protecting such confidential information;
Member States shall ensure that national courts have the power to order thedisclosure of evidence containing confidential information where they consider it
relevant to the action for damages; Member States shall ensure that, when ordering
the disclosure of such information, national courts have at their disposal effective
measures to protect such information.
4.

Companies that have participated in industry or multi-stakeholder initiatives, or used
independent third-party verification or contractual clauses to support the implementation ofdue diligence obligations may nevertheless be held liable in accordance with this Article.

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5.

The civil liability of a company for damages arising under this provision shall be without
prejudice to the civil liability of its subsidiaries or of any direct and indirect business
partners in the chain of activities of the company.
When the damage was caused jointly by the company and its subsidiary, direct or indirectbusiness partner, they shall be liable jointly and severally, without prejudice to theprovisions of national law concerning the conditions of joint and several liability and therights of recourse.

6.

The civil liability rules under this Directive shall not limit companies’ liability under
Union or national legal systems and shall be without prejudice to Union or national ruleson civil liability related to adverse human rights impacts or to adverse environmental
impacts that provide for liability in situations not covered by or providing for stricter
liability than this Directive.

7.

Member States shall ensure that the provisions of national law transposing this Article areof overriding mandatory application in cases where the law applicable to claims to that
effect is not the national law of a Member State.

Article 30
Reporting of breaches and protection of reporting persons
Member States shall take the necessary measures to ensure that Directive (EU) 2019/1937 applies tothe reporting of breaches of the provisions of national law transposing this Directive and theprotection of persons reporting such breaches.

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Article 31
Public support, public procurement and public concessions
Member States shall ensure that compliance with the obligations resulting from the provisions ofnational law transposing this Directive, or their voluntary implementation, qualifies as anenvironmental or social aspect that contracting authorities may, in accordance with Directives
2014/23/EU, 2014/24/EU and 2014/25/EU, take into account as part of the award criteria for publicand concession contracts, and as an environmental or social condition that contracting authorities
may, in accordance with those Directives, lay down in relation to the performance of public andconcession contracts.

Article 32
Amendment to Directive (EU) 2019/1937
In Directive (EU) 2019/1937, point E.2 of Part I of the Annex, the following point is added:‘(vi)

Directive (EU) …/… of the European Parliament and of the Council of … on corporate
sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation(EU) 2023/2859 (OJ L …, …)+.

_________________+OJ: Please insert in the text the number, the date and the OJ reference of the Directive
contained in document 2022/0051(COD).ʼ

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Article 33
Amendment to Regulation (EU) 2023/2859
In Regulation (EU) 2023/2859, part B of the Annex, the following point is added:
ʻ17.

Directive (EU) …/… of the European Parliament and of the Council of … on corporate
sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation(EU) 2023/2859 (OJ L …, …)*.

_________________+OJ: Please insert in the text the number, the date and the OJ reference of the Directive
contained in document 2022/0051(COD).ʼ
Article 34
Exercise of the delegation

1.

The power to adopt delegated acts is conferred on the Commission subject to theconditions laid down in this Article.

2.

The power to adopt delegated acts referred to in Article 3(2) and Article 16 shall be
conferred on the Commission for an indeterminate period of time from … [date of entry
into force of this Directive].

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3.

The delegation of power referred to in Article 3(2) and Article 16 may be revoked at any
time by the European Parliament or by the Council. A decision to revoke shall put an end
to the delegation of the power specified in that decision. It shall take effect the day
following the publication of the decision in the Official Journal of the European Union orat a later date specified therein. It shall not affect the validity of any delegated acts alreadyin force.

4.

Before adopting a delegated act, the Commission shall consult experts designated by each
Member State in accordance with the principles laid down in the Interinstitutional
Agreement of 13 April 2016 on Better Law-Making.

5.

As soon as it adopts a delegated act, the Commission shall notify it simultaneously to theEuropean Parliament and to the Council.

6.

A delegated act adopted pursuant to Article 3(2) or Article 16 shall enter into force only if
no objection has been expressed either by the European Parliament or by the Council
within a period of two months of notification of that act to the European Parliament and theCouncil or if, before the expiry of that period, the European Parliament and the Council
have both informed the Commission that they will not object. That period shall be
extended by two months at the initiative of the European Parliament or of the Council.

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Article 35
Committee procedure
1.

