EN   EN 
 
 
 EUROPEAN  
COMMISSION   
Brussels, 23.2.2022  
SWD(2022) 43 final  
 
COMMISSION STAFF WORKING DOCUMENT  
 
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  
 
Accompanying the document  
Proposal for a  
 
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  
on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937  
{COM(2022)  71 final}  - {SEC(2022)  95 final}  - {SWD(2022)  38 final}  -
 {SWD(2022)  39 final}  - {SWD(2022)  42 final}   
 
 Executive Summary Sheet  
Impact assessment on a proposal for a Directive on sustainable corporate governance  
A. Need for action  
What is the problem and why is it a problem at EU level?  
The main problem addressed is the need to reinforce sustainability in corporate governance and 
management systems , with two dimensions: 1) stakeholder interests and stakeholder -related 
(sustainability) risks to the company  are not sufficiently taken into account in corporate risk 
management systems and decisions; 2) companies do not sufficiently mitigate their adverse human 
rights and environmental impacts , do not have  adequate governanc e, management systems and 
measures to mitigate their harmful impacts. Problem  drivers are market failures , like short -term focus of 
companies and directors, and regulatory failures from unclear and diverging national rules (including 
emerging ones) and ine ffective voluntary frameworks. The problem has an EU dimension  as companies 
and investors operate across borders, supply chains are transnational and the identified market failures are 
systemic. The problem is expected to grow over time : identification of risks and awareness are expected 
to improve, but change is not expected to be sufficiently quick, even, systemic and wide -spread.  
What should be achieved?  
The general objective  is to exploit better the potential of the single market to contribute to the transition 
towards a sustainable economy, and to foster sustainable value creation and improve long -term 
performance and resilience  of EU companies. Specific objectives are: clarifying what is expected from 
directors to fulfil their duty to act in the company’s interest; fostering the integration of sustainability risks 
and impacts into corporate risk management; increasing accountability for identifying, preventing and 
mitiga ting adverse impact, including in value chains; improving access to remedy; improving corporate 
governance practices to better integrate sustainability into directors’ and company decision -making.  
What is the value added of action at the EU level (subsidi arity)?   
Individual action of some Member States could not satisfactorily achieve the objectives, due to the 
EU/global dimension of the problem. EU rules have better chances to mitigate short -term pressures on 
companies. New EU rules would build on the ex isting EU corporate governance framework. EU 
intervention can ensure a strong EU voice globally.  
B. Solutions  
What are the various options to achieve the objectives?  Is there a preferred option or not? If not, 
why?  
Options were considered mainly for corporate due diligence duty and directors’ duties. Non -regulatory 
options were discarded as they have proven not to be effective and efficient. On due diligence, certain 
regulatory options (e.g. duty or liability limited  to value chain first tier) were also discarded due to 
ineffectiveness. Retained  options vary in overall approach (sectoral – horizontal) and personal scope. A 
preferred package of options, which complement each other, is proposed. As regards corporate due  
diligence,  a horizontal due diligence duty would be introduced for large limited liability companies (LLC) 
(defined by two possible alternative sets of employee number and turnover criteria) combined with a 
simplified regime targeting most salient issues for medium -sized and midcap LLCs in sectors where 
environmental and human rights adverse impacts are more likely to occur (high -impact sectors). EU rules 
on harmonised civil liability and administrative enforcement would support this. Third -country compani es 
generating significant turnover in the EU will be included. On directors’ duties,  the preferred option 
would clarify in a harmonised manner the general  directors’ duty to act in the company’s best interest for 
all LLC (regulated in national company laws ). This would be underpinned by some specific directors’ 
duties (e.g. relating to risk management, or stakeholder engagement) for large companies and phased in 
 
