EN   EN 
 
 
 EUROPEAN  
COMMISSION   
Brussels, 23.2.2022  
SWD(2022) 38 final  
 
COMMISSION STAFF WORKING DOCUMENT  
Subsidiarity Grid  
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)  39 final}  -
 {SWD(2022)  42 final}  - {SWD(2022)  43 final}   
 
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 Subsidiarity Grid  
 
1. Can the Union act? What is the legal basis and competence of the Unions’ intended action?  
1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative?  
The legal basis of the proposed initiative is Article 50 TFEU and Article 114 TFEU . 
 
Article 50(1) TFEU and in particular Article 50(2)(g) TFEU provide for the EU competence to act in 
order to attain freedom of establishment as regards a particular activity, in particular “by 
coordinating to the necessary extent the safeguards which, for the protection of th e interests of 
members and others, are required by Member States of companies or forms within the meaning of 
the second paragraph of Article  54 TFEU with a view to making such safeguards equivalent 
throughout the Union.”  This includes in particular coordin ation measures concerning the protection 
of interests of companies’ shareholders and other stakeholders with a view to making such 
protection equivalent throughout the Union, where disparities between national rules are such as to 
obstruct freedom of estab lishment . 
 
Article 114 TFEU  provides for the EU competence to “adopt the measures for the approximation of 
the provisions laid down by law, regulation or administrative action in Member States which have as 
their object the establishment and functioning of  the internal market ”. The EU legislator  may have 
recourse to Article 114 TFEU in particular where disparities between national rules are such as to 
obstruct the fundamental freedoms or create distortions of competition and thus have a direct effect 
on the  functioning of the internal market.  
  
1.2 Is  the Union  competence represented by this Treaty article exclusive, shared or supporting in 
nature?  
In the case of the internal market , including the freedom of establishment, the Union’s competence 
is shared.  
Subsidiarity does not apply for policy areas where the Union has exclusive  competence as defined in 
Article 3 TFEU1. It is the specific legal basis which determines whether the proposal falls under the 
subsidiarity control mechanism. Article 4 TFEU2 sets out the areas where competence is shared 
between the Union and th e Member States. A rticle 6 TFEU3 sets out the areas for which the Unions 
has competence only to support the actions of the Member States.  
2. Subsidiarity Principle: Why should the EU act?  
2.1 Does the proposal fulfil the procedural requirements of Protocol No. 24: 
- Has there been a wide consultation before proposing the act?  
- Is there a detailed statement with qualitative and, where possible, quantitative indicators 
allowing an appraisal of whe ther the action can best be achieved at Union level?  
Before proposing this directive , the Commission consulted widely. T hose  consultation activities 
                                                           
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 include, in line with the Commission’s Better Regulation rules : 
 The inception impact assessment (roadmap), which received 114 feedbacks;  
 The open public consultation  (OPC) , which received 473  461 responses from the public, the 
vast majority of which were submitted through campaigns using pre -filled questionnaires, 
and 149 of which were position papers;  
 A dedicated consultation of social partners;  
 A number of stakeholder workshops and meetings, e.g. meeting of the Informal Company 
Law Expert Group, mainly composed of company law legal academics (ICLEG), meeting with 
Member State representatives in the Company Law Expert Group (CLEG) ; and 
 Conferences and meetings with business associations, individual businesses, including SMEs 
representatives, civil society, including non -governmental and not -for-profit organisations, as 
well as international organisations, such as OECD.  
 
In terms of policy measures, the OPC showed strong support for a mandatory horizontal approach  to 
due diligence over a sector -specific or thematic approach , although there is variation as regards the 
preferred details of such approach.   
 
Detailed information on the consultation strategy and conclusions of the stakeholde r consultations 
can be found in Chapter 3 of the Explanatory Memorandum to the proposal  and in Annex  2 of the 
impact assessment report.  
 
The Explanatory Memorandum  (Chapter 2)  and the Impact Assessment (Chapter 3) contain a section 
on the principle of subsidiarity (see question 2.2. below ). 
2.2 Does the explanatory memorandum (and any impact assessment) accompanying the 
Commission’s proposal  contain an adequate justification regarding the conformity with the 
principle of subsidiarity?  
The text below summarises the arguments presented in Chapter 2 of the Explanatory Memorandum.  
 
