EN   EN 
 
 
 EUROPEAN  
COMMISSION   
Brussels, 23.2.2022  
SWD(2022) 39 final  
 
COMMISSION STAFF WORKING DOCUMENT  
Follow -up to the second opinion of the Regulatory Scrutiny Board  
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)  42 final}  - {SWD(2022)  43 final}   
 
EN   EN TABLE OF CONTENTS  
 
1. FINDINGS OF THE SECO ND OPINION OF THE RE GULATORY 
SCRUTINY BOARD  ................................ ................................ ................................ ..... 1 
2. THE PROBLEM AND ITS EVOLUTION  ................................ ................................ ... 1 
2.1. Increasing uptake of sustainability practices and shortcomings  ..........................  2 
2.2. Links with other regulatory due diligence measures and with Green Deal 
measures  ................................ ................................ ................................ ...............  3 
2.3. Links with relevant international conventions, trade policy and 
development support measures  ................................ ................................ ............  5 
3. CHANGES TO THE PREFE RRED OPTION  ................................ ...............................  6 
3.1. Preferred option in the impact assessment  ................................ ...........................  6 
3.2. Material scope of the proposal  ................................ ................................ .............  7 
3.3. Personal scope of the proposal  ................................ ................................ ...........  10 
3.4. Enforcement  mechanism  ................................ ................................ ....................  14 
4. ASSESSMENT OF IMPACT S ................................ ................................ ....................  17 
4.1. Revised cost assessment  ................................ ................................ .....................  17 
4.2. Proportionality  ................................ ................................ ................................ .... 19 
4.3. Impacts on third countries  ................................ ................................ ..................  20 
4.4. Contribution of potential soft mitigation measures  ................................ ............  25 
4.5. Impact on competition  ................................ ................................ ........................  25 
4.6. Impact on competitiveness  ................................ ................................ .................  27 
 LIST OF HUMAN RIGHTS  AND ENVIRONMENTAL D UE 
DILIGENCE OBLIGATION S ................................ ................................ .....................  30 
A. Violation of rights and prohibitions included in international human rights 
agreements  ................................ ................................ ................................ ..........  30 
B. Human rights and fundamental freedoms conventions  ................................ ...... 33 
Part II  ................................ ................................ ................................ ............................  34 
Violation of internationally recognized objectives and prohibitions included in 
environmental  conventions ................................ ................................ .................  34 
 SUMMARY OF COSTS AND  BENEFITS  ................................ ..........  36 
 OVERVIEW OF HOW THE COMMENTS OF THE 
REGULATORY SCRUTINY BOARD HAVE BEEN ADDR ESSED  .......................  42 
 
 
EN  1  EN 1. FINDINGS OF THE SECON D OPINION OF THE REG ULATORY SCRUTINY BOA RD 
Following the negative opinion of the Regulatory Scrutiny Board (hereafter: the Board) 
on the first draft impact assessment  report on the Sustainable Corporate Governance 
initiative of 7  May 2021, a revised impact assessment was submitted to the Board for a 
second opinion on 5  November  2021. While noting the significant revision responding to 
its initial comments, the Board ne vertheless maintained its negative opinion on 
26 November  20211, referring to the following main shortcomings:  
1. problem description  remaining vague and not providing convincing evidence 
that EU businesses, in particular small and medium -sized enterprises (S MEs), 
do not already sufficiently reflect sustainability aspects;  
2. policy options  remaining too limited, not identifying key policy choices;  
3. assessment of impacts  not being sufficiently complete, balanced and neutral, 
and uncertainty related to the realisat ion of benefits not being sufficiently 
reflected; and  
4. proportionality of the preferred option  not sufficiently demonstrated.  
This document provides additional evidence and explanations in response to the 
above listed main findings and the specific suggestions for improvement provided by the 
Board (for a summary of how these were addressed, please refer to Annex 3). As such, 
this document  complements the impact assessment2, which was not revised in 
substance and is published in parallel together with  the opinions of the Regulatory 
Scrutiny Board, thus allowing for transparency and comparability.  This document also 
complements the information provided in the Explanatory Memorandum accompanying 
the proposal.  
It is important to stress that the opinions of the Regulatory Scrutiny Board are an 
assessment of the quality of the impact assessment and not an assessment of the related 
legislative proposal. They further led to adjustments of the preferred option  that had 
been put forward by the impact assessment . The corresponding changes made to the 
proposal, as presented for adoption, are also explained in this document.  
2. THE PROBLEM AND ITS E VOLUTION  
This section responds to the Board’s recommendation to specify better the problem 
definition and present a m ore balanced dynamic baseline scenario that integrates better 
specific market and regulatory developments in the EU and in third countries (see Annex 
3: Overview table, General comment 1 and Specific comments 1 -2).  
                                                           
1 SEC(2022)95 . 
2 Commission Staff Working Document : ”Impact Assessment Report Accompanying the document 
Proposal for a Directive of the European Parliament and the Council on Corporate Sustainability Due 
Diligence and amending Directive (EU) 2019/37” (SWD(2022)42.  
 
