Council of theEuropean Union
Brussels, 30 November 2022
(OR. en)15024/1/22
REV 1

Interinstitutional File:2022/0051(COD)DRS 64
SUSTDEV 203
CODEC 1793
COMPET 928
NOTE
From:
To:

Permanent Representatives Committee (Part 1)
Council

No. Cion doc.:

6533/22

Subject:

Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF
THE COUNCIL on Corporate Sustainability Due Diligence and amending
Directive (EU) 2019/1937- General ApproachI.

INTRODUCTION

1.

On 23 February 2022, the Commission submitted to the European Parliament and to theCouncil a proposal for a Directive on Corporate Sustainability Due Diligence and amending
Directive (EU) 2019/19371.

2.

The proposed Directive, based on Article 50 and Article 114 of the TFEU, lays down rules on
obligations for companies regarding actual and potential human rights adverse impacts andenvironmental adverse impacts, with respect to their own operations, the operations of theirsubsidiaries, and the value chain operations carried out by entities with whom the company
has an established business relationship. It also lays down rules on liability for violations ofthese obligations.

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3.

The proposed Directive aims to set out a horizontal framework to foster the contribution ofbusinesses operating in the single market towards the achievement of the Union’s transition toa climate-neutral and green economy in line with the European Green Deal and the UN
Sustainable Development Goals.

4.

The European Parliament's Committee on Legal Affairs (JURI) appointed Ms Lara
WOLTERS (S&D, NL) as rapporteur on the proposal, with eight committees being asked foran opinion, namely the Committee on Development (DEVE), the Committee on the InternalMarket and Consumer Protection (IMCO), the Committee on Industry, Research and Energy(ITRE), the Committee on Foreign Affairs (AFET), the Committee on the Environment,
Public Health and Food Safety (ENVI), the Committee on Economic and Monetary Affairs(ECON), the Committee on International Trade (INTA), and the Committee on Employment
and Social Affairs (EMPL), the latter five being associated committees. The JURI Committee
is expected to vote on its amendments to the Commission proposal and adopt the mandate fornegotiations at the end of March 2023, with the negotiating mandate expected to be voted at
plenary in May 2023.

5.

The opinion of the European Economic and Social Committee was adopted on 14 July 20222.

II.

WORK CONDUCTED WITHIN THE COUNCIL

6.

The Council at its meeting of 24 February 2022, heard a presentation from the Commission
on the content and aim of the proposed Directive.

7.

On 24 October 2022, the Environment Council, following the request of the BE delegation,
supported by the ES delegation, was informed about the work and progress made concerning
the proposed Directive.

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8.

The Permanent Representatives Committee provided guidance for further work on 26 October
2022. Building on the positions expressed by delegations, which were further developed at theCompany Law Working Party, the Presidency presented a revised compromise text to thePermanent Representatives Committee meeting on 18 November 2022 in order to prepare a
General Approach on the proposal. The meeting however confirmed that while delegations
agreed on most of the proposal, their views still differed on a small number of issues.

9.

Based on the views expressed at that meeting, the Presidency put forward a new compromise
text at the Permanent Representatives Committee meeting of 25 November 2022, in order to
finalise the preparations of the General Approach on the text. Some delegations still expressedsome concerns, particularly on the new definition of ‘chain of activities’ set out in Article
3(g). The Presidency presented a revised compromise text on that provision that received abroad support and has been introduced in doc. 15024/22 in view of reaching a General
Approach at the Competitiveness Council on 1 December 2022. Some delegations maintain ascrutiny reservation on the compromise text.

10.

Following the discussion at the 25 November 2022 Permanent Representatives Committee
meeting, some delegations continued to raise the important issue concerning the coverage ofthe provision of financial services by the regulated financial undertakings. Given that thepositions of some Member States developed since that meeting, the Presidency consideredthat this important issue should be further examined by the Permanent Representatives
Committee in preparation of the Competitiveness Council.

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11.

Discussions at the Permanent Representatives Committee meeting of 30 November 2022
revolved around a new Presidency compromise on the coverage of financial services provided
by regulated financial undertakings in the proposed Directive. Some delegations still
expressed concerns and maintained scrutiny reservations on the text. The Presidency
concluded that the compromise presented would be included in the consolidated compromise
text and forwarded to the Council (Competitiveness) on 1 December 2022, with a view toreaching agreement on a General Approach. The revised compromise text as it stands
following the COREPER meeting on 30 November 2022 is set out in Annex to this Note.
Changes compared to the text already submitted to the Council3 are indicated in bold
underlined for additions and strikethrough for deletions.

III. MAIN ELEMENTS OF THE COMPROMISEA.

Scope (Article 2)

12.

Article 2 establishes the personal scope of application of the proposed Directive and sets out
the criteria to determine which companies would have to carry out due diligence (Article 2(1)and (2)). The criteria are based on the number of employees and the net worldwide turnoverfor EU companies, and on the net turnover generated in the Union for non-EU companies.
The criteria would have to be fulfilled at the level of individual companies, as proposed by theCommission, but for two consecutive financial years. Also, a provision allowing companies tofulfil some of the due diligence obligations at a group level has been introduced (Article 4a).

13.

As regards non-EU companies, if they fulfil the criterion of the net turnover generated in theUnion, they would fall under the personal scope of the proposed Directive irrespective ofwhether they have a branch or a subsidiary in the Union. A new provision has been added in
Article 21(1a) that would require the Commission to set up a secured system of exchange of
information about the net turnover generated in the Union by non-EU companies without abranch in the EU or having branches in multiple Member States with the objective of
determining the competent Member State.

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14.

The overall logic of the scope and the thresholds of the number of employees and the net
turnover have been kept as in the Commission’s proposal. However, the compromise text also
includes a phase-in clause and a 1-year ‘vacatio legis’ period between the end of thetransposition period and the application of the rules of the proposed Directive (Article 30) in
order to ensure proportionality of the newly introduced rules as advocated for by manydelegations. Therefore, the rules of the proposed Directive shall first apply to very large
companies that have more than 1000 employees and EUR 300 million net worldwide
turnover, or 300 million net turnover generated in the Union for non-EU companies 3 years
from the entry into force.

15.

To further clarify the scope of the proposed Directive, the list of high-risk sectors (Article
2(1)(b)) was supplemented with a new annex (Annex II) containing the NACE codes
corresponding to the listed sectors.

16.

Article 2 is accompanied by a detailed review clause (Article 29) under which theCommission shall report and evaluate whether the thresholds regarding the number of
employees and the net turnover, the list of high-risk sectors and the criterion of the net
turnover generated in the Union in respect to non-EU companies need to be revised in the
future. Moreover, the Commission should also report and evaluate whether the individual
approach should not be changed to a consolidated approach, as well as whether the personalscope of the proposed Directive should be revised so that other legal persons constituted as
different legal forms than those currently foreseen in the proposed Directive should becovered.

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B.

Definitions (Article 3)i. Business partner (Article 3, points (e) and (f))

17.

The definition of the established business relationship as proposed by the Commission wasdeleted from Article 3, point (f) since the whole concept was abandoned. Instead, only thedefinition of ‘business partner’ in Article 3, point (e), is used (‘business relationship’ as
proposed by the Commission). In order to ensure feasibility for companies and to align with
the international framework, the risk-based approach was strengthened in the proposal, mainly
by amending Article 6 (mapping and in-depth assessment of adverse impacts) and introducing
a new Article 6a on prioritisation of adverse impacts. When it is not possible to address all theadverse impacts at the same time, companies shall prioritise the adverse impacts based on
their severity and likelihood, and first address the most significant ones before moving on to
the less significant ones. Severity of an adverse impact shall be assessed based on its gravity,
the number of persons or the extent of the environment affected, and the difficulty to restore
the situation prevailing prior to the impact.
ii. Chain of activities (Article 3(g))

18.

The term ‘value chain’ contained in the Commission’s proposal has been replaced by aneutral term of ‘chain of activities’ in order to reflect divergent views of Member States on
the issue of whether to cover the whole ‘value chain’ or limit the scope to the ‘supply chain’,
and to avoid confusion with already existing definitions since the content of the term has been
modified.

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19.

As regards the content of the ‘chain of activities’, the compromise text moved from theconcept of a full ‘value chain’ more towards the supply chain concept by leaving out thephase of the use of the company’s products or provision of services entirely. In order toenhance legal clarity, a list of the activities of the business partners that are covered wasincluded in the proposed definition of ‘chain of activities’. As these activities were alreadymentioned in recital (18), the Presidency moved them to the operative part of the text.
Furthermore, an exemption for products being subject to export control (i.e. dual-use items
and weaponry) was added in relation to the distribution, transport, storage and disposal ofsuch product. At the Permanent Representatives Committee meeting of 25 November 2022,
further modifications were made to clarify the upstream and downstream parts of thedefinition.

C.

Regulated financial undertakings (Article 2(8), Article 3, points (a) and (g), Article 6(3),Article 7(6) Article 8(7) and Article 10(2), Article 29, point (ca))

20.

Following further discussions at the Permanent Representatives Committee meeting of 30
November 2022 on the coverage of the provision of financial services by the regulated
financial undertakings, a compromise text was put forward to meet the remaining concerns ofsome delegations, leaving the decision of whether or not to include the provisions of financial
services by regulated financial undertakings up to each Member State when transposing the
Directive. Changes were introduced in this regard on Articles 2(8), 3(g),10(2) and Article 29,
point (ca). The related recitals (19), (34), (36b), (39), (41b), (43) and (70) were amended
accordingly.

21.

As regards the definition of regulated financial undertakings that would fall under the scopeof the proposed Directive, the compromise text leaves out of the scope financial products(i. e. alternative investment funds (AIFs) and undertakings for collective investment intransferable securities (UCITS)). Member States were provided with an option not to apply
the proposed Directive to pension institutions that are considered to be social security
schemes under applicable EU law.

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22.

The definition of chain of activities in respect to regulated financial undertakings wasamended to ensure clarity regarding the provision of which financial services should becovered, if the Member State decides to apply the Directive to the provision of such financial
services, while leaving out investment activities because of their specificities. If the Member
State does not decide to apply the Directive to the provision of the financial services byregulated financial undertakings (to cover the downstream part of the chain of activities), thechain of activities for regulated financial undertakings should be the same as for the rest of thecompanies from different economic sectors.

23.

If the Member State decides to apply the Directive to the provision of financial services byregulated financial undertakings, the regulated financial undertakings should be required to
identify the adverse impacts in the operations of their business partners only before providing
the financial service (Article 6(3)). A consequent exemption was introduced for the obligation
to monitor the adverse impacts in Article 10(2), so that in respect to the operations ofcompanies’ business partners, to which they provide financial services, they are required tomonitor only those adverse impacts that were identified before providing the financial service.

24.

The last set of changes on this issue was introduced to address the obligation of a regulated
financial undertaking to temporarily suspend or terminate a business relationship (Article 7(6)and 8(7)), where none of the appropriate measures taken to address the adverse impact havebeen successful. By way of derogation from this general obligation, regulated financial
undertakings providing financial services shall not be required to temporarily suspend or
terminate the business relationship. However, in such a case, the undertaking shall monitor
the adverse impact while pursuing efforts to address the adverse impact.

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D.

Combating climate change (Article 15)

25.

As requested by many Member States, the text of the provision on combating climate change
has been aligned as much as possible with the soon-to-be-adopted Corporate Sustainability
Reporting Directive (CSRD), including a specific reference to that Directive, in order to avoid
problems with its legal interpretation, while avoiding broadening the obligations of companies
under this Article.

26.

Due to the strong concerns of Member States regarding the provision proposed by theCommission linking the variable remuneration of directors to their contribution to thecompany’s business strategy and long-term interest and sustainability, this provision has been
deleted (Article 15(3)). The form and structure of directors’ remuneration are matters
primarily falling within the competence of the company and its relevant bodies orshareholders. Delegations called for not interfering with different corporate governancesystems within the Union, which reflect different Member States’ views about the roles ofcompanies and their bodies in determining the remuneration of directors.

E.

Civil liability (Article 22)27.

Article 22 has been amended significantly in order to achieve legal clarity, certainty forcompanies and to avoid unreasonable interference with the Member States’ tort law systems.
The four conditions that have to be met in order for a company to be held liable – a damage
caused to a natural or legal person, a breach of the duty, the causal link between the damage
and the breach of the duty and a fault (intention or negligence) – were clarified in the text andthe element of fault was included.

28.

Furthermore, the right of victims of human rights or environmental adverse impacts to fullcompensation were expressly provided for in the compromise text. On the other hand, theright to full compensation should not lead to overcompensation, for example by means ofpunitive damages.

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29.

Further, clarifications of the joint and several liability of a company and a subsidiary or abusiness partner and the overriding mandatory application of civil liability rules were made.
All of these clarifications and precisions allowed to delete the safeguard for companies thatsought contractual assurances from their indirect business partners after a strong criticism of
this provision due to its heavy reliance on contractual assurances.

F.

Directors’ duties (Articles 25 and 26)

30.

The Commission proposal regulated directors’ duty of care (Article 25) and laid down the
duty for directors of EU companies to set up and oversee the due diligence actions and toadapt the corporate strategy to take into account the identified adverse impacts and adopted
due diligence measures (Article 26).

31.

Due to the strong concerns expressed by Member States that considered Article 25 to be an
inappropriate interference with national provisions regarding directors’ duty of care, andpotentially undermining directors’ duty to act in the best interest of the company, theprovisions have been deleted from the text.

32.

As the content of Article 26 was closely linked to the due diligence process, the Article wasdeleted and its main elements were moved to the provision on integrating due diligence into
the company’s policies and risk management systems (Article 5(3)), taking into account thevariety of corporate governance systems and the freedom of companies to regulate theirinternal matters.

G.

Annex I and definitions of adverse impacts (Article 3, points (b) and (c))

33.

The Annex I to the proposed Directive has undergone significant changes with the main
objective of making the obligations as clear and easily understandable for companies as
possible, while ensuring a legally sound base. The logic of the Annex I is to list specific rights
and prohibitions, the abuse or violation of which constitutes an adverse human rights impact(Article 3, point (c)) or adverse environmental impacts (Article 3, point (b)). To better
understand how these rights and prohibitions should be interpreted, the Annex I contains
references to international instruments that serve as points of reference.

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34.

To ensure the legitimacy of referring to international instruments that are legally binding only
on the States, and following the overall logic of the Annex I, the Annex I covers only thoseinternational instruments that were ratified by all Member States. Overall, the Annex I of thecompromise text only refers to such obligations and prohibitions that can be observed bycompanies, not just by States.

35.

As regards the human rights part of the Annex I, it covers only legally binding international
instruments that are recognised as a minimum list of instruments in the internationalframework. Concerning the environmental part of the Annex I, a limited number of additional
specific obligations and prohibitions under international environmental instruments have been
added, the violation of which results in an adverse environmental impact.

36.

Moreover, the definitions of adverse environmental and human rights impacts have beenclarified. Furthermore, the so-called ‘catch-all clause’ included in the Commission’s proposal
has been kept in order to safeguard the indivisibility of human rights, but it has been clarified
thoroughly to ensure maximum predictability for companies.

IV.

CONCLUSION
In the light of the abovementioned, the Presidency considers that the text represents abalanced compromise between the views expressed by delegations. The Council is therefore
invited to agree a General Approach on the basis of the text set out in the Annex at theCouncil meeting (Competitiveness) on 1 December 2022, and to mandate the Presidency toenter into negotiations with the European Parliament.

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ANNEX
2022/0051 (COD)
Proposal for a
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937(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) and (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 Committee4,
Acting in accordance with the ordinary legislative procedure,
Whereas:(1)

The Union is founded on the respect for human dignity, freedom, democracy, equality, therule of law and respect for human rights as enshrined in the EU Charter of Fundamental
Rights. Those core values that have inspired the Union’s own creation, as well as theuniversality and indivisibility of human rights, and respect for the principles of the United
Nations Charter and international law, should guide the Union’s action on the international
scene. Such action includes fostering the sustainable economic, social and environmental
development of developing countries.

4

OJ C , , p. .

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(2)

A high 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 the Commission’sCommunication on A European Green Deal5. These objectives require the involvement not
only of the public authorities but also of private actors, in particular companies.