The Commission shall be assisted by a committee. That committee shall be a committee
within the meaning of Regulation (EU) No 182/2011 of the European Parliament and of
the Council48.

2.

Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shallapply.

Article 36
Review and reporting
1.

The Commission shall submit a report to the European Parliament and to the Council on
the necessity of laying down additional sustainability due diligence requirements tailored
to regulated financial undertakings with respect to the provision of financial services andinvestment activities, and the options for such due diligence requirements as well as theirimpacts, in line with the objectives of this Directive.

48

Regulation (EU) No 182/2011 of the European Parliament and of the Councilof 16 February 2011 laying down the rules and general principles concerning mechanisms
for control by the Member States of the Commission's exercise of implementing powers(OJ L 55, 28.2.2011, p. 13).

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The report shall take into account other Union legislative acts that apply to regulated
financial undertakings. It shall be published at the earliest possible opportunity after …
[the date of entry into force of this Directive], but no later than … [two years from the dateof entry into force of this Directive ]. It shall be accompanied, if appropriate, by alegislative proposal.
2.

By … [six years after the date of entry into force of this Directive,] and every three years
thereafter, the Commission shall submit a report to the European Parliament and to theCouncil on the implementation of this Directive and its effectiveness in reaching its
objectives, in particular in addressing adverse impacts. The report shall be accompanied, if
appropriate, by a legislative proposal. The first report shall, inter alia, assess the following
issues:(a)the impacts of this Directive on SMEs, together with an assessment of theeffectiveness of the different measures and tools for support provided to SMEs by theCommission and the Member States;(b)

the scope of this Directive in terms of the companies covered, whether it ensures theeffectiveness of this Directive in light of its objectives, a level playing field between
entities covered and that companies cannot circumvent the application of thisDirective, including:–whether Article 3(1), point (a), needs to be revised so that entities constituted
as different legal forms from those listed in Annex I or Annex II to Directive
2013/34/EU are covered by this Directive;

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–

whether business models or forms of economic cooperation with third-party
companies other than those covered by Article 2 need to be included in thescope of this Directive;–

whether the thresholds regarding the number of employees and net turnoverlaid down in Article 2 need to be revised and if a sector-specific approachneeds to be introduced in high-risk sectors;–

whether the criterion of net turnover generated in the Union laid down in
Article 2(2) needs to be revised;(c)whether the definition of the term ‘chain of activities’ needs to be revised;(d)whether the Annex to this Directive needs to be modified, including in light ofinternational developments, and whether it should be extended to cover additional
adverse impacts, in particular adverse impacts on good governance;(e)whether the rules on combatting climate change provided for in this Directive,
especially as regards the design of transition plans for climate change mitigation,
their adoption and the putting into effect of those plans by companies, as well as thepowers of supervisory authorities related to those rules, need to be revised;(f)the effectiveness of the enforcement mechanisms put in place at national level, of thepenalties and the rules on civil liability;

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(g)

whether changes to the level of harmonisation provided for in this Directive are
required to ensure a level-playing field for companies in the internal market,
including the convergence and divergence between provisions of national law
transposing this Directive.

Article 37
Transposition
1.

Member States shall adopt and publish, by … [2 years from the entry into force of thisDirective], the laws, regulations and administrative provisions necessary to comply withthis Directive. They shall forthwith communicate the text of those measures to theCommission.
They shall apply those measures:(a)from … [3 years from the entry into force of this Directive] as regards companies
referred to in Article 2(1), points (a) and (b), which are formed in accordance withthe legislation of the Member State and that had more than 5 000 employees on
average and generated a net worldwide turnover of more than EUR 1 500 000 000 in
the last financial year preceding … [3 years from the entry into force of thisDirective] for which annual financial statements have been or should have been
adopted, with the exception of the measures necessary to comply with Article 16,
which Member States shall apply to those companies for financial years starting on
or after 1 January 2028;