EN  2  EN 4.1. Increasing uptake of sustainability prac tices and shortcomings  
The impact assessment presents evidence  that many companies are already improving the 
sustainability of their business operations. This is further supported by new evidence  
showing that more than 90% of CEOs state that sustainability  is important to their 
company’s success  and many companies develop sustainability strategies, and 
market sustainable products or services .3 The EcoVadis Business Sustainability Risk 
and Performance Index 2021, which is based on sustainability ratings, shows that the 
general sustainability performance of rated companies is increasing across regions and 
industries, and this trend can be expecte d to continue.4 Europe is the leading region in 
that respect. For instance, the use of supplier codes of conduct and supplier assessments 
has grown in 2020 from 14% to 26% and from 24% to 33% of companies, respectively, 
compared to 2016.  
However, progress  in some areas remains slow . According to the EcoVadis index 
mentioned above, key actions such as supply chain risk analysis remain underutilised. As 
a result, less than 35% of the surveyed companies have policies on sustainable 
procurement and  supply chai n due diligence in place .  
Moreover, according to the 2021 European Sustainable Industry Barometer, while most 
industry  federations  have embedded sustainability in general in their agendas, fewer 
are directly undertaking relevant activities  (e.g. target se tting, leading impact projects 
and providing annual disclosures ).5 Significant disparities still exist among different 
industry sectors .6   
In light of increased calls for transparency in the value  chain from investors and 
consumers, it is expected, on the one hand, that corporate commitments on 
sustainability will further develop .7 On the other hand, as explained in the impact 
assessment, such pressure is  not sufficient to mainstream the mitigation of adverse 
                                                           
3 Hoffman, A. J. (2018). The Next Phase of Business Sustainability . Stanford Social Innovation Review , 
16(2), 35 –39.   
4 The EcoVadis Business Sustainability Risk and Performance Index 2021 : Insights on global supply 
chains ratings covers the period 2016 -2020 and is based on data derived over 72  000 ratings conducted on 
more than 46  000 companies.  
5 From the interviewed industry federations, only 40% have included SDGs explicitly in their mission and 
vision, 40% include  time-bound targets in their sustainability roadmaps, 30% engage in practical 
sustainability impact/improvement projects with their m embers, and only 30% participated in EU -funded 
sustainability projects. See 2021 European Sustainable Industry Barometer  – Assessing the maturity and 
integration of sustainab ility factors in European industry,  a report based on research produced by CSR 
Europe and V.E, part of Moody’s ESG Solutions, page 28 of the report.  
6 Industry federations from the m aterials sectors outperform those from consumer and retail -focused 
sectors  (see page 12 of the same report) . 
7 By way of example, in the lead up to COP 26, over 970 companies globally have  reportedly set science -
based targets . A 2021 survey by the Energy & Climate Intelligence Unit and Oxford Net Zero  found that 
21% of the 2  000 publicly listed c ompanies surveyed had committed to net zero emissions by 2050 at the 
latest. However, the same survey also found that there was considerable variation in the quality of business 
commitments with regard to their scope, governance mechanisms and implementati on plans. A recent 
benchmarking study by Climate Action 100+ found that of the 159 largest corporate emitters surveyed, no 
company performed at a high level across all 9 indicators  including the presence of a decarbonisation 
strategy, capital allocation alignment, climate policy engagement and climate governance . 
 
EN  3  EN human rights and environmental impacts  across all large companies. Furthermore, 
without mandatory action, investors and consumers would miss consistent benchmarks to 
be assured about the value chain standards, while companies would lack clarity about due 
diligence standard to implement in the value chain. Hence, mandatory action would 
lower transactions costs  within the value chain and  create a level playing field .   
4.2. Links with other regulatory due diligence measures and with 
measures  under the E uropean Green Deal  
This initiative complements existing Union  legislative measures and legislative 
proposals that have already been adopted, or are being prepared,  that set out sectoral or 
product -specific due diligence requirements . It also contributes to the 
comprehensive package of measures under the Green Deal . This section focuses on 
the evolution of the problem in light of those relevant measures, complementing section 
2.3 of the impact assessment.  
The product -related and sector -specific Union  initiatives setting out due diligence 
obligations aim at improving specific sustainability concerns  in supply or value chains 
of certain products and sectors and are targeted at specific economic activities . The 
Conflict Minerals Regulation8 which covers gold,  tin, tungsten and tantalum supply 
chains. The Deforestation Proposal  (proposal for a Regulation on deforestation -free 
products)9 concerns specific agricultural products, i.e. beef, palm oil, soy, wood, cocoa, 
coffee and derived products.10 The Batteries Pr oposal  (proposal for a Regulation 
concerning batteries and waste batteries)11 establishes a supply chain due diligence 
requirement related to specific kinds of industrial electric -vehicle batteries.  
The above -mentioned measures aim at addressing  very speci fic pressing sustainability  
concerns  that are particularly salient as regards the specific product concerned. The 
Conflict Minerals Regulation aims at cutting finance of armed groups and abolishing 
forced labour and other limited very serious human rights abuses, corruption and money 
laundering in relation to the trade of the products in question. The Deforestation proposal 
aims at addressing deforestation risk only. The Batteries Proposal addresses both 
environmental and human/labour rights concerns relate d to the battery in question.  
In addition, the Communication on decent work worldwide12 has announced that  the 
Commission is preparing a new legislative proposal that will effectively prohibit the 
                                                           