(3)

In its Communication on a Strong Social Europe for Just Transition6, the Commissioncommitted to upgrading Europe’s social market economy to achieve a just transition tosustainability. This Directive will also contribute to the European Pillar of Social Rights,
which promotes rights ensuring fair working conditions. It forms part of the EU policies andstrategies relating to the promotion of decent work worldwide, including in global value
chains, as referred to in the Commission Communication on decent work worldwide7.

(4)

The behaviour of companies across all sectors of the economy is key to success in the Union’ssustainability 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, inparticular given the rising concern of consumers and investors regarding these topics. Several
initiatives fostering enterprises which support value-oriented transformation already exist on
Union8, as well as national9 level.

5

6

7

8
9

Communication from the Commission to the European Parliament the European Council,
the Council, the European Economic and Social Committee and the Committee of theRegion “The European Green Deal” (COM/2019/640 final).
Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions – A Strong
Social Europe for Just Transitions (COM/2020/14 final).
Communication from the Commission to the European Parliament, the Council and theEuropean Economic and Social Committee on decent work worldwide for a global justtransition and a sustainable recovery, COM(2022) 66 final.
‘Enterprise Models and the EU agenda’, CEPS Policy Insights, No PI2021-02/ January
2021.
E.g. https://www.economie.gouv.fr/entreprises/societe-mission

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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 United Nations Guiding Principles
on Business and Human Rights10 recognise the responsibility of companies to exercise humanrights due diligence by identifying, preventing and mitigating the adverse impacts of theiroperations on human rights and by accounting for how they address those impacts. Those
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 within their own operations, subsidiaries and through their direct and indirect business
relationships.

(6)

The concept of human rights due diligence was specified and further developed in the OECD
Guidelines for Multinational Enterprises11 which extended the application of due diligence toenvironmental and governance topics. The OECD Guidance on Responsible BusinessConduct and sectoral guidance12 are internationally recognised frameworks setting out
practical due diligence steps to help companies identify, prevent, mitigate and account for
how they address actual and potential impacts in their operations, supply chains and otherbusiness relationships. The concept of due diligence is also embedded in therecommendations of the International Labour Organisation (ILO) Tripartite Declaration of
Principles concerning Multinational Enterprises and Social Policy.13

10

11
12

13

United Nations’ “Guiding Principles on Business and Human Rights: Implementing theUnited Nations ‘Protect, Respect and Remedy’ Framework”, 2011, available athttps://www.ohchr.org/documents/publications/guidingprinciplesbusinesshr_en.pdf.
OECD Guidelines for Multinational Enterprises, 2011 updated edition, available at
http://mneguidelines.oecd.org/guidelines/.
OECD Guidance on Responsible Business Conduct, 2018, and sector-specific guidance,
available at https://www.oecd.org/investment/due-diligence-guidance-for-responsiblebusiness-conduct.htm.
The International Labour Organisation’s “Tripartite Declaration of Principles concerning
Multinational Enterprises and Social Policy, Fifth Edition, 2017, available at:https://www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm.

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(7)

The United Nations’ Sustainable Development Goals14, adopted by all United Nations
Member States in 2015, include the objectives to promote sustained, inclusive and sustainableeconomic growth. The Union has set itself the objective to deliver on the UN Sustainable
Development Goals. The private sector contributes to those aims.

(8)International agreements under the United Nations Framework Convention on Climate
Change, to which the Union and the Member States are parties, such as the Paris Agreement
under the United Nations Framework Convention on Climate Change adopted on 12
December 2015 (the ‘Paris Agreement’)15 and the recent Glasgow Climate Pact16, 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 considered central to achieve these objectives.

14

https://www.un.org/ga/search/view_doc.asp?symbol=A/RES/70/1&Lang=E.

15

OJ L 282, 19.10.2016, p. 4.
https://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agree
ment.pdf

16

Glasgow Climate Pact, adopted on 13 November 2021 at COP26 in Glasgow,
https://unfccc.int/sites/default/files/resource/cma2021_L16_adv.pdf.https://unfccc.int/sites/default/files/resource/cma2021_L16_adv.pdf.

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(9)

In Regulation (EU) 2021/1119 of the European Parliament and of the Council17, the Unionalso legally committed to becoming climate-neutral by 2050 and to reducing emissions by atleast 55% by 2030. Both these commitments require changing the way in which companies
produce and procure. The Commission’s 2030 Climate Target Plan18 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. The
Plan also underlines that “changes in corporate governance rules and practices, including onsustainable finance, will make company owners and managers prioritise sustainability
objectives in their actions and strategies.” The 2019 Communication on the European Green
Deal19 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.

(10) According to the Commission Communication on forging a climate-resilient Europe20
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 the Commission Directive […] amending Directive
2013/36/EU as regards supervisory powers, sanctions, third-country branches, andenvironmental, social and governance risks (Capital Requirements Directive)21, which sets out
clear requirements for banks’ governance rules including knowledge about environmental,social and governance risks at board of directors level.

17

18
19
20

21

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).
SWD/2020/176 final.
COM/2019/640 final.
Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions on Forging a
climate-resilient Europe – the new EU Strategy on Adaptation to Climate Change(COM/2021/82 final), available at https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=COM:2021:82:FIN.
OJ C […], […], p. […].

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(11) The Action Plan on a Circular Economy22, the Biodiversity strategy23, the Farm to Forkstrategy24 and the Chemicals strategy25 and Updating the 2020 New Industrial Strategy:
Building a stronger Single Market for Europe’s recovery26, Industry 5.027 and the European
Pillar of Social Rights Action Plan28 and the 2021 Trade Policy Review29 list an initiative on
sustainable corporate governance among their elements.
(12) This Directive is in coherence with the EU Action Plan on Human Rights and Democracy
2020-202430. This Action Plan defines as a priority to strengthen the Union’s engagement toactively promote the global implementation of the United Nations Guiding Principles on
Business and Human Rights and other relevant international guidelines such as the OECD
Guidelines for Multinational Enterprises, including by advancing relevant due diligencestandards.

22

23

24

25

26

27
28
29

30

Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions on A new
Circular Economy Action Plan For a cleaner and more competitive Europe (COM/2020/98
final).
Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions on the EU
Biodiversity Strategy for 2030 Bringing nature back into our lives (COM/2020/380 final).
Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions on A Farm to
Fork Strategy for a fair, healthy and environmentally-friendly food system (COM/2020/381
final).
Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions on theChemicals Strategy for Sustainability Towards a Toxic-Free Environment (COM/2020/667
final).
Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions on Updating
the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery(COM/2021/350 final).
Industry 5.0; https://ec.europa.eu/info/research-and-innovation/research-area/industrialresearch-and-innovation/industry-50_en
https://op.europa.eu/webpub/empl/european-pillar-of-social-rights/en/
Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions, Trade Policy
Review – An Open, Sustainable and Assertive Trade Policy (COM/2021/66/final).
Joint Communication to the European Parliament and the Council on the EU Action Plan on
Human Rights and Democracy 2020-2024 (JOIN/2020/5 final).

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(13) The European Parliament, in its resolution of 10 March 2021 calls upon the Commission to
propose Union rules for a comprehensive corporate due diligence obligation31. The Council
Conclusions on Human Rights and Decent Work in Global Supply Chains of 1 December
202032 called upon the Commission to table a proposal for a Union legal framework onsustainable corporate 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 adopted on 2 December 2020 on sustainable corporate governance.
In their Joint Declaration on EU Legislative Priorities for 202233, the European Parliament,
the Council of the European Union and the Commission have committed, to deliver on an
economy that works for people, and to improve the regulatory framework on sustainablecorporate governance.
(14) This Directive aims to ensure that companies active in the internal market contribute tosustainable development and the sustainability transition of economies and societies throughthe identification, prevention and mitigation, bringing to an end and minimisation of potential
or actual adverse human rights and environmental impacts connected with companies’ own
operations, operations of their subsidiaries and their business partners in the companies’
chains of activities. This Directive is without prejudice to the responsibility of Member States
to respect and protect human rights and the environment under international law.

31

32
33

European Parliament resolution of 10 March 2021 with recommendations to theCommission on corporate due diligence and corporate accountability (2020/2129(INL)),
P9_TA(2021)0073, available athttps://oeil.secure.europarl.europa.eu/oeil/popups/ficheprocedure.do?lang=en&reference=20
20/2129(INL).
Council Conclusions on Human Rights and Decent Work in Global Supply Chains, 1
December 2020 (13512/20).
Joint declaration of the European Parliament, the Council of the European Union and theEuropean Commission on EU Legislative Priorities for 2022, available athttps://ec.europa.eu/info/sites/default/files/joint_declaration_2022.pdf.

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(14a) This Directive is without prejudice to obligations in the areas of human rights, protection of
the environment and climate change under other Union legislative acts. If the provisions of
this Directive conflict with a provision of another Union legislative act pursuing the same
objectives and providing for more extensive or more specific obligations, the provisions of theother Union legislative act should prevail to the extent of the conflict and should apply tothose specific obligations. Examples of these obligations in Union legislative acts include
obligations in the Regulation (EU) 2017/821 of the European Parliament and of the Council(Conflict Minerals Regulation)34, [the proposal for a Batteries Regulation35] or [the proposal
for a Regulation on deforestation-free supply chains36].
(14b) In order to accommodate for the specificities of pension and social security schemes indifferent Member States, Member States should decide whether to apply this Directive to theirpension institutions operating social security systems under applicable Union law.

34

35

36

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 and tungsten, their ores, and gold
originating from conflict-affected and high-risk areas (OJ L 130, 19.5.2017, p. 1).
Proposal for a Regulation of the European Parliament and of the Council concerning batteries and waste
batteries, repealing Directive 2006/66/EC and amending Regulation (EU) No 2019/1020 (COM/2020/798
final).
Proposal for a Regulation of the European Parliament and of the Council on the making available on the Union
market as well as export from the Union of certain commodities and products associated with deforestation andforest degradation and repealing Regulation (EU) No 995/2010 (COM(2021) 706 final).

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(15) Companies should take appropriate steps to set up and carry out due diligence measures, withrespect to their own operations, their subsidiaries, as well as their direct and indirect business
partners throughout their chains of activities in accordance with the provisions of thisDirective. This Directive should not require companies to guarantee, in all circumstances, thatadverse impacts will never occur or that they will be stopped. For example, with respect tobusiness 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 thisDirective should be ‘obligations of means’. The company should take the appropriate
measures which can reasonably be expected to result in prevention or minimisation of theadverse impact under the circumstances of the specific case. Account should be taken of thespecificities of the company’s business operations and its chain of activities, sector or
geographical area in which its business partners operate, the company’s power to influence its
direct and indirect business partners, and whether the company could increase its power of
influence.
(16) The due diligence process set out in this Directive should cover the six steps defined by theOECD Due Diligence Guidance for Responsible Business Conduct, which include due
diligence measures for companies to identify and address adverse human rights andenvironmental impacts. This encompasses the following steps: (1) integrating due diligence
into policies and management systems, (2) identifying and assessing adverse human rights
and environmental impacts, (3) preventing, ceasing or minimising actual and potential adverse
human rights, and environmental impacts, (4) assessing the effectiveness of measures, (5)communicating, (6) providing remediation.

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(16a) 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, in compliance with existing national and Union law.
In addition, the parent company falling under the scope of this Directive should be allowed tofulfil some of the due diligence obligations also on behalf of its subsidiaries that are fallingunder the scope of this Directive. Since the parent company would be fulfilling these due
diligence obligations on behalf of subsidiaries, the subsidiaries should only be required tofulfil the obligations that need to be performed at subsidiary level due to their nature. The
possibility to fulfil the obligations at a group level should be limited to parent companies andsubsidiaries both falling under the scope of this Directive. This limitation is necessary for the
purposes of administrative enforcement where, apart from the obligations staying with thesubsidiaries, the parent company should be responsible for fulfilling the due diligenceobligations. The supervisory authority of the parent company should be competent to monitor
and assess the fulfilment of due diligence obligations of the whole group, apart from theobligations staying with the subsidiaries where the competent supervisory authority should be
the one of the relevant subsidiary. If the subsidiary does not fall under the scope of thisDirective, the parent company cannot fulfil due diligence on behalf of the subsidiary since thesubsidiary is not obliged to carry out due diligence. In that case, the parent company should
cover operations of the subsidiary as part of its own due diligence obligations. If thesubsidiaries fall under the scope of this Directive, but the parent company does not, they stillshould be allowed to share resources and information within the group of companies.
Nevertheless, the subsidiaries would be responsible for fulfilling due diligence obligations
under this Directive.

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(16b) The fulfilment of due diligence obligations at a group level should be without prejudice to thecivil liability of subsidiaries in respect to victims to whom the damage is caused. If theconditions for civil liability are met, the subsidiary might be held liable for damage occurred,irrespective of whether the due diligence obligations were carried out by the subsidiary or by
the parent company on behalf of the subsidiary.
(16c) In line with existing Union law, when sharing information to comply with the obligations
resulting from this Directive, companies or legal entities should not be required to disclose to
its business partner information that is deemed to be a trade secret as defined in the Directive
2016/943/EU of the European Parliament and of the Council37.
(17) Adverse human rights and environmental impacts might occur in companies’ own operations,operations of their subsidiaries, and their business partners in their chains of activities, inparticular at the level of raw material sourcing, manufacturing, or at the level of product or
waste disposal. In order for the due diligence to have a meaningful impact, it should coverhuman rights and environmental adverse impacts generated throughout majority of the life
cycle of production and use and disposal of product or provision of services, at the level ofcompanies’ own operations, operations of their subsidiaries and their business partners in theirchains of activities.

37

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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(18) The chain of activities should cover activities related to the production and supply of goods orprovision of services by a company, which should encompass activities of direct and indirectbusiness partners that design, extract, manufacture, transport, store and supply raw material,
products, parts of products, or provide services to the company that are necessary to carry out
the company’s activities. Also, the chain of activities should cover activities of direct andindirect business partners that distribute, transport, store and dispose of the product, includinginter alia the dismantling of the product, its recycling, composting or landfilling, where those
activities are carried out for the company or on behalf of the company.. The disposal of the
product by consumers should be excluded in order to ensure the feasibility of due diligenceobligations. Also, the chain of activities should not encompass the distribution, transport,
storage and disposal of a product that is subject to export control of a Member State, meaning
either the export control under the Regulation (EU) 2021/821 of the European Parliament andof the Council38 or the export control of weapons, munition or war material under national
export controls, after the export of the product is authorised.

38

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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(19) For regulated financial undertakings, the definition of the term ‘chain of activities’ and thedue diligence requirements relating to the should also include the provision of financial
services they provide within the meaning of this Directive if the Member State decides toapply this Directive also to the provision of such services. In such case, the definition of
the term ‘chain of activities’ should be adapted to cater for their specificities with a view tocapture activities that allocate capital and provide insurance coverage to the real economy.
Therefore, it is appropriate not to include in the definition of the term ‘chain of activities’
financial services other than those services that directly result in an allocation of capital or in
the coverage of risk through insurance or reinsurance. As regards regulated financial
undertakings providing financial services, ‘chain of activities’ with respect to the provision ofsuch services should be limited to the activities of the counterparts receiving such services,and their subsidiaries benefiting from the service whose activities are linked to the service inquestion. The activities of the business partners in the chains of activities of thosecounterparts should not be covered. Counterparts that are households or natural persons not
acting in a professional or business capacity, as well as small and medium sized enterprises,
should not be considered to be part of the chain of activities of the financial undertaking.
(20) […]

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(21) Under this Directive, companies established in the Union with more than 500 employees on
average and a net worldwide turnover exceeding EUR 150 million in the last financial year
for which annual financial statements have been or should have been adopted should be
required to comply with due diligence, provided that they fulfil those criteria for two
consecutive financial years. As regards companies which do not fulfil those criteria, but which
had more than 250 employees on average and more than EUR 40 million net worldwide
turnover in the financial year preceding the last financial year and which operate in one ormore high-impact sectors, provided that they fulfil those criteria for two consecutive financial
years, due diligence should apply 3 years after the end of the transposition period of thisDirective, in order to provide for a longer adaptation period. In order to ensure a proportionate
burden, companies operating in such high-impact sectors should be required to comply withmore targeted due diligence. Temporary agency workers, including those posted under Article
1(3), point (c), of Directive 96/71/EC of the European Parliament and of the Council39, as
amended by Directive 2018/957/EU of the European Parliament and of the Council40, 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, as amended by
Directive 2018/957/EU, should only be included in the calculation of the number of
employees of the sending company. Seasonal workers should be included in the calculation of
the number of employees proportionally to the number of months that they are employed for.