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(b)

from … [4 years from the entry into force of this Directive] as regards companies
referred to in Article 2(1), points (a) and (b), which are formed in accordance withthe legislation of the Member State and that had more than 3 000 employees on
average and generated a net worldwide turnover of more than EUR 900 000 000 in
the last financial year preceding … [4 years from the entry into force of thisDirective] for which annual financial statements have been or should have been
adopted, with the exception of the measures necessary to comply with Article 16,
which Member States shall apply to those companies for financial years starting on
or after 1 January 2029;(c)from … [3 years from the entry into force of this Directive] as regards companies
referred to in Article 2(2), points (a) and (b), which are formed in accordance withthe legislation of a third country and that generated a net turnover of more than
EUR 1 500 000 000 in the Union, in the financial year preceding the last financial
year preceding … [3 years from the entry into force of this Directive], with the
exception of the measures necessary to comply with Article 16, which Member
States shall apply to those companies for financial years starting on orafter 1 January 2028;

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(d)

from … [4 years from the entry into force of this Directive] as regards companies
referred to in Article 2(2), points (a) and (b), which are formed in accordance withthe legislation of a third country and that generated a net turnover of more than
EUR 900 000 000 in the Union, in the financial year preceding the last financial year
preceding … [4 years from the entry into force of this Directive], with the exceptionof the measures necessary to comply with Article 16, which Member States shallapply to those companies for financial years starting on or after 1 January 2029;(e)from … [5 years from the entry into force of this Directive] as regards all othercompanies referred to in Article 2(1), points (a) and (b), and Article 2(2), points (a)and (b), and companies referred to in Article 2(1), point (c), and Article 2(2),point (c), with the exception of the measures necessary to comply with Article 16,
which Member States shall apply to those companies for financial years starting on
or after 1 January 2029.

When Member States adopt those measures, they shall contain a reference to this Directive
or be accompanied by such a reference on the occasion of their official publication.
Member States shall determine how such reference is to be made.
2.

Member States shall communicate to the Commission the text of the main measures ofnational law which they adopt in the field covered by this Directive.

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Article 38
Entry into force
This Directive shall enter into force on the twentieth day following that of its publication in the
Official Journal of the European Union.

Article 39
Addressees
This Directive is addressed to the Member States.
Done at …,

For the European Parliament

For the Council

The President

The President

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ANNEXPart I1.

RIGHTS AND PROHIBITIONS INCLUDED IN INTERNATIONAL HUMAN RIGHTS
INSTRUMENTS

1.

The right to life, interpreted in line with Article 6(1) of the International Covenant on Civil
and Political Rights. The abuse of that right includes, but is not restricted to, private or
public security guards protecting the company’s resources, facilities or personnel causing
the death of a person due to a lack of instruction or control by the company;

2.

The prohibition of torture, cruel, inhuman or degrading treatment, interpreted in line with
Article 7 of the International Covenant on Civil and Political Rights. This includes, but is
not restricted to, private or public security guards protecting the company’s resources,
facilities or personnel subjecting a person to torture or cruel, inhuman or degrading
treatment due to a lack of instruction or control by the company;

3.

The right to liberty and security, interpreted in line with Article 9(1) of the International
Covenant on Civil and Political Rights;

4.

The prohibition of arbitrary or unlawful interference with a person’s privacy, family, homeor correspondence and unlawful attacks on their honour or reputation, interpreted in linewith Article 17 of the International Covenant on Civil and Political Rights;

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5.

The prohibition of interference with the freedom of thought, conscience and religion,interpreted in line with Article 18 of the International Covenant on Civil and Political
Rights;6.

The right to enjoy just and favourable conditions of work, including a fair wage and an
adequate living wage for employed workers and an adequate living income for selfemployed workers and smallholders, which they earn in return from their work andproduction, a decent living, safe and healthy working conditions and reasonable limitationof working hours, interpreted in line with Articles 7 and 11 of the International Covenant
on Economic, Social and Cultural Rights;

7.

The prohibition to restrict workers’ access to adequate housing, if the workforce is housedin accommodation provided by the company, and to restrict workers’ access to adequate
food, clothing, and water and sanitation in the workplace, interpreted in line with
Article 11 of the International Covenant on Economic, Social and Cultural Rights;

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8.

The right of the child to the highest attainable standard of health, interpreted in line with
Article 24 of the Convention on the Rights of the Child; the right to education, interpreted
in line with Article 28 of the Convention on the Rights of the Child; the right to an
adequate standard of living, interpreted in line with Article 27 of the Convention on the
Rights of the Child; the right of the child to be protected from economic exploitation andfrom performing any work that is likely to be hazardous or to interfere with the child’s
education, or to be harmful to the child’s health or physical, mental, spiritual, moral orsocial development, interpreted in line with Article 32 of the Convention on the Rights of
the Child; the right of the child to be protected from all forms of sexual exploitation andsexual abuse and to be protected from being abducted, sold or moved illegally to adifferent place in or outside their country for the purpose of exploitation, interpreted in linewith Articles 34 and 35 of the Convention of the Rights of the Child;

9.