The objective of fostering companies’ sustainability transition with regard to human rights and 
environmental risks and impacts, by improving  relevant corporate governance practices, avoiding 
fragmentation of relevant requirements in the single market and  creating legal certainty for 
businesses and stakeholders, can be better achieved at Union level than through Member States 
individual action , for the following reasons:  
 Member States’ legislation alone in the area is unlikely to be sufficient and efficien t. On 
issues as transnational supply  and value chains , success of individual action is hampered by 
inaction of other Member States.  
 Many companies are operating EU -wide or globally; value chains expand to other EU 
Member States and increasingly to third co untries. Many companies have cross -border 
ownership and their operations are influenced by regulations in some countries or lack of 
action in others. Frontrunner companies therefore arguably cannot go as far as they would 
want to in addressing sustainabili ty issues including those in the value chains today and ask 
for a cross -border level playing field.  
 Companies operating across the single market and beyond need legal certainty and a level -
playing field for their sustainable growth.  Some Member States have  recently introduced 
legislation on due diligence while others are in the process of legislating or considering 
action . Existing Member State rules and those under preparation do have or would most 
likely lead to diverging requirements, which risk being in effective and leading to an uneven 
playing field. If due diligence requirements are significantly different among Member States, 
this creates legal uncertainty, fragmentation of the Single market, additional costs and 
 
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 complexity for companies and their inv estors operating across borders as well as other 
stakeholders  
 Compared to individual action by Member States, EU intervention can ensure a strong 
European voice in policy developments at the global level.  
 
2.3 Based on the answers to the questions below, can the objectives of the proposed action be 
achieved sufficiently b y the Member States acting alone  (necessity for EU action)?  
 
(a) Are there significant/appreciable transnational/cross -border aspects to the problems being 
tackled? Have these been quantified?  
Sustainability issues  are of a European and global dimension and have cross -border effects ( e.g. 
transnational supply and value chains , climate change ). 
(b) Would national action or the absence of the EU level action conflict with core objectives of 
the Treat y5 or significantly damage the interests of other Member States?  
National action and the absence of EU level action would conflict with the Treaty objective of 
establishing the internal market as differing legal frameworks in Member States in the area of this 
proposal lead to legal uncertainty, fragmentation of the Single market, distortion of competition, 
additional costs and complexity for companies and their investors operating across borders as well as 
other stakeholders .  
(c) To what extent do Member States have the ability or possibility to enact appropriate 
measures?  
Member States’ legislation alone in the area of sustainable corporate governance is unlikely to be 
sufficient and efficient as sustainability problems are of a European and global dimen sion and have 
cross -border effects. Unsustainable behaviour of companies in one Member State or in third 
countries affects other Member States.  Many companies are operating EU -wide or even globally; 
value chains expand to other EU Member States and increas ingly globally.  Many companies have 
cross -border ownership and their operations are influenced by regulations in some countries or lack 
of action in others.  This is one of the reasons why frontrunner companies arguably cannot go as far 
as they would want t o in addressing sustainability issues today and ask for a cross -border level 
playing field.  
(d) How does the problem and its causes (e.g. negative externalities, spill -over effects) vary 
across the national, regional and local levels of the EU?  
The problem and its causes are present across national, regional and local levels throughout the EU.  
(e) Is the problem widespread across the EU or limited to a few Member States?  
The need to foster the sustainability transition as regards corporate behaviour  and avoid regulatory 
fragmentation in this context is widespread across the EU.  
(f) Are Member States overstretched in achieving the objectives of the planned measure?  
Measures at Member State level alone would not be able to achieve the objectives of the proposed 
                                                           
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 initiative. A harmonised approach at EU level avoids diverging requirements  at national level , which 
risk being ineffective and leading to an uneven level playing field ; this also creates legal uncertainty, 
fragmentation of the Single market, additional costs  and complexity for companies and their 
investors operating across borders as well as other stakeholders.  
(g) How do the views/preferred courses of action of national, regional and local authorities 
differ across the EU?  
Corporate d ue diligence is enshrined  in existing international frameworks (United Nations Guiding 
Principles on Business and Human Rights , OECD Responsible Business Conduct Standards ), it is 
therefore internationally recognized as the appropriate tool to mitigate adverse human rights and 
environmental impacts, including in value chains . As regards mandatory rules,  some Member States 
have recently introduced legislation on sustainable corporate governance or due diligence, while 
others are in the process of legislating or considering action . Some Member States can be  expected 
not to legislative in this field . 
2.4 Based on the answer to the questions below, can the objectives of the proposed action be 
better achieved at Union level by reason of scale or effects of that action (EU added value)?  
 