39

40

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).
Directive (EU) 2018/957 of the European Parliament and of the Council of 28 June 2018
amending Directive 96/71/EC concerning the posting of workers in the framework of theprovision of services (OJ L 173, 9.7.2018, p. 16).

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(22) In order to reflect the priority areas of international action aimed at tackling human rights andenvironmental issues, the selection of high-impact sectors for the purposes of this Directive
should be based on existing sectoral OECD due diligence guidance. The following sectors
should be regarded as high-impact for the purposes of this Directive: the manufacture of
textiles, leather and related products (including footwear), and the wholesale trade of textiles,
clothing and footwear; agriculture, forestry, fisheries (including aquaculture), the manufactureof food products and beverages, and the wholesale trade of agricultural raw materials, live
animals, wood, food, and beverages; the extraction of mineral resources regardless of where
they are extracted from (including crude petroleum, natural gas, coal, lignite, metals and metalores, as well as all other, non-metallic minerals and quarry products), the manufacture of basic
metal products, other non-metallic mineral products and fabricated metal products (except
machinery and equipment), and the wholesale trade of mineral resources, basic andintermediate mineral products (including metals and metal ores, construction materials, fuels,chemicals and other intermediate products). These sectors should be understood as covering
the related sectors of economic activities associated with the applicable statisticalclassification of economic activities established by Regulation (EC) No 1893/2006 of theEuropean Parliament and the Council41. As regards the financial sector, due to its specificities,
in particular as regards the chain of activities and the services offered, even if it is covered by
sector-specific OECD guidance, it should not form part of the high-impact sectors covered bythis Directive. At the same time, in this sector, the broader coverage of actual and potential
adverse impacts should be ensured by also including very large companies in the scope thatare regulated financial undertakings, even if they do not have a legal form with limited
liability.

41

Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20
December 2006 establishing the statistical classification of economic activities NACE
Revision 2 and amending Council Regulation (EEC) No 3037/90 as well as certain EC
Regulations on specific statistical domains, OJ L 393, 30.12.2006, p. 1).

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(23) In order to achieve fully the objectives of this Directive addressing human rights and adverse
environmental impacts with respect to companies’ operations, operations of their subsidiaries
and their business partners in companies’ chains of operations, third-country companies withsignificant operations in the EU should also be covered. More specifically, the Directive
should apply to third-country companies which generated a net turnover of at least EUR
150 million in the Union in the financial year preceding the last financial year, or a net
turnover of more than EUR 40 million but less than EUR 150 million generated in the Union
in the financial year preceding the last financial year, provided that at least EUR 20 million
was generated in one or more of the high-impact sectors. The companies need to fulfil thosecriteria for two consecutive financial years.
(24) For defining the scope of application in relation to third-country companies, the describedturnover criterion should be chosen as it creates a territorial connection between the thirdcountry companies and the Union territory. Turnover is a proxy for the effects that theactivities of those companies could have on the internal market. In accordance withinternational law, such effects justify the application of Union law to third-country
companies. To ensure identification of the relevant turnover of companies concerned, themethods for calculating net turnover for third-country companies as laid down in Directive(EU) 2013/34 of the European Parliament and of the Council42 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 fall under this Directive, as the notion of“employees” retained for the purposes of this Directive is based on Union law and could not
be easily transposed outside of the Union. In the absence of a clear and consistentmethodology, including in accounting frameworks, to determine the employees of thirdcountry companies, such employee threshold would therefore create legal uncertainty andwould be difficult to apply for supervisory authorities.

42

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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The definition of turnover should be based on Directive 2013/34/EU which has alreadyestablished the methods for calculating net turnover for non-Union companies, as turnoverand revenue definitions are similar in international accounting frameworks too. With a viewto ensuring that the supervisory authority knows which third country companies generate therequired turnover in the Union to fall under the scope of this Directive, 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 established and, where it is different, a supervisory
authority in the Member State in which the company generated most of its net turnover in theUnion in the financial year preceding the last financial year that the company is a company
falling under the scope of this Directive. If necessary for determination in which Member
State the third-country company generated most of its net turnover in the Union, the Member
State can request the Commission to inform the Member State about the net turnover of thethird-country company generated in the Union. The Commission should set up a system toensure such an exchange of information.

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(25) In order to achieve a meaningful contribution to the sustainability transition, due diligence
under this Directive should be carried out with respect to adverse human rights impacts on
persons resulting from the abuse of one of the rights as enshrined in the international
instruments listed in the Annex I, Part I Section 1 to this Directive. In order to ensure acomprehensive coverage of human rights, an abuse of a human right not specifically listed in
Annex I, Part I Section 1 which can be abused by a company, its subsidiary or business
partner and which directly impairs a legal interest protected in the human rights instruments
listed in Annex I, Part I Section 2 should also form part of the adverse human rights impacts
covered by this Directive, provided that the company concerned could have reasonably
identified such human right abuse in its own operations, the operations of its subsidiary andthe operations of its business partners, taking into account all relevant circumstances of thespecific case, such as the nature and extent of the company’s business operations and its chainof 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 the Annex I, Part II to this Directive.

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(26) When assessing the 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. Such guidance isincluded for instance in the United Nations Guiding Principles Reporting Framework43, theUnited Nations Guiding Principles Interpretative Guide44 or Human Rights Translated 2.0: A
Business Reference Guide45.
(26a) In order to conduct meaningful human rights and environmental due diligence, companies
should consult with stakeholders throughout the process of carrying out the due diligence
actions. Stakeholders of the company should encompass the company’s employees,
employees of the company’s subsidiaries, trade unions and workers’ representatives,
consumers and other individuals, groups, communities or entities whose rights or interests areor could be affected by the products, services and operations of the company, its subsidiaries
or business partners. The possibly affected individuals could mean, for example, human rights
and environmental defenders as understood under the United Nations Declaration on Human
Rights Defenders. The possibly affected groups or communities could mean, for example,
indigenous peoples as protected under the United Nations Declaration on the Rights ofIndigenous Peoples. The possibly affected entities could mean, for example, civil society
organisations, national human rights institutions or environmental institutions.

43
44
45

https://www.ungpreporting.org/wpcontent/uploads/UNGPReportingFramework_withguidance2017.pdf.
https://www.ohchr.org/Documents/Issues/Business/RtRInterpretativeGuide.pdf.
https://www.ohchr.org/sites/default/files/Documents/Publications/HRT_2_0_EN.pdf

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(27) In order to conduct appropriate human rights and environmental due diligence with respect totheir operations, operations of their subsidiaries, and operations of their business partners incompanies’ chains of activities, companies covered by this Directive should integrate due
diligence into company’s policies and risk management systems, identify, prevent andmitigate as well as bring to an end and minimise the extent of potential and actual adverse
human rights and environmental impacts, establish and maintain a complaints procedure,monitor the effectiveness of the taken measures in accordance with the requirements that are
set up in this Directive and communicate publicly on their due 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 not possible, minimising actual adverse
impacts, should be clearly distinguished in this Directive.

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(28) 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 policies and risk management systems, and have in place a due
diligence policy. The due diligence policy should contain a description of the company’s
approach, including in the long term, to due diligence, a code of conduct describing the rules
and principles to be followed by the company’s employees and subsidiaries, and, where
relevant, the company’s direct or indirect business partners, and a description of the processes
put in place to implement due diligence, including the measures taken to verify compliancewith the code of conduct and to extend its application to business partners. The code of
conduct should apply in all relevant corporate functions and operations, including
procurement and purchasing decisions. Companies should also update their due diligencepolicy without undue delay after a significant change occurs, but at least every 24 months. A
significant change should be understood as such a change to the status quo of the company’s
own operations, the operations of its subsidiaries or business partners, the legal or businessenvironment or any other substantial shift from the situation of the company that the company
could be reasonably expected to react to it and update the policy. Examples of a significant
change could be the cases when the company operates in a new economic sector or
geographical area, starts producing new products or changes the way of producing theexisting products using technology with potentially higher adverse impacts, or changes its
corporate structure via restructuring or mergers or acquisitions. Incorporating due diligence
into risk management systems should be understood in line with the relevant internationalframework to ensure that the due diligence obligations are put in place and being overseen. In
order to fulfil this obligation, companies should be allowed to internally organise according totheir needs, for example by using existing management systems, setting up a risk management
system of the company or creating a human rights and environment officer.

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(29) To comply with due diligence obligations, companies need to take appropriate measures withrespect to identification, prevention and bringing to an end adverse impacts. An ‘appropriate
measure’ should mean a measure that is capable of achieving the objectives of due diligence,commensurate with the degree of severity and the likelihood of the adverse impact, andreasonably available to the company, taking into account the circumstances of the specificcase, including the nature and extent of the company’s business operations and characteristicsof the economic sector and of the specific business partner. If necessary information cannot be
obtained due to factual or legal obstacles, for instance because a business partner refuses toprovide information and there are no legal grounds to enforce this, such circumstances cannot
be held against the company.

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(30) Under the due diligence obligations set out by this Directive, a company should identify
actual or potential adverse human rights and environmental impacts. In order to allow for acomprehensive identification of adverse impacts, such identification should be based on
quantitative and qualitative information. For instance, as regards adverse environmental
impacts, the company should obtain information about baseline conditions at higher risk sites
or facilities in its chains of activities. When identifying adverse impacts, the company shouldbe able to first map all areas of their operations, the operations of their subsidiaries and, whererelated to their chains of activities, their business partners, and based on the results, carry out
an in-depth assessment focusing on the areas where the adverse impacts are most likely to bepresent or most significant. When identifying the adverse impacts, the company should take
into account possible risk factors, such as whether the subsidiary or the business partner is acompany that has infringed the national provisions adopted pursuant to this Directive. The
company can obtain the necessary information from decisions of the supervisory authorities
containing penalties that should be published by supervisory authorities as well as by theEuropean Network of Supervisory Authorities so that one single source of information isavailable to companies. Identification of adverse impacts should include assessing the humanrights, and environmental context in a dynamic way and in regular intervals: without undue
delay after a significant change occurs, but at least every 24 months, throughout the life of anactivity or relationship. A significant change should be understood as such a change to thestatus 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, including learning about the adverse impact from publicly available informationor through consultation with the stakeholders, that the company could be reasonably expected
to react to it and identify the adverse impacts, possibly prioritise them and prevent or mitigate
them or bring them to an end or minimise their extent. Examples of a significant change could
be the cases when the company operates 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 mergers or acquisitions. Regulated financial undertakings providing financial
services should identify the adverse impacts only at the inception of the service and theyshould not be required to assess the adverse impacts in a dynamic way or at regular intervals.

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ENWhen identifying adverse impacts, companies should also identify and assess the impact of abusiness partner’s business model and strategies, including trading, procurement and pricing
practices.
(31) In order to avoid undue burden on the smaller companies operating in high-impact sectors
which are covered by this Directive, those companies should only be obliged to identify thoseactual or potential adverse impacts that are relevant to the respective sector.
(32) Where the company cannot prevent, mitigate, bring to an end or minimise all the identified
actual and potential adverse impacts at the same time to the full extent, it should prioritisethem based on the severity and likelihood of the adverse impact. In line with the relevantinternational framework, the severity of an adverse impact should be assessed based on its
gravity (scale of the adverse impact), the number of persons or the extent of the environment
affected (scope of the adverse impact), and difficulty to restore the situation prevailing prior
to the impact (irremediable character of the adverse impact). On the other hand, actual or
potential influence of the company on its business partners, the level of involvement of thecompany in the adverse impact, the proximity to the subsidiary or the business partner, or its
potential liability are not relevant factors in the prioritisation of adverse impacts. As a resultof the prioritisation, after addressing the most significant adverse impacts in reasonable time,
the company should be obliged to address less significant adverse impacts. When assessing
reasonable time, due account should be taken of the circumstances of the specific case,including the company’s resources and the economic sector in which the company operates,
the severity of the prioritised adverse impact that the company addresses in a given time, andthe scale of the prioritised adverse impact at one point in time.

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(33) Under the due diligence obligations set out by this Directive, if a company identifies potential
adverse human rights or environmental impacts, it should take appropriate measures toprevent or adequately mitigate them. To provide companies with legal clarity and certainty,
this Directive should set out all the actions companies should be expected to take forprevention and mitigation of potential adverse impacts, where relevant depending on thecircumstances. When assessing the appropriate measures to prevent or adequately mitigate
adverse impacts, due account shall be taken of the so-called ‘level of involvement of thecompany in an adverse impact’ in line with the international frameworks and the company’s
ability to influence the business partner causing the adverse impact. Companies should be
obliged 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 or business partners (so called ‘contributing’ to the adverse impact as
referred to in the international framework). Jointly causing the adverse impact is not limited toequal implication of the company and its subsidiary or business partner in the adverse impact,
but should cover all cases of the company’s acts or omissions causing the adverse impact in
combination with the acts or omissions of subsidiaries or business partners. When companies
are not causing the adverse impacts occurring in their chain of activities themselves or jointlywith other legal entities, but the adverse impact is caused by their business partner in thecompanies’ chains of activities (so called ‘being directly linked to’ the adverse impact as
referred to in the international framework), they should be obliged to use their influence toprevent or mitigate the adverse impact caused by their business partners or to increase theirinfluence to do so. Using only the notion of ‘causing’ the adverse impact instead of theaforementioned terms used in the international frameworks avoids confusion with existing
legal terms in national legal systems while covering the same causal relations as described inthese frameworks. In this context, in line with the international frameworks, the company’s
influence on a business partner should include on the one hand its ability to persuade thebusiness partner to prevent adverse impacts (for example through market power, prequalification requirements or linking business incentives to human rights and environmental
performance) and, on the other hand, the degree of influence or leverage that the company
could reasonably exercise, for example through cooperation with the business partner inquestion or engagement with another company which is the direct business partner of thebusiness partner associated with the adverse impact.

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(34) So as to comply with the prevention and mitigation obligation under this Directive, companies
should be required to take all the following actions, where relevant depending on thecircumstances. 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 with thecode of conduct or the prevention action plan, including by seeking corresponding contractual
assurances from its partners to the extent that their activities are part of the companies’ chainof activities. 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 which aim to prevent adverse impacts, and collaborate with othercompanies. Companies should also provide targeted and proportionate support for an SME
which is an business partner of the company, where the viability of the SME could be
jeopardised, such as financing, for example, through direct financing, low-interest loans,guarantees of continued sourcing, and assistance in securing financing, to help implement thecode of conduct or prevention action plan, or technical guidance such as in the form of
training, management systems upgrading. Jeopardising the viability of an SME should beinterpreted as possibly causing a bankruptcy of the SME or putting the SME in a situation
where bankruptcy is imminent. Financial undertakings, when providing financial services
within the meaning of this Directive, should not be required to provide targeted andproportionate support for an SME as their chain of activities does not cover SMEs.
(35) In order to reflect the full range of options for the company in cases where potential impacts
could not be addressed by the described prevention or minimisation measures, this Directive
should also refer to the possibility for the company to seek to conclude a contract with theindirect 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 complianceof the indirect business partner with the contract.

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(35a) It is possible that prevention of adverse impacts requires collaboration with another company,
for example, at the level of indirect business partner with a company, which has a directcontractual relationship with the indirect business partner in question. In some instances, acollaboration with other entities could be the only realistic way of preventing adverse impacts
caused even by direct business partners if the influence of the company is not sufficient. The
company should collaborate with the entity which can most effectively prevent or mitigate
adverse impacts solely or in jointly with the company, or other legal entities, while respecting
applicable law, in particular competition law.
(36) In order to ensure that prevention and mitigation of potential adverse impacts is effective,
companies should prioritize engagement with business partners in the chain of activities,
instead of terminating the business relationship, as a last resort action after attempting toprevent and mitigate potential adverse impacts without success. Termination of the business
relationship as a last resort action should mean that no less drastic possibilities are available
and there appears to be little prospect to increase the influence of the company on business
partners causing the adverse impact. However, the Directive should also, for cases where
potential adverse impacts could not be addressed by the described prevention or mitigation
measures, refer to the obligation for companies to refrain from entering into new or extending
existing relations with the business partner in question and, where the law governing theirrelations so entitles them to, to either temporarily suspend business relationships with respect
to the activities concerned, while pursuing prevention or mitigation efforts, if there isreasonable expectation that these efforts are to succeed in the short-term; or to terminate thebusiness relationship with respect to the activities concerned. In order to allow companies tofulfil that obligation, Member States should provide for the availability of an option totemporarily suspend and terminate the business relationship in contracts governed by theirlaws, except for cases where the parties are obliged by law to enter into them, such as is thecase of mandatory insurance. The mere fact that a third country has not ratified or
implemented in its national law one of the instruments listed in the Annex I to this Directive,
does not entail any obligation to temporarily suspend or terminate the business relationship.