The prohibition of the employment of a child under the age at which compulsory schoolingis completed and, in any case, is not less than 15 years, except where the law of the placeof employment so provides in line with Article 2(4) of the International Labour
Organization Minimum Age Convention, 1973 (No. 138), interpreted in line with
Articles 4 to 8 of the International Labour Organization Minimum Age Convention, 1973
(No. 138);

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10.

The prohibition of the worst forms of child labour (persons below the age of 18 years),
interpreted in line with Article 3 of the International Labour Organization Worst Forms ofChild Labour Convention, 1999 (No. 182). This includes:(a)

all forms of slavery or practices similar to slavery, such as the sale and trafficking ofchildren, debt bondage and serfdom, as well as forced or compulsory labour,
including the forced or compulsory recruitment of children for use in armed
conflicts;(b)

the use, procuring or offering of a child for prostitution, for the production of
pornography or for pornographic performances;(c)the use, procuring or offering of a child for illicit activities, in particular for the
production or trafficking of drugs; and(d)work which, by its nature or the circumstances in which it is carried out, is likely toharm the health, safety or morals of children;

11.

The prohibition of forced or compulsory labour, which means all work or service that isexacted from any person under the menace of any penalty and for which the said person
has not offered himself or herself voluntarily, for example as a result of debt bondage ortrafficking in human beings, interpreted in line with Article 2(1) of the International
Labour Organization Forced Labour Convention, 1930 (No. 29). Forced or compulsory
labour shall not mean any work or services that comply with Article 2(2) of theInternational Labour Organization Forced Labour Convention, 1930 (No. 29) or with
Article 8(3), points (b) and (c) of the International Covenant on Civil and Political Rights;

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12.

The prohibition of all forms of slavery and slave-trade, including practices akin to slavery,
serfdom or other forms of domination or oppression in the workplace, such as extreme
economic or sexual exploitation and humiliation, or human trafficking, interpreted in linewith Article 8 of the International Covenant on Civil and Political Rights;

13.

The right to freedom of association, of assembly, and the rights to organise and collective
bargaining, interpreted in line with Articles 21 and 22 of the International Covenant on
Civil and Political Rights, Article 8 of the International Covenant on Economic, Social andCultural Rights, the International Labour Organization Freedom of Association andProtection of the Right to Organise Convention, 1948 (No. 87), and the International
Labour Organization Right to Organise and Collective Bargaining Convention, 1949
(No. 98). Those rights include the following:(a)workers are free to form or join trade unions;(b)the formation, joining and membership of a trade union must not be used as a reason
for unjustified discrimination or retaliation;(c)

trade unions are free to operate in line with their constitutions and rules, without
interference from the authorities; and(d)the right to strike and the right to collective bargaining;

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14.

The prohibition of unequal treatment in employment, unless this is justified by therequirements of the employment, interpreted in line with Articles 2 and 3 of theInternational Labour Organization Equal Remuneration Convention, 1951 (No. 100),
Articles 1 and 2 of the International Labour Organization Discrimination (Employment andOccupation) Convention, 1958 (No. 111), and Article 7 of the International Covenant on
Economic, Social and Cultural Rights. This includes, in particular:(a)the payment of unequal remuneration for work of equal value; and(b)discrimination on grounds of national extraction or social origin, race, colour, sex,
religion, political opinion;

15.

The prohibition of causing any measurable environmental degradation, such as harmful
soil change, water or air pollution, harmful emissions, excessive water consumption,
degradation of land, or other impact on natural resources, such as deforestation, that:(a)substantially impairs the natural bases for the preservation and production of food;(b)denies a person access to safe and clean drinking water;(c)makes it difficult for a person to access sanitary facilities or destroys them;(d)harms a person’s health, safety, normal use of land or lawfully acquired possessions;

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(e)

substantially adversely affects ecosystem services through which an ecosystem
contributes directly or indirectly to human wellbeing;interpreted in line with Article 6(1) of the International Covenant on Civil and Political
Rights and Articles 11 and 12 of the International Covenant on Economic, Social andCultural Rights;
16.