(a) Are there clear benefits from EU level action?  
Yes. The absence of applicable rules  as regards sustainability due diligence  at the European level put s 
frontrunner companies  at a competitive disadvantage and rewards unsustainable behaviour. This 
situatio n hampers the necessary transition towards a sustainability economy and society.  If due 
diligence requirements are significantly different among Member States, this creates legal 
uncertainty, fragmentation of the Single market, additional costs and complex ity for companies and 
their investors operating across borders as well as other stakeholders. EU action can avoid this and 
therefore has added value.  
(b) Are there economies of scale? Can the objectives be met more efficiently at EU level (larger 
benefits per  unit cost)? Will the functioning of the internal market be improved?  
Yes. As the addressed s ustainability issues are of a European and global dimension and have cross -
border effects , EU level measures will be more efficient. The functioning of the intern al market will 
be improved by avoiding fragmentation through differing emerging national frameworks.  
(c) What are the benefits  in replacing different national policies and rules with a more 
homogenous policy approach?  
Businesses need legal certainty, and a harmonised approach in the Internal market. EU level rules are 
expected to be more efficient and allow t o better exploit the potential of the single market to 
contribute to the tran sition to a sustainable economy.  
(d) Do the benefits of EU -level action outweigh the loss of competence of the Member States 
and the local and regional authorities (beyond the costs and benefits of acting at national, 
regional and local levels)?  
While competence is shared between the EU and the Member States  in the area of th e internal 
market, including freedom of establishment , EU -wide measures are necessary to  effectively foster 
the sustainability transition, while avoiding fragmentation of the internal market. As the chosen 
instrument is a directive, Member States will be a ble – by transposing the EU rules into their national 
 
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 laws – to take account of the need for  consistency and coherence within  the national /regional  legal 
systems.  
(e) Will there be improved legal clarity for those having to implement the legislation?  
It is e xpected that EU harmonised rules in the area of sustainability due diligence lead to improved 
legal certainty as compared to today’s fragmented legal framework.  
3.  Proportionality: How the EU should act  
3.1  Does the explanatory memorandum (and any impact assessment) accompanying the 
Commission’s proposal contain an adequate justification regarding the proportionality of the 
proposal and a statement allowing appraisal of the compliance of the proposal with th e 
principle of proportionality?  
The explanatory memorandum (Chapter 2) contains a section on the princip le of proportionality, as 
summarised below.  
 
The proposed measures do not go beyond what is necessary to achieve the objectives of the 
initiative. In particular, b urden on companies  stemming from compliance costs  has been adapted to 
the size and resources available to the company, and the risk profile.  
 
 As regards the personal scope  of the due diligence o bligations, proportionality is en sured as 
follows : 
o small and medium sized enterprises as well as micro companies  are excluded from 
the due diligence duty. They will still be exposed to some of  the costs and burden 
through business relationships with companies in scope, hence  supporting measures 
will be n ecessary  to help them build operational and financial capacity . 
o very large companies (with more than 500 employees and more than 150 Mio 
turnover) will be within the scope of the full due dili gence obligation. In particular  
the selected turnover criteria w ill filter those having the la rgest impact on the EU 
economy.  
o regarding  companies with lower turnover and less employees  , the due diligence 
obligation is limited to larger midcap companies (with more than 250 employees and 
more than EUR 40 million net tur nover but not exceeding the 500 employee and EUR 
150 million net turnover thresholds simultaneously)  which are active in particularly 
high -impact sectors covered by existing sectoral OECD guidance . For them, t he due 
diligence obligation will be simplified as they would only focus on severe adverse 
impacts and perform the scoping of the risks that is commensurate  to the complexity 
of the value chain, sector, product or geography. The due diligence obligation will 
apply to them  only 3 years later than to othe r companies . 
 As regards enforcement , the Directive will provide for a combination of administrative 
sanctions and civil liability.  
o As regards private enforcement through civil liability going beyond harm done at the 
level of the direct supplier, the approach concerns only established business 
relationships with which a company has regular and frequent cooperation and 
applies only wher e the adverse impact could have been foreseen, prevented, ceased 
or mitigated with appropriate due diligence measures. As it will in practice be 
difficult to prevent all ris ks through global value chains, li ability is limited to harm 
done in the value chai n under specific conditions especially beyond direct suppliers.  
o The measures related to public enforcement of the due diligence duty do not go 
beyond what is necessary. The power of public authorities to supervise and impose 
 