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(36a) In some cases companies should not be obliged to terminate the business relationship.
Companies should not be required to terminate the business relationship if there is areasonable expectation that the termination could result in a more severe adverse impact. This
is in line with the international framework, the interests of those adversely impacted should betaken into account. For example, terminating a business relationship in which potential
adverse impact due to child labour was found could expose the child to even more severe
adverse human rights impacts. Similarly, a more severe adverse impact could occur if workers
are deprived of living wage by the termination of the business relationship with theiremployer in order to bring to an end a potential adverse impact consisting of breaching theright to collective bargaining. Lastly, the company should not be required to terminate thebusiness relationship with its crucial business partner that provides raw material, product orservice essential to the company’s business, if the termination would cause substantial
prejudice to the company. Substantial prejudice should be interpreted as a negative andsignificant effect on the company’s legal, financial or economic situation or its production
capacity, including in the long-term perspective, such as an effect giving rise to the likelihoodof insolvency. In order not to undermine the aims of this Directive, the decision not toterminate the business relationship should be subject to subsequent conditions. The company
should be required to report itself to the supervisory authority and duly justify the reasons fornot terminating the business relationship and keep monitoring the potential adverse impact
with potential actions to be taken to prevent or mitigate the adverse impact, periodicallyreassess the decision not to terminate the business relationship and seek alternative business
relationships. To enhance legal certainty, the provisions of this Directive on terminating thebusiness relationship should apply only to commercial agreements concluded by the company
after the expiry of the transposition period for implementing this Directive.

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(36b) As it is highlighted also in the OECD Guidelines for Multinational Enterprises, thespecificities of financial services need to be acknowledged. Regulated financial undertakings
are expected to consider adverse impacts throughout their financing and insurance process
and to use their so-called ‘leverage’ to influence companies they provide financing or
insurance to, to prevent or mitigate the companies’ potential adverse impacts. In somecircumstances immediate termination or suspension of financial services might be difficult oreven impossible (for instance mandatory insurance). In other cases, where a regulated
financial undertaking exerts leverage, it may be inappropriate to suspend or terminate thefinancial services as voting and engagement, in particular collective engagement withinvestors or creditors, may have better chances of preventing or mitigating the adverse impact.
For these reasons, the Directive does not require regulated financial undertakings, whenproviding financial services within the meaning of this Directive, to temporarily suspendor terminate the business relationship. In those cases, the regulated financial undertakings
should be required to continue monitoring the adverse impact and continue with the efforts toprevent or mitigate the adverse impact.
(37) As regards direct and indirect business partners, industry cooperation, industry schemes andmulti-stakeholder initiatives can help create additional leverage to identify, mitigate, andprevent adverse impacts. Therefore it should be possible for companies to rely on suchinitiatives to support the implementation of their due diligence obligations laid down in thisDirective to the extent that such schemes and initiatives are appropriate to support thefulfilment of those obligations. Companies could assess, at their own initiative, the alignmentof these schemes and initiatives with the obligations under this Directive. In order to ensure
full information on such initiatives, the Directive should also refer to the possibility for theCommission and the Member States to facilitate the dissemination of information on such
schemes or initiatives and their outcomes. The Commission, in collaboration with Member
States, should issue guidance for assessing the fitness of industry schemes and multistakeholder initiatives.

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(38) Under the due diligence obligations set out by this Directive, if a company identifies actual
human rights or environmental adverse impacts, it should take appropriate measures to bringthose 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 be clarified
that, as regards business partners, 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. To provide companies with legal clarity and certainty, this Directive should define
which actions companies should be required to take for bringing actual human rights andenvironmental adverse impacts to an end and minimisation of their extent, where relevant
depending on the circumstances. When assessing the appropriate measures to bring to an end
or minimise the extent of the adverse impacts, due account shall be taken of the so-called‘level of involvement of the company in an adverse impact’ in line with the internationalframeworks and the company’s ability to influence the business partner causing the adverse
impact. Companies should be obliged to bring to an end or minimise the extent of 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 or business partners (so called‘contributing’ to the adverse impact as referred to in the international framework). Jointly
causing the adverse 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 thecompany’s acts or omissions causing the adverse impact in combination with the acts oromissions of subsidiaries or business partners. When companies are not causing the adverse
impacts occurring in their chain of activities themselves or jointly with other legal entities, but
the adverse impact is caused by their business partner in the companies’ chains of activities(so called ‘being directly linked to’ the adverse impact as referred to in the internationalframework), they should be obliged to use their influence to bring to an end or minimise theextent of the adverse impact caused by their business partners or to increase their influence todo so. Using only the notion of ‘causing’ the adverse impact instead of the aforementioned
terms used in the international frameworks avoids confusion with existing legal terms innational legal systems while covering the same causal relations as described in theseframeworks.

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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 toprevent 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 withanother company which is the direct business partner of the business partner associated withthe adverse impact.

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(39) So as to comply with the obligation of bringing to an end and minimising the extent of actual
adverse impacts under this Directive, companies should be required to take all the following
actions, where relevant depending on the circumstances. They should neutralise the adverse
impact or minimise its extent, with an action proportionate to the significance and scope of
the adverse impact and to the company’s involvement in the adverse impact. Where necessary
due to the fact that the adverse impact cannot be immediately brought to an end, companies
should develop and implement a corrective action plan with reasonable and clearly defined
timelines for action and qualitative and quantitative indicators for measuring improvement.
Companies should also seek to obtain contractual assurances from a direct business partnerthat they will ensure compliance with the company’s code of conduct and, as necessary, aprevention action plan, including by seeking corresponding contractual assurances from its
partners, to the extent that their activities are part of the company’s chain of activities. The
contractual assurances should be accompanied by the 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 aiming at ceasing or minimising the extent of the adverse
impact, provide targeted and proportionate support for SMEs which are business partners of
the company, where the viability of the SME could be jeopardised, and collaborate with otherentities, including, where relevant, to increase the company’s ability to bring the adverse
impact to an end. Jeopardising the viability of an SME should be interpreted as possibly
causing a bankruptcy of the SME or putting the SME in a situation where bankruptcy isimminent. Financial undertakings, when providing financial services within the meaning of
this Directive, should not be required to provide targeted and proportionate support for an
SME as their chain of activities does not cover SMEs. Finally, companies should provide
remediation to the affected persons and communities that should consist of financial or nonfinancial compensation that should be proportionate to the significance (scale of the adverse
impact, the gravity) and scope (number of persons or the extent of the environment affected)of the adverse impact and the company’s involvement in the adverse impact. The financial or
non-financial compensation might consist of restitution of the affected person or persons tothe situation in which they would have been if the actual adverse impact had not occurred.

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(40) In order to reflect the full range of options for the company in cases where actual impacts
could not be addressed by the described measures, this Directive should also refer to thepossibility for the company to seek to conclude a contract with the indirect business partner,with a view to achieving compliance with the company’s code of conduct or a corrective
action plan, and conduct appropriate measures to verify compliance of the indirect business
partner with the contract.
(41) In order to ensure that bringing actual adverse impacts to an end or minimising them is
effective, companies should prioritize engagement with business partners in the chain of
activities, instead of terminating the business relationship, as a last resort action after
attempting to bring actual adverse impacts to an end or minimise them without success.
Termination of the business relationship as a last resort action should mean that no less drastic
possibilities are available and there appears to be little prospect to increase the influence ofthe company on business partners causing the adverse impact. However, this Directive should
also, for cases where actual adverse impacts could not be brought to an end or the extent
adequately minimised by the described measures, refer to the obligation for companies torefrain from entering into new or extending existing relations with the business partner inquestion and, where the law governing their relations so entitles them to, to either temporarilysuspend business relationships with respect to the activities concerned, while pursuing efforts
to bring to an end or minimise the extent of the adverse impact, if there is reasonable
expectation that these efforts are to succeed in the short-term, or terminate the business
relationship with respect to the activities concerned. In order to allow companies to fulfil thatobligation, Member States should provide for the availability of an option to temporarilysuspend and terminate the business relationship in contracts governed by their laws, except
for cases where the parties are obliged by law to enter into them, such as is the case of
mandatory insurance. The mere fact that a third country has not ratified or implemented in its
national law one of the instruments listed in the Annex I to this Directive, does not entail any
obligation to temporarily suspend or terminate the business relationship.

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(41a) In some cases companies should not be obliged to terminate the business relationship.
Companies should not be required to terminate the business relationship if there is areasonable expectation that the termination could result in a more severe adverse impact. This
is in line with the international framework, the interests of those adversely impacted should betaken into account. For example, terminating a business relationship in which child labour
was found could expose the child to even more severe adverse human rights impacts.
Similarly, a more severe adverse impact could occur if workers are deprived of living wage
by the termination of the business relationship with their employer in order to bring to an end
an adverse impact consisting of breaching the right to collective bargaining. Lastly, thecompany should not be required to terminate the business relationship with its crucial
business partner that provides raw material, product or service essential to the company’sbusiness, if the termination would cause substantial prejudice to the company. Substantial
prejudice should be interpreted as a negative and significant effect on the company’s legal,financial or economic situation or its production capacity, including in the long-term
perspective, such as an effect giving rise to the likelihood of insolvency. In order not toundermine the aims of this Directive, the decision not to terminate the business relationship,should be subject to subsequent conditions. The company should be required to report itself tothe supervisory authority and duly justify the reasons for not terminating the business
relationship and keep monitoring the actual adverse impact with potential actions to be taken
to bring to an end or minimise the extent of the adverse impact, periodically reassess thedecision not to terminate the business relationship and seek alternative business relationships.
To enhance legal certainty, the provisions of this Directive on terminating the business
relationship, should apply only to commercial agreements concluded by the company after the
expiry of the transposition period for implementing this Directive.

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(41b) As it is highlighted also in the OECD Guidelines for Multinational Enterprises, thespecificities of financial services need to be acknowledged. Regulated financial undertakings
are expected to consider adverse impacts throughout their financing and insurance process
and to use their so-called ‘leverage’ to influence companies they provide financing or
insurance to, to bring to an end or minimise the extent of the companies’ adverse impacts. In
some circumstances immediate termination or suspension of financial services might bedifficult or even impossible (e. g. mandatory insurance). In other cases, where a regulated
financial undertaking exerts leverage, it may be inappropriate to suspend or terminate thefinancial services as voting and engagement, in particular collective engagement withinvestors or creditors, may have better chances of bringing to an end or minimising the extent
of the adverse impact. For these reasons, the Directive does not require regulated financial
undertakings, when providing financial services within the meaning of this Directive, totemporarily suspend or terminate the business relationship. In those cases, the regulated
financial undertakings should be required to continue monitoring the adverse impact andcontinue with the efforts to bring to an end and minimise the extent of the adverse impact.

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(42) 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 andenvironmental adverse impacts. In order to reduce the burden on companies, they should be
able to participate in a collaborative complaints procedure, such as those established jointly
by companies (for example, by a group of companies), through industry associations or multistakeholders’ initiatives, instead of setting up the complaints procedure on their own.
Organisations who could submit such complaints should include trade unions and otherworkers’ representatives representing individuals working in the chain of activities concernedand civil society organisations active in the areas related to the adverse impact concerned
where they have knowledge about a potential or actual adverse impact. Companies should
establish a fair, accessible and transparent procedure for dealing with those complaints andinform workers, trade unions and other workers’ representatives, where relevant, about suchprocedures. The term ‘fair, accessible and transparent’ should be understood in line withprinciple 31 of the United Nations Guiding Principles on Business and Human Rights
requiring procedures to be legitimate, accessible, predictable, equitable, transparent, rightscompatible and a source of continuous learning. The procedure should ensure theconfidentiality of the identity of the complainant, and the necessary measures to prevent any
form of retaliation from the company and its subsidiaries. Retaliation should be understood as
any direct or indirect act or omission which is prompted by the submission of a complaint andwhich causes or may cause unjustified detriment to the complainant. Recourse to thecomplaints and remediation mechanism should not prevent the complainant from having
recourse to judicial remedies or submitting substantiated concerns to supervisory authorities.
In accordance with international standards, complainants should be entitled to request fromthe company appropriate follow-up on the complaint and to meet with the company’s
representatives at an appropriate level to discuss potential or actual severe adverse impacts
that are the subject matter of the complaint. This access should not lead to unreasonable
solicitations of companies.

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(42a) Due to a broader list of persons or organisations entitled to submit a complaint and a broader
scope of subject-matters of complaints, the complaints procedure is legally understood as aseparate mechanism to the internal reporting procedure set up by companies in accordancewith the Directive (EU) 2019/1937 of the European Parliament and of the Council46. If thebreach of Union or national law included in the material scope of that Directive can beconsidered as an adverse impact and the reporting person is a company’s employee that is
directly affected by the adverse impact, then the person could use both procedures –complaints mechanism in accordance with this Directive or an internal reporting procedure set
out in accordance with that Directive. Nevertheless, if one of the conditions above is not met,then the person could proceed only via one of the procedures.

46

Directive (EU) 2019/1937 of the European Parliament and of the Council of 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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(43) Companies should monitor the implementation and effectiveness of their due diligencemeasures, with due consideration of relevant information from stakeholders. They should
carry out periodic assessments of their own operations, those of their subsidiaries and, whererelated to the chains of activities of the company, those of their business partners, to monitor
the effectiveness of the identification, prevention, mitigation, bringing to an end andminimisation of the extent of human rights and environmental adverse impacts. Suchassessments should verify that adverse impacts are properly identified, due diligencemeasures are implemented and adverse impacts have actually 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 24 months and be revised inbetween if there are reasonable grounds to believe that significant new risks of adverse impact
could have arisen. A significant change should be understood as such a change to the statusquo of the company’s own operations, operations of its subsidiaries or business partners, thelegal or business environment or any other substantial shift from the situation of the company,
including learning about the adverse impact from publicly available information or throughconsultation with the stakeholders, that the company could be reasonably expected to react toit and assess. Examples of a significant change could be the cases when the company operates
in a new economic sector or geographical area, starts producing new products or changes theway of producing the existing products using technology with potentially higher adverse
impact, or changes its corporate structure via restructuring or mergers or acquisitions.
Financial undertakings should carry out periodic assessment only of their own operations, andthose of their subsidiaries. As regards business partners (counterparties) of financial
undertakings, and, when they provide financial services within the meaning of thisDirective to their business partners, they should carry out periodic assessments only tomonitor of the effectiveness of measures taken to prevent or mitigate the potential adverse
impact or bring to an end or minimise the extent of the actual adverse impact that was
identified before providing the financial service to the business partner in question. No further
assessments should be required from financial undertakings as regards their business partners
to which they provide financial services within the meaning of this Directive throughout
the existence of the relationship with the business partner.

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(44) Like in the existing international standards set by the United Nations Guiding Principles on
Business and Human Rights and the OECD framework, it forms part of the due diligencerequirement to communicate externally relevant information on due diligence policies,
processes and activities conducted to identify and address actual or potential adverse impacts,
including the findings and outcomes of those activities. The Directive 2013/34/EU sets out
relevant reporting obligations as regards corporate sustainability for the companies covered bythis Directive. In order to avoid duplicating reporting obligations, this Directive should
therefore not introduce any new reporting obligations in addition to those under Directive
2013/34/EU for the companies covered by that Directive as well as the reporting standards
that should be developed under it. As regards companies that are within the scope of thisDirective, but do not fall under Directive 2013/34/EU, in order to comply with their
obligation of communicating as part of the due diligence under this Directive, they should
publish on their website an annual statement on the financial year in a language customary inthe sphere of international business.