The right of individuals, groupings and communities to lands and resources and the rightnot to be deprived of means of subsistence, which entails the prohibition to unlawfully
evict or take land, forests and waters when acquiring, developing or otherwise using land,
forests and waters, including by deforestation, the use of which secures the livelihood of aperson, interpreted in line with Article 1 and 27 of the International Covenant on Civil andPolitical Rights and Article 1, 2 and 11 of the International Covenant on Economic, Social
and Cultural Rights.

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2.

HUMAN RIGHTS AND FUNDAMENTAL FREEDOMS INSTRUMENTS–

The International Covenant on Civil and Political Rights;–

The International Covenant on Economic, Social and Cultural Rights;–

The Convention on the Rights of the Child;–

The International Labour Organization’s core/fundamental conventions:–

Freedom of Association and Protection of the Right to Organise Convention, 1948
(No. 87);–

Right to Organise and Collective Bargaining Convention, 1949 (No. 98);–

Forced Labour Convention, 1930 (No. 29) and its 2014 Protocol;–

Abolition of Forced Labour Convention, 1957 (No. 105);–

Minimum Age Convention, 1973 (No. 138);–

Worst Forms of Child Labour Convention, 1999 (No. 182);–

Equal Remuneration Convention, 1951 (No. 100);–Discrimination (Employment and Occupation) Convention, 1958 (No. 111).

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Part IIPROHIBITIONS AND OBLIGATIONSINCLUDED IN ENVIRONMENTAL INSTRUMENTS
1.

The obligation to avoid or minimise adverse impacts on biological diversity, interpreted inline with Article 10, point (b) of the 1992 Convention on Biological Diversity andapplicable law in the relevant jurisdiction, including the obligations of the Cartagena
Protocol on the development, handling, transport, use, transfer and release of living
modified organisms and of the Nagoya Protocol on Access to Genetic Resources and the
Fair and Equitable Sharing of Benefits Arising from their Utilization to the Convention on
Biological Diversity of 12 October 2014.

2.

The prohibition on the import, export, re-export or introduction from the sea of any
specimen included in the Appendices I to III of the Convention on International Trade inEndangered Species of Wild Fauna and Flora (CITES) of 3 March 1973 without a permit,
interpreted in line with Articles III, IV and V of the Convention;

3.

The prohibition of the manufacture, import and export of mercury-added products listed in
Annex A Part I to the Minamata Convention on Mercury of 10 October 2013 (Minamata
Convention), interpreted in line with Article 4(1) of the Convention;

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4.

The prohibition of the use of mercury or mercury compounds in the manufacturing
processes listed in Annex B Part I to the Minamata Convention after the phase-out datespecified in the Convention for the individual processes, interpreted in line with
Article 5(2) of the Convention;

5.

The prohibition of the unlawful treatment of mercury waste, interpreted in line with
Article 11(3) of the Minamata Convention and Article 13 of Regulation (EU) 2017/852 of
the European Parliament and of the Council1;

6.

The prohibition of the production and use of chemicals listed in Annex A to the Stockholm
Convention of 22 May 2001 on Persistent Organic Pollutants (POPs Convention),interpreted in line with Article 3(1), point (a), point (i) of the Convention and Regulation(EU) 2019/1021 of the European Parliament and of the Council2;

7.

The prohibition of the unlawful handling, collection, storage and disposal of waste,interpreted in line with Article 6(1), point (d), points (i) and (ii) of the POPs Convention
and Article 7 of Regulation (EU) 2019/1021;

8.

The prohibition of the import or export of a chemical listed in Annex III to the Rotterdam
Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals
and Pesticides in International Trade (UNEP/FAO) of 10 September 1998, interpreted inline with Article 10(1), Article 11(1), point (b) and Article 11(2) of the Convention andindication by the importing or exporting Party to the Convention in line with the Prior
Informed Consent (PIC) Procedure;

1
2

Regulation (EU) 2017/852 of the European Parliament and of the Council of 17 May 2017
on mercury, and repealing Regulation (EC) No 1102/2008 (OJ L 137, 24.5.2017, p. 1).
Regulation (EU) 2019/1021 of the European Parliament and of the Council of 20 June 2019
on persistent organic pollutants (OJ L 169, 25.6.2019, p. 45).