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 proportionate pecuniary sanctio ns in case of non -compliance  as provided for in the 
proposal  is key to the effective enforcement regime.  
3.2 Based on the answers to the questions below and information available from any impact 
assessment, the explanatory memorandum or other sources, is the  proposed action an 
appropriate way to achieve the intended objectives?  
 
(a) Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on 
their own, and where the Union can do better?  
Yes, as detailed above in the replies t o the sub -questions of question 2.3.  
(b) Is the form of Union action (choice of instrument) justified, as simple as possible, and 
coherent with the satisfactory achievement of, and ensuring compliance with the objectives 
pursued (e.g. choice between regulati on, (framework) directive, recommendation, or 
alternative regulatory methods such as co -legislation, etc.)?  
The proposed instrument is a Directive, since Article  50 TFEU requires the European Parliament and 
the Council to act by means of directives.  Consequently , Member States will be able – by transposing 
the EU rules into their national laws – to take account of the need for consistency and coherence 
within  the national legal systems.  
In order to supplement the content of the reporting obligations under the Directive for companies 
not falling under Directive 2013/34/EU, delegated acts will be adopted.  
In order to provide support to companies or to Member State authorities on how companies should 
fulfil their due diligence obligations, the Commission  may  issue  guidelineson different as pects of the 
proposed directive.  
(c) Does the Union action leave as much scope for national decision as possible while achieving 
satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimu m 
standards or use a less stringent policy instrument o r approach?)  
It is not possible to limit the European action further, e.g. to voluntary measures. Using the existing 
international voluntary standards on responsible business conduct  (UNGP, OEDC guida nce) , an 
increasing number of EU companies are using due diligence as a tool to identify  risks in their value  
chain s and build resilience, but companies also may face difficulties when considering the due 
diligence for their activities.  Also voluntary stan dards do not result in legal certainty for neither 
companies nor victims in case harm occurs. Finally, v oluntary action does not appear to have resulted 
in large scale improvement across sectors and, as a consequence, negative externalities from EU 
product ion and consumption are being observed both inside and outside EU.  
(d) Does the initiative create financial or administrative cost for the Union, national 
governments, regional or local authorities, economic operators or citizens? Are these costs 
commensurate  with the objective to be achieved?  
 
The proposed directive  does not entail unnecessary costs for the Union, national governments, 
regional or local authorities. It will leave it up to the Member States how to organise enforcement. 
Administrative supervision can be carried out by existing authorities. To reduce the costs and 
improve the supervision, coordination, investigation and exchange of information the Commissi on 
will set up a European Network of Supervisory Authorities . Supervisory c osts incurred under the 
proposed directive by existing or newly set up public authorities that will be designated by Member 
 
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 States to monitor and enforce compliance have been estima ted in detail in the Staff Working 
Document (SWD) accompanying the legislative proposal (“Follow -up to then second opinion of the 
Regulatory Scrutiny Board”) (Section 4. 1.), adapted from the initial calculations in the Impact 
Assessment (Annex 4) . 
Aggregate d direct compliance costs for EU businesses under the proposed directive have been 
estimated in the SWD (Section 4 .1.), adapted from the initial calculations in the Impact Assessment 
(Annex 4).  
The expected  estimated costs are commensurate with the object ive to be achieved, as a more 
limited EU action is not expected to achieve the objectives and yield the expected results.  
(e) While respecting the Union law, have special circumstances applying in individual Member 
States been taken into account?  
Existing M ember States’ laws in the area of corporate sustainability due diligence, as well as findings 
on experience with them (e.g. on the French legislation on the “Devoir de vigilance”) have been 
thoroughly examined in the preparation of this proposal, as well a s the current practices in Member 
States building on the existing voluntary framework.