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(45) In order to facilitate companies’ compliance with their due diligence requirements throughtheir chain of activities and limiting shifting compliance burden on SME business partners,
the Commission should provide guidance on model contractual clauses, after having
consulted with Member States and relevant stakeholders.
(46) In order to provide support and practical tools to companies or to Member State authorities on
how companies should fulfil their due diligence obligations, the Commission, using relevantinternational guidelines and standards as a reference, and in consultation with Member Statesand stakeholders, the European Union Agency for Fundamental Rights, the European
Environment Agency, and where appropriate with international bodies having expertise in due
diligence, should issue guidelines, including for specific sectors or specific adverse impacts or
the interplay of this Directive and other Union legislative acts pursuing the same objectives
and providing for more extensive or more specific obligations.
(47) Although SMEs are not included in the scope of this Directive, they could be impacted by its
provisions as contractors or subcontractors (direct or indirect business partners) to thecompanies which are in the scope. The aim is nevertheless to mitigate financial oradministrative burden on SMEs, many of which are already struggling in the context of the
global economic and sanitary crisis. In order to support SMEs, Member States should set up
and operate, either individually or jointly, dedicated websites, portals or platforms, to provide
information and support to companies, and Member States could also financially support
SMEs and help them build capacity. Companies whose business partner is an SME are also
encouraged to support them to comply with due diligence measures, in case suchrequirements would jeopardise the viability of the SME and use fair, reasonable, nondiscriminatory and proportionate requirements vis-a-vis the SMEs.

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(48) In order to complement Member State support to SMEs, the Commission may build on
existing Union tools, projects and other actions helping with the due diligence implementationin the Union 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 joint stakeholder initiatives.
(49) The Commission could complement Member States’ support measures building on existing
Union action to support upstream economic operators build the capacity to effectively preventand mitigate adverse human rights and environmental impacts of their operations and business
relationships, paying specific attention to the challenges faced by smallholders. The Union
and Member States within their respective competences are encouraged to use theirneighbourhood, development and international cooperation instruments to support third
country governments and upstream economic operators in third countries addressing adverse
human rights and environmental impacts of their operations and upstream business
relationships. This could include working with partner country governments, the local private
sector and stakeholders on addressing the root causes of adverse human rights andenvironmental impacts.
(50) In order to ensure that this Directive effectively contributes to combating climate change,
companies should adopt a plan to ensure 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. In case climate is or should have been
identified as a principal risk for or a principal impact of the company’s operations, thecompany should include greenhouse gas emissions reduction objectives in its plan.
(51) […]

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(52) 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 toalso function as a point of contact, provided the relevant requirements of this Directive arecomplied with. If the third-country company does not designate the authorised representative,
all Member States in which the company operates should be competent to enforce thefulfilment of this obligation, especially to designate a legal or natural person in one of theMember States where it operates, in accordance with the enforcement framework set innational law. The Member States initiating such an enforcement should inform supervisory
authorities of other Member States through the European Network of Supervisory Authorities
so that other Member States do not enforce them.
(53) In order to ensure the monitoring of the correct implementation of companies’ due diligenceobligations and ensure the proper enforcement of this Directive, Member States should
designate one or more national supervisory authorities. These supervisory authorities should
be of a public nature, independent from the companies falling within the scope of thisDirective or other market interests, and free of conflicts of interest. In accordance withnational law, Member States should ensure appropriate financing of the competent authority.
They should be entitled to carry out investigations, on their own initiative or based on
substantiated concerns raised under this Directive. Where competent authorities under sectoral
legislation exist, Member States could identify those as responsible for the application of thisDirective in their areas of competence. They could designate authorities for the supervision ofregulated financial undertaking also as supervisory authorities for the purposes of thisDirective.

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(54) In order to ensure effective enforcement of national measures implementing this Directive,
Member States should provide for dissuasive, proportionate and effective penalties forinfringements of those measures. In order for such penalties regime to be effective, penalties
to be imposed by the national supervisory authorities should include pecuniary penalties.
Member States should ensure that the pecuniary penalty is commensurate to the company’s
worldwide net turnover when being imposed. However, this should not oblige the Member
States to base the pecuniary penalty solely on the net turnover of the company in every case.
Member States should have flexibility to base the penalty also on other criteria, such as the
economic situation of the company. The Member States should decide in accordance with thenational law, whether the penalties should be imposed directly by supervisory authorities, incollaboration with other authorities 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, thedecisions of the supervisory authorities containing penalties imposed on companies due tofailure to comply with the provisions of national law implementing this Directive should be
published, sent to the European Network of Supervisory Authorities and remain publicly
available for at least 3 years. The published decision should not contain any personal data inaccordance with the Regulation (EU) 2016/679 of the European Parliament and of theCouncil47. The publication of the company’s name is allowed even if it contains a name of anatural person.

47

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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(55) In order to ensure consistent application and enforcement of national provisions adopted
pursuant to this Directive, national supervisory authorities should cooperate and coordinate
their action. For that purpose a European Network of Supervisory Authorities should be set upby the Commission and the supervisory authorities should assist each other in performing
their tasks and provide mutual assistance.
(56) In order to ensure effective compensation of victims of adverse impacts, Member Statesshould be required to lay down rules governing the civil liability of companies for damage
caused to a natural or legal person, under the condition that the company intentionally or
negligently failed to prevent and mitigate potential adverse impacts or to bring actual impacts
to an end and minimise their extent and as a result of such a failure a damage was caused to
the natural or legal person. Damage caused to a person’s protected legal interests should beunderstood in line with the national law, for example death, physical or psychological injury,
deprivation of personal liberty, loss of human dignity, or damage to a person’s property. The
condition that the damage has to be caused to a person as a result of the company’s failure tocomply with the obligation to address the adverse impact, when the right, prohibition or
obligation listed in Annex I, the abuse or violation of which is resulting in the adverse impactthat should have been addressed, is aimed to protect the natural or legal person to which thedamage is caused, should be understood as that a 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 Annex I) is not covered. For example, if an
employee of a company suffered damage due to the company’s violation of safety 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 not being able to pay therent. Causality is not regulated by this Directive, with the exception that the companies should
not be held liable if the damage is caused only by the business partners in the companies’
chains of activities (so called ‘being directly linked to’). The victims should have the right tofull compensation for the damage occurred in accordance with national law and in line withsuch common principle. Deterrence through damages (i. e. punitive damages) or any otherform of overcompensation should be prohibited.

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(57) A company should not be liable for the damage that would have occurred to the same extent
even if the company had taken action in accordance with this Directive. Also, as the adverse
impacts should be prioritised according to their severity and likelihood and addressed
gradually, if it is not possible to address all identified adverse impacts at the same time to thefull extent, a company should not be liable for any damage stemming from any lesssignificant adverse impacts that were not yet addressed. The correctness of the company’s
prioritisation of adverse impacts should, however, be assessed when determining whether theconditions for company’s liability were met as part of the assessment of whether the company
breached its obligation to adequately address the identified adverse impacts.
(58) The liability regime does not regulate who should prove that the company’s action was
reasonably adequate under the circumstances of the case, therefore this question is left tonational law. Also, this Directive does not regulate who can bring a claim before national
courts and under which conditions the civil proceeding can be initiated, therefore this questionis left to national law. For example, Member States can decide that it is only the victim who
can bring the claim before national courts or that a civil society organisation, trade union orother legal entity can bring the claim on behalf of the victim.

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(59) As regards civil liability rules, the civil liability of a company for damages arising due to its
failure to carry out adequate due diligence should be without prejudice to civil liability of its
subsidiaries or the respective civil liability of direct and indirect business partners in the chainof activities. When the company caused the damage jointly with its subsidiary or business
partner, it should be jointly and severally liable with this respective subsidiary or business
partner. This is without prejudice to any national law on the conditions of joint and several
liability and on rights of recourse for the full compensation paid by one jointly and severally
liable party.
(59a) The civil liability rules under this Directive should be without prejudice to Union or nationalrules 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 understood as a national civil
liability regime that does not provide for exemptions as provided by this Directive, such as theprioritisation of adverse impacts.
(60) As regards civil liability arising from adverse environmental impacts, persons who suffer
damage can claim compensation under this Directive even where they overlap with humanrights claims.

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(61) In order to ensure that victims of human rights and environmental harms can bring an action
for damages and claim compensation for damage caused when the company intentionally or
negligently failed to comply with the due diligence obligations stemming from this Directive,
this Directive should require Member States to ensure that the provisions of national law
transposing the civil liability regime provided for in this Directive are of overriding
mandatory application in cases where the law applicable to claims to that effect is not the lawof a Member State, as could for instance be the case in accordance with international private
law rules when the damage occurs in a third country. This means that the Member States,when transposing the civil liability regime provided for in this Directive and choosing themethods to achieve such result, can also take into account all related national rules including
the requirements as regards which natural or legal person can bring the claim, the statute oflimitations, objections and defences, and calculation of compensation, to the extent they arenecessary to ensure the protection of victims and crucial for safeguarding the Member States’
public interests, such as its political, social or economic organisation.
(62) The civil liability regime under this Directive should be without prejudice to the Directive
2004/35/EC of the European Parliament and of the Council48. 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.

48

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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(63) This Directive is without prejudice to Directive 2014/24/EU of the European Parliament andof the Council49, Directive 2014/25/EU of the European Parliament and of the Council50 and
Directive 2014/23/EU of the European Parliament and of the Council51. In particular, pursuant
to those Directives, contracting authorities and contracting entities may exclude or may berequired by Member States to exclude from participation in a procurement procedure or in aconcession 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 the economic
operator is guilty of grave professional misconduct, which renders its integrity questionable.
(64) […](65) Persons who work for companies subject to due diligence obligations under this Directive or
who are in contact with such companies in the context of their work-related activities can playa key role in exposing breaches of the rules of this Directive. They can thus contribute topreventing and deterring such breaches and strengthening the enforcement of this Directive.
Directive (EU) 2019/1937 should therefore apply to the reporting of all breaches of thisDirective and to the protection of persons reporting such breaches.

49
50

51

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).
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).

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(66) 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 becommunicating on the matters covered by this Directive, the power to adopt acts inaccordance with Article 290 of the Treaty on the Functioning of the European Union should
be delegated to the Commission in respect of determining additional rules concerning thecontent and criteria of such reporting, specifying information on the description of due
diligence, potential and actual impacts and actions taken with respect to those impacts. It is ofparticular importance that the Commission carry out appropriate consultations during its
preparatory work, including at expert level, and that those consultations be conducted inaccordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016
on Better Law-Making52. In particular, to ensure equal participation in the preparation ofdelegated acts, the European Parliament and the Council receive all documents at the sametime as Member States' experts, and their experts systematically have access to meetings ofCommission expert groups dealing with the preparation of delegated acts.
(67) This Directive should be applied in compliance with Union data protection law and the rightto the protection of privacy and personal data as enshrined in Articles 7 and 8 of the Charterof Fundamental Rights of the European Union. Any processing of personal data under thisDirective is to be undertaken in accordance with Regulation (EU) 2016/679, including therequirements of purpose limitation, data minimisation and storage limitation.
(68) The European Data Protection Supervisor was consulted in accordance with Article 28(2) ofRegulation (EU) 2018/1725 of the European Parliament and of the Council53 and delivered an
opinion on … 2022.
(69) […]

52
53

OJ L 123, 12.5.2016, p. 1.
Regulation (EU) 2018/1725 of the European Parliament and of the Council of 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 free movement 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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(70) The Commission should assess and report whether new sectors should be added to the list of
high-impact sectors covered by this Directive, in order to align it to guidance from theOrganisation for Economic Cooperation and Development or in light of clear evidence on
labour exploitation, human rights violations or newly emerging environmental threats,
whether the list of relevant international conventions referred to in this Directive should be
amended, in particular in the light of international developments, or whether the provisions on
due diligence under this Directive should be extended to adverse climate impacts. The
Commission should further assess whether the criteria and thresholds used for defining thescope of this Directive need to be revised, whether other legal persons should be covered orwhether the definition of the ‘chain of activities’, including the provision of investment byregulated financial undertakings or the provision of financial services within the meaningof this Directive by regulated financial undertakings, irrespective of the decision of a
Member State to apply this Directive to the provision of financial services by regulated
financial undertakings, needs to be revised.
(71) Since the objective of this Directive, namely better exploiting the potential of the single
market to contribute to the transition to a sustainable economy and contributing to sustainable
development through the prevention and mitigation of potential or actual human rights andenvironmental adverse impacts in companies’ chains of activities, cannot be sufficiently
achieved by the Member States acting individually or in an uncoordinated manner, but canrather, by reason of the scale and effects of the actions, be better achieved at Union level. In
particular, addressed problems and their causes are of a transnational dimension, as many
companies are operating Union wide or globally and value chains expand to other Member
States and to third countries. Moreover, individual Member States’ measures risk being
ineffective and lead to fragmentation of the internal market. Therefore, 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 that objective.

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HAVE ADOPTED THIS DIRECTIVE:
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 companies’ chains of activities;(b)

liability for violations of the obligations mentioned above; and(c)obligation to adopt a plan to ensure compatibility of business model and strategy of
the company with the transition to a sustainable economy and with the limiting of
global warming to 1.5 °C.

2.

This Directive shall not constitute grounds for reducing the level of protection of humanrights or of protection of the environment or the protection of the climate provided for by thelaw of Member States at the time of the adoption of this Directive.

3.

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

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Article 2
Scope
1.

This Directive shall apply to companies which are formed in accordance with the legislationof a Member State and which fulfil one of the following conditions:(a)the company had more than 500 employees on average and had a net worldwide
turnover of more than EUR 150 million 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 under point (a), but had more than 250
employees on average and had a net worldwide turnover of more than EUR 40 million
in the last financial year for which annual financial statements have been or should havebeen adopted, provided that at least EUR 20 million was generated in one or more of thefollowing sectors associated with the applicable statistical classification of economic
activities established by Regulation (EC) No 1893/2006 and listed in Annex II:(i)the manufacture of textiles, leather and related products (including footwear), andthe wholesale trade of textiles, clothing and footwear;(ii)

agriculture, forestry, fisheries (including aquaculture), the manufacture of foodproducts and beverages, and the wholesale trade of agricultural raw materials, live
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(iii) the extraction of mineral resources regardless from where they are extracted(including crude petroleum, natural gas, coal, lignite, metals and metal ores, aswell as all other, non-metallic minerals and quarry products), the manufacture ofbasic metal products, other non-metallic mineral products and fabricated metal
products (except machinery and equipment), and the wholesale trade of mineral
resources, basic and intermediate mineral products (including metals and metalores, construction materials, fuels, chemicals and other intermediate products).
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)generated a net turnover of more than EUR 150 million in the Union in the financial
year preceding the last financial year; or(b)generated a net turnover of more than EUR 40 million but not more than EUR 150
million in the Union in the financial year preceding the last financial year, provided thatat least EUR 20 million was generated in one or more of the sectors listed in paragraph
1, point (b).

3.

For the purposes of paragraph 1, the number of part-time employees shall be calculated on afull-time equivalent basis. Temporary agency workers shall be included in the calculation of
the number of employees in the same way as if they were workers employed directly for thesame period of time by the company.

3a.

This Directive shall apply to a company if the company has met the conditions laid down inparagraph 1 or 2 during two consecutive financial years.

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4.

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

5.

As regards the companies referred to in paragraph 2, the Member State competent to regulatematters covered in this Directive shall be the Member State in which the company has abranch. If the company does not have a branch in any Member State, or has branches locatedin different Member States, the Member State competent to regulate matters covered in thisDirective shall be that in which the company generated most of its net turnover in the Union
in the financial year preceding the last financial year.

6.

Member States may decide to apply this Directive to pension institutions which areconsidered to be social security schemes under the Regulation (EC) No 883/2004 of theEuropean Parliament and of the Council54 and Regulation (EC) No 987/2009 of the European
Parliament and of the Council55. If a Member State decides to apply this Directive to suchpension institutions, those pension institutions shall be considered regulated financial
undertakings within the meaning of Article 3, point (a)(iv).

7.

This Directive shall not apply to financial products listed in points (b) and (f) of point (12) ofArticle 2 of Regulation (EU) 2019/2088 of the European Parliament and of the Council56.