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9.

The prohibition of the unlawful production, consumption, import and export of controlled
substances in Annexes A, B, C and E to the Montreal Protocol on substances that deplete
the Ozone Layer to the Vienna Convention for the protection of the Ozone Layer,interpreted in line with Article 4B of the Montreal Protocol and licensing provisions underapplicable law in relevant jurisdiction;

10.

The prohibition of the export of hazardous or other waste, interpreted in line with
Article 1(1) and (2) of the Basel Convention on the Control of Transboundary Movementsof Hazardous Wastes and their Disposal of 22 March 1989 (Basel Convention) andRegulation (EC) No 1013/2006 of the European Parliament and of the Council3:(a)to a party to the Convention that has prohibited the import of such hazardous andother wastes, interpreted in line with Article 4(1), point (b) of the Basel Convention;(b)

to a state of import that does not consent in writing to the specific import, in the casewhere that state of import has not prohibited the import of such hazardous wastes,interpreted in line with Article 4(1), point (c) of the Basel Convention;(c)to a non-party to the Basel Convention, interpreted in line with Article 4(5) of theBasel Convention;(d)to a state of import if such hazardous wastes or other wastes are not managed in anenvironmentally sound manner in that state or elsewhere, interpreted in line with
Article 4(8) the first sentence of the Basel Convention;

3

Regulation (EC) No 1013/2006 of the European Parliament and of the Councilof 14 June 2006 on shipments of waste (OJ L 190, 12.7.2006, p. 1).

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11.

The prohibition of the export of hazardous wastes from countries listed in Annex VII to theBasel Convention to countries not listed in Annex VII for operations listed in Annex IV to
the Basel Convention, interpreted in line with Article 4A of the Basel Convention and
Article 34 and 36 of Regulation (EC) No 1013/2006;

12.

The prohibition of the import of hazardous wastes and other wastes from a non-party thathas not ratified the Basel Convention, interpreted in line with Article 4(5) of the Basel
Convention;

13.

The obligation to avoid or minimise adverse impacts on the properties delineated as natural
heritage as defined in Article 2 of the Convention Concerning the Protection of the World
Cultural and Natural Heritage of 16 November 1972 (the World Heritage Convention),interpreted in line with Article 5, point (d) of the World Heritage Convention andapplicable law in the relevant jurisdiction;

14.

The obligation to avoid or minimise adverse impacts on wetlands as defined in Article 1 of
the Convention on Wetlands of International Importance especially as Waterfowl Habitatof 2 February 1971 (Ramsar Convention), interpreted in line with Article 4(1) of theRamsar Convention and applicable law in the relevant jurisdiction;

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15.

The obligation to prevent the pollution from ships, interpreted in line with the International
Convention for the Prevention of Pollution from Ships of 2 November 1973, as amended
by the Protocol of 1978 (MARPOL 73/78). This includes:(a)the prohibition on the discharge into the sea of:(i)oil or oily mixtures as defined in Regulation 1 of Annex I to MARPOL 73/78,
interpreted in line with Regulations 9 to 11 of Annex I to MARPOL 73/78;(ii)

noxious liquid substances as defined in Regulation 1(6) of Annex II to
MARPOL 73/78, interpreted in line with Regulations 5 and 6 of Annex II to
MARPOL 73/78; and(iii) sewage as defined in Regulation 1(3) of Annex IV to MARPOL 73/78,
interpreted in line with Regulations 8 and 9 of Annex IV to MARPOL 73/78;(b)

the prohibition of unlawful pollution by harmful substances carried by sea inpackaged form as defined in Regulation 1 of Annex III to MARPOL 73/78,
interpreted in line with Regulations 1 to 7 of Annex III to MARPOL 73/78; and(c)the prohibition of unlawful pollution by garbage from ships as defined inRegulation 1 of Annex V to MARPOL 73/78, interpreted in line with Regulations 3
to 6 to Annex V of MARPOL 73/78;

16.

The obligation to prevent, reduce and control pollution of the marine environment by
dumping, interpreted in line with Article 210 of the United Nations Convention on the Lawof the Sea of 10 December 1982 (UNCLOS) and applicable law in the relevant
jurisdiction.

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