 for high -impact medium -sized LLCs and listed SMEs. Directors’ duties implementing the corporate due 
diligence obligation apply to the same companies as that obligation. Additional specific directors’ duties 
relating to strategy setting with science -based targets would apply to large companies with more than 1000 
employees. A general clause that remuneration should facilitate or at least not hinder compliance with 
the new rules would complement this.  
What are different stakeholders' views? Who supports which option?  
The consultative activities, in particular the public consultation yielding almost half a million responses, 
show overall support for the objective for EU action and the majority of the proposed actions. On 
directors’ duties , the majority of respondents ac ross stakeholder groups recognized the need for 
companies and directors to take account of stakeholders` interests in corporate decisions, especially as 
regards integrating sustainability into corporate strategy, with the largest support from NGOs, followe d by 
individual companies and business associations. Those latter express concern on setting measurable targets 
and balancing the interests of all stakeholders. On corporate  due diligence , all stakeholder groups 
confirm with vast majority the need for a ho rizontal EU legal framework, providing for harmonisation, 
level playing field and legal certainty. There is overall support for an ambitious approach as regards the 
content of a due diligence duty, along the lines of the preferred option.  As regards reduci ng the burden on 
SMEs, measures such as a toolbox, national helpdesks, capacity -building support, including funding, and 
non-binding guidelines, are considered effective. Remuneration  seems recognized as complementary, 
with somewhat limited replies.  
C. Impacts of the preferred option  
What are the benefits  of the preferred option (if any, otherwise of main ones)?                                      
The package of preferred options would allow companies  to improve financial performance, based on 
different factors such as better risk management, improved operational efficiency and cost savings, better 
resilience, more innovation. Not all benefits will arise immediately, some may manifest in the medium to 
long-term, nor will they arise equally to all companies in the scope. Positive impacts on human rights , 
including labour rights, and on the environment  are expected, also in third countries where supply chains 
are located. The preferred package would be eff ective in achieving those benefits.  
What are the costs of the preferred option (if any, otherwise of main ones)?                                     
Compliance costs for companies consist of the costs of establishing and operating due diligence processes  
and procedures, as well as  transition costs, i.e. expenditures and investments necessary to change the 
company’s own operations and value chains to mitigate adverse impacts. Additional cost of reporting to 
the public will be incurred only by high -impact n on-listed medium -sized companies as they are not 
covered by the Commission’s proposal on the Corporate Sustainability Reporting Directive. Estimated 
direct compliance costs taking into account the number of companies affected amount to one -off costs of 
EUR  500 to 680 million , and EUR  1.72 to 2.3 7 billion recurrent (annual) costs (depending on the selected 
employee number / turnover criteria to define large companies covered by full due diligence rules). Some 
companies (subsidiaries, value chain partners) th at are not under the scope of the initiative would bear 
indirect (trickle -down) costs. Directors’ duties will imply a one -off cost of EUR 445  million, while the 
cost impact of remuneration is very limited.  
What are the impacts on SMEs and competitiveness?  
Under the preferred package, small and micro companies are excluded from due diligence measures; 
medium -sized and midcap companies are only covered when active in particularly high -impact economic 
sectors  with more targeted obligations and phased -in. As described, an indirect effect is expected on all 
companies that are part of value chains; the preferred package therefore includes measures to prevent that 
the burden of compliance is put on SME value chain  partners, while additional support measures will also 
help minimise the costs for SMEs. Overall,  the preferred option should lead to improvements in company 
resilience, long -term performance  (see “Benefits”), in particular in the mid to long -term, bring ing about 
 
 similar benefits at the level of the economy. As the cost impact is relatively low compared to the revenue 
of companies, no significant negative distortions are expected as regards the competitiveness of EU 
companies in global markets and the mid  to long -term competitiveness impacts are expected to be 
positive.   
Will there be significant impacts  on national budgets and administrations?   
Under the preferred option, the total supervisory costs for the public administration in all Member States 
would amount to a one -off cost of EUR  0.13 million and an annually r ecurrent cost of EUR  7.86 to 
11.2 million (depending on the selected employee number / turnover criteria to define large companies 
covered by full due diligence rules). These calculations apply to the risk -based supervisory review as 
regards due diligence compliance.  No additional supervisory costs are expected for the directors’ duties 
and remuneration part. Member States may also incur some low additional enforcement costs from 
litigation .  
Will there be other significant impacts?   
Due to the global outreach via value chains, third -country companies and economies will be affected. 
Positive effects are expected on human rights and the environment, and on local communities, through 
increased stakeholder awareness, improved sustainability -related practices, increased adoption of 
international standards in developing nations, better access to remedy for victims, sustainable investment. 
Potential negative impacts include: compliance cos ts on third -country companies, and subsequent moving 
of producers from third countries to uncontrolled product markets; the risk of companies switching to less 
risky suppliers. Mitigation measures are described.  
Proportionality?   
The proposed measures do  not go beyond what is necessary to address the drivers and achieve the 
objectives of the initiative. Burden on companies stemming from compliance costs, has been adapted to 
the size and resources available to the company, and the risk profile (see also on  impacts on SMEs above).  
D. Follow up  
When will the policy be reviewed?  
5 years after transposition, taking account of the time needed for application and data collection.