8.

Member States may decide to apply this Directive to regulated financial undertakings
within the meaning of Article 3, point (a)(iv), also with respect to their business partners
to which such regulated financial undertakings provide the services referred to in
Article 3, point (g).

54

Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April
2004 on the coordination of social security systems (OJ L 166, 30.4.2004, p. 1).
Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16
September 2009 laying down the procedure for implementing Regulation (EC) No 883/2004
on the coordination of social security systems (OJ L 284, 30.10.2009, p. 1).
Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November
2019 on sustainability‐ related disclosures in the financial services sector (OJ L 317,
9.12.2019, p. 1).

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Article 3
Definitions
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 Annex I to Directive
2013/34/EU;(ii)

a legal person constituted in accordance with the law of a third country in a form
comparable to those listed in Annex I of Directive 2013/34/EU;(iii) a legal person constituted as one of the legal forms listed in Annex II to Directive
2013/34/EU or in accordance with the law of a third country in a form comparable tothose listed in Annex II of that Directive, when such a legal person is composed
entirely of undertakings organised in one of the legal forms falling within points (i)and (ii);

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(iv) 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 Council57;an investment firm as
defined in Article 4(1), point (1), of Directive 2014/65/EU the European
Parliament and of the Council58;‒

an alternative investment fund manager (AIFM) as defined in Article 4(1),point (b), of Directive 2011/61/EU of the European Parliament and of theCouncil59, including a manager of Euveca under Regulation (EU) No 345/2013of the European Parliament and of the Council60, a manager of EuSEF under
Regulation (EU) No 346/2013 of the European Parliament and of the Council61
and a manager of ELTIF under Regulation (EU) 2015/760 of the European
Parliament and of the Council62;

57

58

59

60
61
62

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June2013 on prudential requirements for credit institutions and investment firms and amending
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).
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).
Regulation (EU) No 345/2013 of the European Parliament and of the Council of 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 Council of 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).

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‒

an undertaking for collective investment in transferable securities (UCITS)
management company as defined Article 2(1), point (b), of Directive
2009/65/EC of the European Parliament and of the Council63;‒

an insurance undertaking as defined in Article 13, point (1), of Directive
2009/138/EC of the European Parliament and of the Council64;‒

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

an institution for occupational retirement provision within the scope of
Directive (EU) 2016/2341 of the European Parliament and of the Council65 inaccordance with Article 2 thereof, unless a Member State has chosen not toapply that Directive in whole or in parts to that institution in accordance with
Article 5 of that Directive;

63

64

65

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).
Directive 2009/138/EC of the European Parliament and of the Council of 25 November
2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (SolvencyII) (OJ L 335, 17.12.2009, p. 1).
Directive (EU) 2016/2341 of the European Parliament and of the Council of 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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‒

a central counterparty as defined in Article 2, point (1), of Regulation (EU) No
648/2012 of the European Parliament and of the Council66;‒

a central securities depository as defined in Article 2(1), point (1), ofRegulation (EU) No 909/2014 of the European Parliament and of theCouncil67;‒

an insurance or reinsurance special purpose vehicle authorised in accordancewith Article 211 of Directive 2009/138/EC;‒‘securitisation special purpose entity’ as defined in Article 2, point (2), ofRegulation (EU) No 2017/2402 of the European Parliament and of theCouncil68;

66

67

68

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 Council of 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 Council of 12 December
2017 laying down a general framework for securitisation and creating a specific frameworkfor 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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‒

an insurance holding company as defined in 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 of that Directive and which is not exempted from groupsupervision pursuant to Article 214(2) of Directive 2009/138/EC;‒

a payment institution as defined in point (d) of Article 1(1) of Directive (EU)2015/2366 of the European Parliament and of the Council69;‒

an electronic money institution as defined in point (1) of Article 2 of Directive
2009/110/EC of the European Parliament and of the Council70;‒

a crowdfunding service provider as defined in point (e) Article 2(1) ofRegulation (EU) 2020/1503 of the European Parliament and of the Council71;‒

a crypto-asset service provider as defined in Article 3(1), point (8), of [theproposal for a Regulation of the European Parliament and of the Council on
Markets in Crypto-assets, and amending Directive (EU) 2019/193772] where
performing one or more crypto-asset services as defined in Article 3(1), point(9), of [the proposal for a Regulation of the European Parliament and of theCouncil on Markets in Crypto-assets, and amending Directive (EU)2019/1937];

69

70

71

72

Directive (EU) 2015/2366 of the European Parliament and of the Council of 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, and repealing Directive
2007/64/EC (OJ L 337, 23.12.2015, p. 35).
Directive 2009/110/EC of the European Parliament and of the Council of 16 September
2009 on the taking up, pursuit and prudential supervision of the business of electronicmoney institutions amending Directives 2005/60/EC and 2006/48/EC and repealing
Directive 2000/46/EC (OJ L 267, 10.10.2009, p. 7).
Regulation (EU) 2020/1503 of the European Parliament and of the Council of 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).
COM/2020/593 final.

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(b)

‘adverse environmental impact’ means an impact on the environment resulting fromviolation of one of the prohibitions and obligations listed in the Annex I, Part II;(c)‘adverse human rights impact’ means an impact on persons resulting from(i)an abuse of one of the human rights listed in the Annex I, Part I Section 1, as
those human rights are enshrined in the international instruments listed in the
Annex I, Part I Section 2;(ii)

an abuse of a human right not listed in the Annex I, Part I Section 1, but includedin the human rights instruments listed in the Annex I, Part I Section 2, provided
that:‒ the human right can be abused by a company or legal entity other than a Member
State or a third country or their authorities;‒ the human right abuse directly impairs a legal interest protected in the humanrights instruments listed in the Annex I, Part I Section 2; and‒ the company could have reasonably identified such human right abuse in its own
operations, those of its subsidiaries or its business partners, taking into accountthe circumstances of the specific case, including the nature and extent of thecompany’s business operations and its chain of activities, characteristics of theeconomic sector and geographical and operational context;

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(ca)

‘adverse impact’ means adverse environmental impact and adverse human rights impact;(d)‘subsidiary’ means 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 the European Parliamentand of the Council73 is exercised;(e)‘business partner’ means a legal entity(i)with whom the company has a commercial agreement related to the operations,products or services of the company or to whom 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 (‘indirect business partner’);(ea)‘business relationship’ means a relationship of the company with its business partner;

(f)

[…]

(g)

‘chain of activities’ means:(i)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,
manufacture, transport, storage and supply of raw materials, products or parts of the
products and development of the product or the service, and73

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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(ii)

activities of a company’s downstream business partners related to the distribution,transport, storage and disposal of the product, including the dismantling, recycling,
composting or landfilling, where the business partners carry out those activities forthe company or on behalf of the company, excluding the disposal of the product byconsumers and distribution, transport, storage and disposal of the product being
subject to the export control under the Regulation (EU) 2021/821 of the European
Parliament and of the Council or the export control relating to weapons, munition or
war materials, after the export of the product is authorised.

Subject to Article 2(8), Aas regards regulated financial undertakings within the meaningof point (a)(iv), the term ‘chain of activities’ shall also only include the activities of:(i)legal entities receiving directly lending, provision of guarantees and commitmentsfrom the regulated financial undertaking;(ii)

policy-holders and insured parties under insurance contracts concluded with theregulated financial undertaking;(iii) legal entities ceding risk under a reinsurance contract and institutions foroccupational retirement provision to which coverage is provided under a reinsurance
contract concluded with the regulated financial undertaking;(iv) subsidiaries of legal entities referred to in points (i) to (iii) benefiting from theservice referred to in points (i) to (iii), whose activities are linked to the service inquestion.

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The chain of activities of regulated financial undertakings within the meaning of point(a)(iv) providing such services does not cover SMEs, natural persons and households
receiving the services;(h)‘independent third-party verification’ means verification of the compliance by a company,
or parts of its chain of activities, with human rights and environmental requirements
resulting from the provisions of this Directive by an expert which is independent from thecompany, free from any conflicts of interests, has experience and competence inenvironmental and human rights matters and is accountable for the quality and reliabilityof 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 in Article 3(1), (2), (3) and (7)of Directive 2013/34/EU;

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(j)

‘industry initiative’ means a combination of voluntary due diligence procedures in the
chains of activities, tools and mechanisms, including independent third-party verifications,developed and overseen by governments, industry associations or groupings of interested
organisations;(k)‘authorised representative’ means a natural or legal person resident or established in theUnion who has a mandate from a company within the meaning of point (a)(ii) to act on its
behalf in relation to compliance with that company’s obligations pursuant to this Directive;(l)‘severe adverse impact’ means an adverse impact that is especially significant by its nature,or affects a large number of persons or a large area of the environment, or where it isparticularly difficult to restore the situation prevailing prior to the adverse impact;

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(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 the basis
of Regulation (EC) No 1606/2002 of the European Parliament and of the Council74
or is a company within the meaning of point (a)(ii), the revenue as defined by orwithin the meaning of the financial reporting framework on the basis of which thefinancial statements of the company are prepared;(n)‘stakeholders’ means the company’s employees, the employees of its subsidiaries, tradeunions and workers’ representatives, consumers, and other individuals, groups,
communities or entities whose rights or interests are or could be affected by the products,
services and operations of that company, its subsidiaries and its business partners,
including civil society organisations, national human rights and environmental institutions,and human rights and environmental defenders;

(o)

[…]

(p)

[…]

(q)

‘appropriate measure’ means a measure that is capable of achieving the objectives of due
diligence, commensurate with the degree of severity and the likelihood of the adverse
impact, and reasonably available to the company, taking into account the circumstances ofthe specific case, including the nature and extent of the company’s business operations andcharacteristics of the economic sector and of the specific business partner;

74

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

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(r)

‘parent company’ means a company which controls one or more subsidiaries within themeaning of point (d);(s)‘group of companies’ means a parent company and all its subsidiaries;(t)‘remediation’ means financial or non-financial compensation provided by the company toperson or persons affected by the actual adverse impact, including restitution of theaffected person or persons or environment to the situation they would be in, had the actual
adverse impact not occurred, that shall be proportionate to the significance and scope of
the adverse impact and the company’s implication in the adverse impact.

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ENArticle 4
Due diligence
1.

Member States shall ensure that companies conduct human rights and environmental due
diligence as laid down in Articles 5 to 11 (‘due diligence’) by carrying out the following
actions:(a)

integrating due diligence into their policies and risk management systems in accordancewith Article 5;(b)identifying actual or potential adverse impacts in accordance with Article 6;(c)preventing and mitigating potential adverse impacts, and bringing actual adverse
impacts to an end and minimising their extent in accordance with Articles 7 and 8;(d)establishing and maintaining a complaints procedure in accordance with Article 9;(e)monitoring the effectiveness of their due diligence policy and measures in accordancewith Article 10;(f)2.

publicly communicating on due diligence in accordance with Article 11.

Member States shall ensure that, for the purposes of due diligence, companies are entitled toshare resources and information within their respective groups of companies and with otherlegal entities.

3.

Member States shall ensure that a company or other legal entity shall not be obliged todisclose to its business partner which is complying with the obligations resulting from thisDirective, information that is deemed to be a trade secret as defined in Article 2(1) of
Directive (EU) 2016/943 of the European Parliament and of the Council75.

75

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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Article 4a
Due diligence at a group level
1.

Member States shall ensure that parent companies falling under the scope of this Directive
may fulfil the obligations set out in Articles 5 to 11 and Article 15 on behalf of companies
which are their subsidiaries falling under the scope of this Directive. This is without prejudice
to civil liability of subsidiaries in accordance with Article 22.

2.

The fulfilment of due diligence obligations by a parent company in accordance with theparagraph 1 is subject to all the following conditions:(a)the subsidiary provides all the necessary information to and cooperates with its parent
company to fulfil the obligations resulting from this Directive;(b)the subsidiary must abide by its parent company's due diligence policy accordingly
adapted to ensure that the obligations laid down in Article 5(1) are fulfilled with respect
to the subsidiary;(c)the subsidiary integrates due diligence into all its policies and risk management systems
in accordance with Article 5;(d)where relevant, the subsidiary seeks the contractual assurances in accordance with
Article 7(2), point (b), or 8(3), point (c);(e)

where relevant, the subsidiary seeks to conclude a contract with an indirect business
partner in accordance with Article 7(3) or 8(4);(f)

where relevant, the subsidiary temporarily suspends or terminates the business
relationship in accordance with Article 7(5) or 8(6).

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ENArticle 5
Integrating due diligence into company’s policies and risk management systems
1.

Member States shall ensure that companies integrate due diligence into all their policies andrisk management systems and have in place a due diligence policy.

1a.

The due diligence policy shall contain all of the following:(a)a description of the company’s approach, including in the long term, to due
diligence;(b)a code of conduct describing rules and principles to be followed by the company’s
employees and subsidiaries, and the company’s direct or indirect business partners,
where relevant in accordance with Article 7(2), point (b), 7(3), 8(3), point (c), or8(4); and(c)a description of the processes put in place to implement due diligence, including themeasures taken to verify compliance with the code of conduct and to extend its
application to business partners.

2.

Member States shall ensure that the companies update their due diligence policy without
undue delay after a significant change occurs, but at least every 24 months.

3.

Member States shall ensure that companies referred to in Article 2(1) put in place and oversee
the actions listed in Article 4(1).

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ENArticle 6
Identifying actual and potential adverse impacts
1.

Member States shall ensure that companies take appropriate measures to identify actualand potential adverse impacts arising from their own operations or those of theirsubsidiaries and, where related to their value chains of activities, those of their business
partners, in accordance with paragraphs 2, 3 and 4.

1a.

For the purpose of fulfilling the obligation in paragraph 1, companies may map all areas of
their own operations, those of their subsidiaries and, where related to their chains ofactivities, those of their business partners. Based on the results of that mapping, companies
may carry out an in-depth assessment of the areas where adverse impacts were identified tobe most likely to be present or most significant.

2.

By way of derogation from paragraph 1, companies referred to in Article 2(1), point (b),and Article 2(2), point (b), shall only be required to identify actual and potential adverse
impacts relevant to the respective sector mentioned in Article 2(1), point (b).

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3.

When regulated financial undertakings within the meaning of Article 3, point (a)(iv),provide the services referred to in Article 3, point (g), identification of actual and potential
adverse impacts shall be carried out only before providing that service.

4.

Member States shall ensure that, for the purposes of identifying 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 complaints procedure provided
for in Article 9. Companies shall, where relevant, also carry out consultations withpotentially affected groups including workers and other relevant stakeholders to gather
information on actual or potential adverse impacts.

Article 6aPrioritisation of identified actual and potential adverse impacts
1.

Member States shall ensure that companies prioritise adverse impacts arising from theirown operations, those of their subsidiaries or those of their business partners identified
pursuant to Article 6 for fulfilling the obligations laid down in Article 7 or 8, where it is
not feasible to address all identified adverse impacts at the same time to the full extent.

2.

The prioritisation of adverse impacts shall be based on severity and likelihood of theadverse impact. Severity of an adverse impact shall be assessed based on its gravity, thenumber of persons or the extent of the environment affected, and difficulty to restore thesituation prevailing prior to the impact.

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3.

Once the most significant adverse impacts are addressed in accordance with Article 7 or 8
in a reasonable time, the company shall address less significant adverse impacts.

Article 7
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 6 and,
where necessary, prioritised pursuant to Article 6a, in accordance with paragraphs 2, 3, 4
and 5 of this Article.
To determine the appropriate measures referred to in the first subparagraph, due accountshall be taken of:a)whether the potential adverse impact is caused only by the company, caused jointly
by the company and its subsidiary or business partner, or whether it is caused only by
the company’s business partner in its chain of activities;b)whether the potential adverse impact occurred in the operations of the subsidiary,
direct business partner or indirect business partner; andc)the ability of the company to influence the business partner causing the potential
adverse impact.

2.

Companies shall be required to take the following actions, 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 action and qualitative andquantitative indicators for measuring improvement. The prevention action plan shallbe developed in consultation with potentially affected stakeholders;

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(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 seeking corresponding contractual assurances from its
partners, to the extent that their activities are part of the company’s chain of activities(contractual cascading). When such contractual assurances are obtained, paragraph 4
shall apply;(c)make necessary financial or non-financial investments, such as into management or
production processes and infrastructures;(d)

provide targeted and proportionate support for an SME which is a business partner ofthe company, where compliance with the code of conduct or the prevention action
plan would jeopardise the viability of the SME. The targeted and proportionate
support may take the form of financing, such as direct financing, low-interest loans,guarantees of continued sourcing, or assistance in securing financing, or guidance,such as training or upgrading management systems;(e)in compliance with Union law, including competition law, collaborate with otherentities, including, where relevant, to increase the company’s ability to prevent or
mitigate the adverse impact, in particular where no other action is suitable oreffective.

3.

As regards potential adverse impacts that could not be prevented or adequately mitigatedby the actions listed in paragraph 2, the company may seek to conclude a contract with anindirect business partner, with a view to achieving compliance with the company’s code of
conduct or a prevention action plan. When such a contract is concluded, paragraph 4 shallapply.

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4.

The contractual assurances or the contract shall be accompanied by the appropriate
measures to verify compliance. For the purposes of verifying compliance, the company
may refer to suitable industry initiatives or independent third-party verification.
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. Where measures to verify
compliance are carried out in relation to SMEs, the company shall bear the cost of the
independent third-party verification.

5.

As regards potential adverse impacts within the meaning of paragraph 1 that could not be
prevented or adequately mitigated by the measures in paragraphs 2, 3 and 4, the company
shall be required as a last resort to refrain from entering into new or extending existing
relations with the business partner in connection with or in the chain of activities of which
the impact has arisen and shall, where the law governing their relations so entitles them to,take the following actions:(a)temporarily suspend the business relationship with respect to the activities
concerned, while pursuing prevention or mitigation efforts, if there is reasonable
expectation that these efforts will succeed in the short term. If there is no suchreasonable expectation or the efforts did not succeed in the short term, the company
shall terminate the business relationship;(b)terminate the business relationship with respect to the activities concerned if thepotential adverse impact is severe.

Member States shall provide for the availability of an option to temporarily suspend andterminate the business relationship in contracts governed by their laws in accordance withthe first subparagraph, except for contracts where the parties are obliged by law to enter
into them.

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6.

By way of derogation from paragraph 5, when regulated financial undertakings within themeaning of Article 3, point (a)(iv), provide the services as referred to in Article 3, point(g), they shall not be required to temporarily suspend or terminate the business
relationship.
Where the regulated financial undertaking within the meaning of Article 3, point (a)(iv),
decides not to temporarily suspend or terminate the business relationship in accordancewith the first subparagraph, it shall monitor the actual adverse impact while pursuing
prevention or mitigation efforts.

7.

By way of derogation from paragraph 5, the company shall not be required to terminate thebusiness relationship in case where:(a)there is a reasonable expectation that the termination would result in an adverse
impact that is more severe than the potential adverse impact that could not be
prevented or adequately mitigated; or(b)

no available alternative to that business relationship, that provides a raw material,
product or service essential to the company’s production of goods or provision ofservices, exists and the termination would cause substantial prejudice to thecompany.

Where the company decides not to terminate the business relationship in accordance withthe first subparagraph, it shall report to the competent supervisory authority about the duly
justified reasons of such decision.
The company shall monitor the potential adverse impact, periodically reassess its decision
not to terminate the business relationship and seek alternative business relationships.
8.

The obligation to temporarily suspend or terminate the business relationship pursuant toparagraph 5 shall not apply to commercial agreements concluded by the company before
the expiry of the transposition period in accordance with Article 30 of this Directive.

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ENArticle 8
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 6 and,
where necessary, prioritised pursuant to Article 6a to an end, in accordance withparagraphs 2 to 6 of 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, caused jointly by
the company and its subsidiary or business partner, or whether it is caused only by
the company’s business partner in its chain of activities;b)whether the actual adverse impact occurred in the operations of the subsidiary, directbusiness partner or indirect business partner; andc)the ability of the company to influence the business partner causing the actual
adverse impact.

2.

Where the adverse impact cannot be brought to an end, Member States shall ensure thatcompanies minimise the extent of such an impact.

3.

Companies shall be required to take the following actions, where relevant:(a)neutralise the adverse impact or minimise its extent. The action shall be
proportionate to the significance and scope of the adverse impact and to thecompany’s implication in the adverse impact;

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(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 action and qualitative andquantitative indicators for measuring improvement. The corrective action plan shallbe developed in consultation with stakeholders;(c)seek contractual assurances from a direct business partner that it will ensurecompliance with the code of conduct and, as necessary, a corrective action plan,
including by seeking corresponding contractual assurances from its partners, to theextent that they are part of the chain of activities (contractual cascading). When suchcontractual assurances are obtained, paragraph 5 shall apply;(d)make necessary financial or non-financial investments, such as into management or
production processes and infrastructures;(e)provide targeted and proportionate support for an SME which is a business partner ofthe company, where compliance with the code of conduct or the corrective action
plan would jeopardise the viability of the SME. The targeted and proportionate
support may take the form of financing, such as direct financing, low-interest loans,guarantees of continued sourcing, or assistance in securing financing, or guidance,such as training or upgrading management systems;(f)in compliance with Union law, including competition law, collaborate with otherentities, including, where relevant, to increase the company’s ability to bring theadverse impact to an end or minimise the extent of such impact, in particular where
no other action is suitable or effective;(g)provide remediation to the affected persons and communities.

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4.

As regards actual adverse impacts that could not be brought to an end or adequately
mitigated by the measures in paragraph 3, the company may seek to conclude a contract
with an indirect business partner, with a view to achieving compliance with the company’scode of conduct or a corrective action plan. When such a contract is concluded, paragraph
5 shall apply.

5.

The contractual assurances or the contract shall be accompanied by the appropriate
measures to verify compliance. For the purposes of verifying compliance, the company
may refer to suitable industry initiatives or independent third-party verification.
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. Where measures to verify
compliance are carried out in relation to SMEs, the company shall bear the cost of the
independent third-party verification.

6.

As regards actual adverse impacts within the meaning of paragraph 1 that could not be
brought to an end or the extent of which could not be minimised by the measures provided
for in paragraphs 3, 4 and 5, the company shall be required as a last resort to refrain fromentering into new or extending existing relations with the business partner in connection
with or in the chain of activities of which the impact has arisen and shall, where the law
governing their relations so entitles them to, take the following actions:(a)temporarily suspend the business relationship with respect to the activities
concerned, while pursuing efforts to bring to an end or minimise the extent of theadverse impact, if there is reasonable expectation that these efforts will succeed in
the short term. If there is no such reasonable expectation or the efforts did not
succeed in the short term, the company shall terminate the business relationship;

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(b)

terminate the business relationship with respect to the activities concerned, if theadverse impact is considered severe.

Member States shall provide for the availability of an option to temporarily suspend andterminate the business relationship in contracts governed by their laws in accordance withthe first subparagraph, except for contracts where the parties are obliged by law to enter
into them.
7.

By way of derogation from paragraph 6, when regulated financial undertaking within themeaning of Article 3, point (a)(iv), provide the services as referred to in Article 3, point(g), they shall not be required to temporarily suspend or terminate the business
relationship.
Where the regulated financial undertaking within the meaning of Article 3, point (a)(iv),
decides not to temporarily suspend or terminate the business relationship in accordancewith the first subparagraph, it shall monitor the actual adverse impact while pursuingefforts to bring to an end or minimise the extent of the adverse impact.

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8.

By way of derogation from paragraph 6, the company shall not be required to terminate thebusiness relationship in case where:(a)there is a reasonable expectation that the termination would result in an adverse
impact that is more severe than the actual adverse impact that could not be brought toan end or minimised; or(b)

no available alternative to that business relationship, that provides a raw material,
product or service essential to the company’s production of goods or provision ofservices, exists and the termination would cause substantial prejudice to thecompany.

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ENWhere the company decides not to terminate the business relationship in accordance withthe first subparagraph, it shall report to the competent supervisory authority about the duly
justified reasons of such decision.
The company shall monitor the actual adverse impact, periodically reassess its decision not
to terminate the business relationship and seek alternative business relationships.
9.

The obligation to temporarily suspend or terminate the business relationship pursuant toparagraph 6 shall not apply to commercial agreements concluded by the company before
the expiry of the transposition period in accordance with Article 30 of this Directive.

Article 9Complaints procedure1.

Member States shall ensure that companies provide the possibility for persons andorganisations listed in paragraph 2 to submit complaints to them where they havelegitimate concerns 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 companies’ chains of activities.

2.

Member States shall ensure that the complaints may be submitted by:(a)persons who are affected or have reasonable grounds to believe that they might beaffected by an adverse impact;(b)

trade unions and other workers’ representatives representing individuals working in
the chain of activities concerned; and(c)civil society organisations active in the areas related to the human rights orenvironmental adverse impact that is the subject matter of the complaint.

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3.

Member States shall ensure that companies establish a fair, accessible, and transparent
procedure for dealing with complaints referred to in paragraph 1, including a procedurewhen the company considers the complaint to be unfounded, and inform the relevant
workers and trade unions of that procedure. The procedure shall ensure the confidentialityof the identity of the person or organisation submitting the complaint, and the necessary
measures to prevent any form of retaliation from the company and its subsidiaries.
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 6 and the company shall take appropriate measures in accordance with Articles 7
and 8, including providing remediation where relevant.

4.

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

to meet with the company’s representatives at an appropriate level to discuss
potential or actual severe adverse impacts that are the subject matter of thecomplaint.

5.

Member States shall ensure that companies are allowed to fulfil the obligations laid downin paragraphs 1 and 3, first subparagraph, by participation in collaborative complaints
procedures, including those established jointly by companies, through industry associations
or multi-stakeholder initiatives, provided that the collective procedures meet therequirements set out in this Article.

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Article 10
Monitoring
1.

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 chains ofactivities of the company, those of their business partners, to monitor the effectiveness of
the identification, prevention, mitigation, bringing to an end and minimisation of the extent
of adverse impacts. Such assessments shall be based, where appropriate, on qualitative andquantitative indicators and be carried out without undue delay after a significant change
occurs, but at least every 24 months and whenever there are reasonable grounds to believethat significant new risks of the occurrence of those adverse impacts may arise. The due
diligence policy shall be updated in accordance with the outcome of those assessments andwith due consideration of relevant information from stakeholders.

2.

By way of derogation from paragraph 1, when regulated financial undertakings within themeaning of Article 3, point (a)(iv), provide the services as referred to in Article 3, point(g), they shall in respect to their business partners, where related to their chain of
activities, carry out periodic assessments only to monitor the effectiveness of theprevention, mitigation, bringing to an end, and minimisation of the extent of adverse
impacts identified in accordance with Article 6(3).

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Article 11
Communicating
1.

Member States shall ensure that companies that are not subject to reporting requirements
under Articles 19a and 29a of Directive 2013/34/EU report on the matters covered by thisDirective by publishing on their website an annual statement on the financial year in alanguage customary in the sphere of international business. The statement shall be
published within a reasonable period of time which shall not exceed 12 months after thebalance sheet date of the financial year for which the statement is drawn up.
Companies that are included in a consolidated management report and exempted from theobligations under Articles 19a or 29a of Directive 2013/34/EU in accordance with Articles
19a(7) and 29a(7) of that Directive shall be deemed to have fulfilled the obligation under
this Article.

2.

The Commission shall adopt delegated acts in accordance with Article 28 concerning thecontent and criteria for such reporting under paragraph 1, specifying information on thedescription of due diligence, potential and actual adverse impacts and actions taken withrespect to those impacts.

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Article 12
Model contractual clauses
In order to provide support to companies to facilitate their compliance with Article 7(2), point (b),and Article 8(3), point (c), the Commission, in consultation with Member States and stakeholders,shall adopt guidance about voluntary model contractual clauses.

Article 13
Guidelines
In order to provide support to companies or to Member State authorities on how companies should
fulfil their due diligence obligations, the Commission, in consultation with Member States andstakeholders, the European Union Agency for Fundamental Rights, the European Environment
Agency, and where appropriate with international bodies having expertise in due diligence, shallissue guidelines, including for specific sectors or specific adverse impacts, no later than after two
years from the entry into force of this Directive.

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Article 14
Accompanying measures
1.

Member States shall, in order to provide information and support to companies and thebusiness partners in their chains of activities in their efforts to fulfil the obligations
resulting from this Directive, set up and operate individually or jointly dedicated websites,
platforms or portals. Specific consideration shall be given, in that respect, to the SMEs thatare present in the chains of activities of companies.

2.

Without prejudice to applicable State aid rules, Member States may financially support
SMEs.

3.

The Commission may complement Member States’ 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 joint stakeholder initiatives to help companies fulfil
their obligations.

4.

Companies may rely on industry schemes and multi-stakeholder initiatives to support theimplementation of their obligations referred to in Articles 5 to 11 to the extent that such
schemes and initiatives are appropriate to support the fulfilment of those obligations. The
Commission and the Member States may facilitate the dissemination of information onsuch schemes or initiatives and their outcome. The Commission, in collaboration withMember States, shall issue guidance for assessing the fitness of industry schemes andmulti-stakeholder initiatives.

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ENArticle 15
Combating climate change
1.

Member States shall ensure that companies referred to in Article 2(1), point (a), and Article
2(2), point (a), shall adopt a plan, including implementing actions and related financial andinvestments plans, to ensure that the business model and strategy of the company arecompatible 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 by 2050 as established in Regulation (EU) 2021/1119, and where relevant, theexposure of the undertaking to coal-, oil- and gas-related activities, as referred to in
Articles 19a(2), point (a)(iii), and 29a(2), point (a)(iii), of Directive 2013/34/EU. This plan
shall, in particular, identify, on the basis of information reasonably available to thecompany, the extent to which climate change is a risk for, or an impact of, the company’s
operations.

2.

Member States shall ensure that, in case climate change is or should have been identified
as a principal risk for, or a principal impact of, the company’s operations, the company
includes greenhouse gas emission reduction objectives in its plan.

3[…]
Article 16
Authorised representative

1.

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

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2.

Member States shall lay down rules to require that the authorised representative or thecompany notifies the name, address, electronic mail address and telephone number of theauthorised representative to a supervisory authority in the Member State where theauthorised representative is domiciled or established. Member States shall lay down rules
to require that the authorised representative provides, upon request, a copy of thedesignation in an official language of a Member State to any of the supervisory authorities.

3.

Member States shall lay down rules to require that the authorised representative or thecompany informs a supervisory authority in the Member State where the authorised
representative is domiciled or established and, where it is different, a supervisory authority
in the Member State in which the company generated most of its net turnover in the Union
in the financial year preceding the last financial year that the company is a company within
the meaning of Article 2(2).
4.

Member States shall lay down rules to require that each company empowers its authorised
representative to receive communications from supervisory authorities on all mattersnecessary for compliance with and enforcement of national provisions transposing thisDirective. Companies shall be required to provide their authorised representative with thenecessary powers and resources to cooperate with supervisory authorities.

5.

When the company within the meaning of Article 2(2) fails to comply with the obligations
laid down in this Article, all Member States in which such company operates should becompetent to enforce the fulfilment of such obligations in accordance with the nationallaw. The Member State intending to enforce the obligations laid down in this Article
notifies the supervisory authorities through the European Network of Supervisory
Authorities in accordance with Article 21 so that other Member States do not enforce them.

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ENArticle 17
Supervisory Authorities
1.

Each Member State shall designate one or more supervisory authorities to supervise
compliance with the obligations laid down in national provisions adopted pursuant to
Articles 6 to 11 and Article 15 (‘supervisory authority’).

2.

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

3.

As regards companies referred to in Article 2(2), the competent supervisory authority shallbe that of the Member State in which such 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 30 or the date on which
the company first fulfils the criteria laid down in Article 2(2), whichever comes last.
Companies 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 in this Directive in respect of that company.

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3a.

Where the parent company fulfils the obligations resulting from this Directive on behalf of
its subsidiaries in accordance with Article 4a, the competent supervisory authority for theparent company and its subsidiaries shall be that of the parent company pursuant toparagraph 2 or 3.
When the supervisory authority under the first subparagraph identifies a failure of thesubsidiary to comply with the obligations provided for in Article 4a(2), it shall notify thesupervisory authority that would be competent in respect of that subsidiary in accordancewith paragraph 2 or 3, to carry out the powers in respect of that subsidiary in accordancewith Articles 18 and 20.

4.

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

5.

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

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6.

By the date indicated in Article 30(1), point (a), 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 competence where there are several
designated supervisory authorities. They shall inform the Commission of any changes
thereto.

7.

The Commission shall make publicly available, including on its website, a list of thesupervisory authorities. The Commission shall regularly update the list on the basis of theinformation received from the Member States.

8.

Member States shall guarantee the independence of the supervisory authorities and shallensure that they, and all persons working for or who have worked for them and auditors orexperts acting on their behalf, exercise their powers impartially, transparently and with due
respect for obligations of professional secrecy. In particular, Member States shall ensurethat the authority is legally and functionally independent from the companies falling within
the scope of this Directive or other market interests, that its staff and the persons
responsible for its management are free of conflicts of interest, subject to confidentiality
requirements, and that they refrain from any action incompatible with their duties.
Article 18
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 request information and carry out investigations related to compliance with the
obligations set out in Articles 6 to 11 and Article 15. As regards Article 15, Member Statesshall only require supervisory authorities to supervise that companies have adopted theplan.

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2.

A supervisory authority may initiate an investigation on its own motion or as a result of
substantiated concerns communicated to it pursuant to Article 19, where it considers that it
has sufficient information indicating a possible breach by a company of the obligations
provided for in the national provisions adopted pursuant to this Directive.

3.

Inspections shall be conducted in compliance with the national law of the Member State inwhich the inspection is carried out and with prior warning to the company, except whereprior notification hinders the effectiveness of the inspection. Where, as part 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 inthat Member State pursuant to Article 21(2).

4.

If, as a result of the actions taken pursuant to paragraphs 1 and 2, a supervisory authority
identifies a failure to comply with national provisions adopted pursuant to this Directive, it
shall grant the company concerned an appropriate period of time to take remedial action, if
such action is possible.
Taking remedial action does not preclude the imposition of penalties or the triggering ofcivil liability in case of damages, in accordance with Articles 20 and 22, respectively.

5.

When carrying out their tasks, supervisory authorities shall have at least the following
powers:(a)to order:(i)the cessation of infringements of the national provisions adopted pursuant tothis Directive;(ii)

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

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(b)

to impose penalties in accordance with Article 20; and(c)to adopt interim measures in case of urgency due to risk of severe and irreparable
harm.

6.

Supervisory authorities shall exercise the powers referred to in this Article in accordancewith the national law:

7.

(a)

directly;(b)in cooperation with other authorities; or(c)by application to the competent judicial authorities.

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.
Article 19
Substantiated concerns

1.

Member States shall ensure that natural and legal persons are entitled to submit
substantiated concerns 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 national
provisions adopted pursuant to this Directive (‘substantiated concerns’).

2.

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

3.

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 18.

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4.

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 the person referred toin paragraph 1 of the result of the assessment of their substantiated concern and shallprovide the reasoning for it.

5.

Member States shall ensure that the persons submitting the substantiated concern
according to this Article and having, in accordance with national law, a legitimate interestin the matter have access to a court or other independent and impartial public bodycompetent to review the procedural and substantive legality of the decisions, acts or failure
to act of the supervisory authority.
Article 20
Penalties

1.

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

2.

In deciding whether to impose penalties and, if so, in determining their nature andappropriate level, due account shall be taken in particular of the company’s efforts tocomply with any remedial action required of them by a supervisory authority, any
investments made and any targeted support provided pursuant to Articles 7 and 8, as wellas collaboration with other entities to address adverse impacts in its chain of activities, as
the case may be.

3.

When pecuniary penalties are imposed, they shall be commensurate with the company’s
worldwide net turnover.

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4.

Member States shall ensure that any decision of the supervisory authorities containing
penalties related to the infringements of the national provisions adopted pursuant to thisDirective is published, publicly available for at least 3 years and sent to the European
Network of Supervisory Authorities. The published decision shall not contain any personal
data within the meaning of Article 4(1) of Regulation (EU) 2016/679.
Article 21
European Network of Supervisory Authorities

1.

The Commission shall set up a European Network of Supervisory Authorities, composedof representatives of the supervisory authorities. The Network shall facilitate thecooperation of the supervisory authorities and the coordination and alignment ofregulatory, investigative, sanctioning and supervisory practices of the supervisory
authorities and, as appropriate, 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.

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1a.

The Commission shall set up a secured system of exchange of information regarding the
net turnover generated in the Union by a company referred to in Article 2(2), that does nothave a branch in any Member State or has branches located in different Member States.
Member States shall regularly communicate information they have regarding the net
turnover generated by those companies. The Commission shall analyse this information
within a reasonable period of time 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 a company within the meaning of Article 2(2) and thesupervisory authority of the Member State is competent in accordance with Article 17(3).

2.

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 tothe exercise of the powers referred to in Article 18, including in relation to inspections andinformation requests.

3.

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. When it is 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.

4.

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.

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5.

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.

6.

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.

7.

The supervisory authority that is competent pursuant to Article 17(3) shall inform theEuropean Network of Supervisory Authorities of that fact and of any request to change thecompetent supervisory authority.

8.

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.

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9.

The European Network of Supervisory Authorities shall publish the decisions of thesupervisory authorities containing penalties as referred to in Article 20(4).

Article 22
Civil liability of companies and a right to full compensation
1.

Member States shall ensure that a company can be held liable for a 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 7 and 8, when the right, prohibition or obligation listed in Annex I
is aimed to protect the natural or legal person; and(b)

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

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

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

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3.

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 company’s chain of activities.
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.

4.

The civil liability rules under this Directive shall be without prejudice to Union or nationalrules 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.

5.

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 law of a Member State.

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Reporting of breaches and protection of reporting persons
Directive (EU) 2019/1937 shall apply to the reporting of all breaches of this Directive and theprotection of persons reporting such breaches.
Article 24[…]
Article 25[…]
Article 26[…]

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Article 27
Amendment to Directive (EU) 2019/1937
In Point E.2 of Part I of the Annex to Directive (EU) 2019/1937, the following point is added:
̒(vi) Directive … of the European Parliament and of the Council of … on Corporate
Sustainability Due Diligence and amending Directive (EU) 2019/1937 (OJ L ..., ...) *+.
_________________* Directive … of the European Parliament and of the Council of … on Corporate
Sustainability Due Diligence and amending Directive (EU) 2019/1937 (OJ L ..., ...).’.
Article 28
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 11 shall be conferred on theCommission for an indeterminate period of time from … [date of entry into force of thisDirective].

3.

The delegation of power referred to in Article 11 may be revoked at any time by theEuropean Parliament or by the Council. A decision to revoke shall put an end to thedelegation 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 or at a later datespecified therein. It shall not affect the validity of any delegated acts already in 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.

+

OJ: Please insert in the text the number and the date of the Directive contained in document... and insert the OJ reference of that Directive in the footnote.

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5.

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

6.

A delegated act adopted pursuant to Article 11 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 the Council or if,
before the expiry of that period, the European Parliament and the Council have bothinformed 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.
Article 29
Review

No later than … [7 years after the date of entry into force of this Directive], the Commission shallsubmit a report to the European Parliament and to the Council on the implementation of thisDirective. The report shall evaluate the effectiveness of this Directive in reaching its objectives andassess the following issues:(a)whether the thresholds regarding the number of employees and net turnover laid down in
Article 2(1) need to be revised;(b)whether the list of sectors in Article 2(1), point (b), needs to be changed, including in order
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(bb)

whether Article 2 needs to be revised so that the number of employees and net turnover ofsubsidiaries of the company is included in the calculation of the number of employees andnet turnover of the company;(bc)whether Article 3, point (a) needs to be revised so that other legal persons constituted as
different legal forms than those listed in Annex I of Directive 2013/34/EU or in a form
comparable to those listed therein are covered;(c)whether the Annex I needs to be modified, including in light of international
developments;(ca)whether the definition of ‘chain of activities’ in Article 3, point (g), needs to be revised,
including whether the provision of investment or the provision of services referred to in
Article 3, point (g), by regulated financial undertakings within the meaning of Article
3, point (a)(iv), needs to be included; and(d)whether Articles 4 to 14 should be extended to adverse climate impacts or Article 15 needs
to be revised.
Article 30
Transposition

1.

Member States shall adopt and publish, by … [2 years from the entry into force of thisDirective] at the latest, regulations and administrative provisions necessary to comply withthis Directive. They shall forthwith communicate to the Commission the text of those
provisions.

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They shall apply those provisions as follows:(a)from … [3 years from the entry into force of this Directive] as regards companies
which are formed in accordance with the legislation of the Member State and that
had more than 1000 employees on average and generated a net worldwide turnoverof more than EUR 300 million in the last financial year preceding … [3 years fromthe entry into force of this Directive] for which annual financial statements have beenor should have been adopted;(b)from … [3 years from the entry into force of this Directive] as regards companies
which are formed in accordance with the legislation of a third country and thatgenerated a net turnover of more than EUR 300 million in the Union, in the financial
year preceding the last financial year preceding … [3 years from the entry into forceof this Directive];(c)from… [4 years from the entry into force of this Directive] as regards companies
referred to in Article 2(1), point (a), and Article 2(2), point (a);(d)

from … [5 years from the entry into force of this Directive] as regards companies
referred to in Article 2(1), point (b), and Article 2(2), point (b).

When Member States adopt those provisions, they shall contain a reference to thisDirective 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.

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2.

Member States shall communicate to the Commission the text of the main provisions ofnational law which they adopt in the field covered by this Directive.
Article 31
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 32
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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ANNEX IPART I1.

HUMAN RIGHTS AS REFERRED TO IN ARTICLE 3, POINT (C)

1.

[…]

2.

The right to life, including private or public security guards protecting the company's
resources, facilities or personnel causing death of a person due to a lack of instruction orcontrol by the company, interpreted in line with Article 6(1) of the International Covenant
on Civil and Political Rights;

3.

The prohibition of torture, cruel, inhuman or degrading treatment, including 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, interpreted in line with Article 7 of the International
Covenant on Civil and Political Rights;

4.

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

5.

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;

6.

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
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7.

The right to enjoy just and favourable conditions of work, including a fair wage and an
adequate living wage, a decent living, safe and healthy working conditions and reasonable
limitation of working hours, interpreted in line with Article 7 of the International Covenant
on Economic, Social and Cultural Rights;

8.

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;

9.

[…]

10.

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 accordance 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);

11.

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;

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(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;

12.

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, interpreted in line with Article 2(1) of theInternational Labour Organization Forced Labour Convention, 1930 (No. 29). Forced orcompulsory labour shall not mean any work or services that comply with Article 2(2) ofInternational Labour Organization Forced Labour Convention, 1930 (No. 29) or with
Article 8(3)(b) and (c) of the International Covenant on Civil and Political Rights;

13.

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;

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14.

[…]

15.

The right to freedom of association, assembly, 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). This includes the following rights:(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)
16.

the right to strike and the right to collective bargaining;

The prohibition of unequal treatment in employment, unless this is justified by therequirements of the employment, interpreted in line with Articles 2 and 3 ofthe International Labour Organisation Equal Remuneration Convention, 1951 (No. 100),
Articles 1 and 2 of the International Labour Organisation 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)the discrimination on grounds of national extraction or social origin, race, colour,
sex, religion, political opinion;

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17.

[…]

18.

The prohibition of causing harmful soil change, water or air pollution, harmful emissions
or excessive water consumption 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 the health of a person,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;
19.

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 useof which secures the livelihood of a person interpreted in line with Article 11 of theInternational Covenant on Economic, Social and Cultural Rights.

20.

[…]

21.

[…]

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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 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 OBLIGATIONS RELATED TO THE PROTECTION OF THE ENVIRONMENT AS
REFERRED TO IN ARTICLE 3, POINT (B)1.

The obligation to avoid or minimise adverse impacts on biological diversity, interpreted inline with Article 10(b) of the 1992 Convention on Biological Diversity and applicable law
in the relevant jurisdiction, including the obligations of the Cartagena Protocol on thedevelopment, 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 to import, export, re-export or introduce from the sea any specimen
included in the Appendices I to III of the Convention on International Trade in Endangered
Species of Wild Fauna and Flora (CITES) of 3 March 1973 without a permit, interpreted inline 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 of the Minamata Convention on Mercury of 10 October 2013 (Minamata
Convention), interpreted in line with Article 4(1) of the Convention;

4.

The prohibition of the use of mercury or mercury compounds in the manufacturing
processes listed in Annex B Part I of 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;

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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 theEuropean Parliament and of the Council76;

6.

The prohibition of the production and use of chemicals listed in Annex A of the Stockholm
Convention of 22 May 2001 on Persistent Organic Pollutants (POPs Convention),interpreted in line with Article 3(1)(a), point (i) of the Convention and Regulation (EU)2019/1021 of the European Parliament and of the Council77;

7.

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

8.

The prohibition of importing or exporting a chemical listed in Annex III of 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 Articles 10(1), 11(1)(b) and 11(2) of the Convention and indication by theimporting or exporting Party to the Convention in line with the Prior Informed Consent(PIC) Procedure;

76

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).

77

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 import and export of controlled substances in Annexes A,
B, C and E of the Montreal Protocol on substances that deplete the Ozone Layer to theVienna Convention for the protection of the Ozone Layer, interpreted in line with Article
4B of the Montreal Protocol and licensing provisions under applicable law in relevant
jurisdiction;

10.

The prohibition of exports of hazardous or other waste, interpreted in line with Article 1(1)and (2) of the Basel Convention on the Control of Transboundary Movements ofHazardous Wastes and their Disposal of 22 March 1989 (Basel Convention) andRegulation (EC) No 1013/2006 of the European Parliament and of the Council78:(a)

to a party to the Convention that has prohibited the import of such hazardous andother wastes, interpreted in line with Article 4(1)(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)(c) of the Basel Convention;(c)to a non-party to the Basel Convention, interpreted in line with Article 4(5) of theBasel Convention;

78

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

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(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;

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 to 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(d) of the World Heritage Convention and applicable 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 to discharge into the sea:(i)oil or oily mixtures as defined in Regulation 1 of Annex I of MARPOL 73/78,
interpreted in line with Regulations 9 to 11 of Annex I of MARPOL 73/78;(ii)

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

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

16.

The prohibition of unlawful pollution of the marine environment by dumping as defined in
Article 1(1) of the United Nations Convention on the Law of the Sea of 10 December 1982
(UNCLOS), interpreted in line with Article 210 of UNCLOS and applicable law in therelevant jurisdiction.

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ANNEX II
LIST OF STATISTICAL CLASSIFICATION OF ECONOMIC ACTIVITIES DEFINED IN
ANNEX IV TO REGULATION (EC) No 1893/2006 REFERRED TO IN ARTICLE 2(1),POINT (b)Article2(1)(b), point (i)SectorManufacture of textiles, leather andCorresponding NACE code
Section C, Division 13-15

related products (including footwear)
2(1)(b), point (i)2(1)(b), point (ii)

Wholesale trade of textiles, clothing andSection G, Division 46, Groupfootwear

46.4, Class 46.41-46.42

Agriculture, forestry, fisheries (including

Section A

aquaculture)2(1)(b), point (ii)Manufacture of food products andSection C, Division 10-11

beverages

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2(1)(b), point (ii)

Wholesale trade of agricultural raw

Section G, Division 46, Groupmaterials, live animals, wood, food and46.1, Class 46.11-46.13 andbeverages

46.16-46.17
Section G, Division 46, Group
46.2
Section G, Division 46, Group
46.3

2(1)(b), point (iii)

The extraction of mineral resources

Section B

regardless from where they are extracted(including crude petroleum, natural gas,coal, lignite, metals and metal ores, aswell as all other, non- metallic minerals
and quarry products)2(1)(b), point (iii)

The manufacture of basic metal products,

Section C, Division 23-25

other non-metallic mineral products andfabricated metal products (except
machinery and equipment)2(1)(b), point (iii)

The wholesale trade of mineral resources,

Section G, Division 46, Groupbasic and intermediate mineral products

46.7, Class 46.71-73 and(including metals and metal ores,

46.75-76

construction materials, fuels, chemicals
and other intermediate products)

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