8 Regulation (EU) 2017/8 21 of the European Parliament and of the Council of 17 May 2017 l aying 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 . 
9 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 and forest degradation and repealing Regulation (EU) No 995/2010.  
10 Further commodities can be added at a later stage.  
11 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  
12 Communication from the Commission to the European Parliament, the Council and the European 
Economic and Social Committee  on decent work worldwide for a global just transition and a sustainable 
recovery, COM(2022) 66 final.  
 
EN  4  EN placing on the Union market of products made by forced labour, including forced child 
labour. The new initiative will cover both domestic and imported products and combine a 
ban with a robust, risk -based enforcement framework. The new instrument will build on 
international standards and complement horizontal and sectoral initiatives, in particular 
the due diligence obligations as laid down in this proposal.  
The Corporate Sustainability  Due Diligence  initiative sets up a  horizontal due 
diligence requirement s that serve as a common denominator for companies in the scope 
that are active in the Union . It contains basic requirements that serve as a lex generalis  
regarding value chains and su stainability concerns that are not covered in one of the 
sectorial initiatives. For instance, deforestation in construction, mining, or environmental 
risks related to mining of conflict minerals would be covered by the horizontal due 
diligence.  
This initiative also clarifies that in case of human rights or environmental harm in a 
company’s value chain, the company can be held liable  under specific conditions. Civil 
liability is an effective tool for ensuring compliance  with the due diligence rule s whilst 
at the same time enabling victims of adverse impacts to  seek remedy . None of these 
existing or planned instruments include civil liability.  Consequently, the problem of 
the lack of companies’ accountability for adverse impacts occurring in their v alue chains 
that this initiative seeks to address would only be partially addressed by the sector -
specific due diligence requirements included in existing and planned EU legislation.  
Furthermore, it is expected that the package of measures adopted under th e European 
Green Deal  will create a regulatory environment that encourages the green transition 
of companies and responsible business behaviour  within Europe, more broadly.  
Several initiatives of the European Green Deal will materialise over the next years . 
They include legislative and non -legislative measures, notably the Fit for 55 package 
aiming to reduce greenhouse gas ( GHG ) emissions within the Union , the Zero Pollution 
Action Plan (including the chemicals strategy for sustainability towards a toxic -free 
environment), the EU Biodiversity Strategy for 2030 and the Farm -to-Fork Strategy. The 
different measures aim to make the EU climate -neutral by 2050 and to preserve the EU's 
natural environment and biodiversity . Together with Sustainable Finance Strateg y, 
especially  the proposal for a Corporate Sustainability Reporting Directive, the 
Sustainable Finance Disclosures Regulation  and the T axonomy Regulation , they will 
have concrete impact in some areas  and might raise awareness  about external impacts 
of companies’ operation s in others.   
This initiative  will further contribute to the goals  of the European Green Deal , as it 
cover s a broad range of environmental adverse impacts , which  companies will be 
expected to effectively mitig ate, including impacts generated in value chains outside 
the Union ’s territory .  
It is complementary to the Fit for 55 package . Its centrepiece, the EU Emissions 
Trading System (ETS), covers the most carbon -intensive industrial sectors, transport and 
buildings. However, the EU’s external climate footprint  is not covered, save for 
 
EN  5  EN proposed border adjustment limited to leakage -prone ETS sectors.  The same is true for 
other environmental concerns tackled by the Green Deal. For instance, the actions under 
the Zero Pollution Action Plan  do not include any concrete requirements for companies 
that would lead to a reduction of the EU’s external pollution footprint . Besides, the 
proposed measures under the above -mentioned EU strategies do not cover all industry 
sectors  and wide range of potential adverse impacts on the environment  that are 
covered by this initiative . This initiative  is one of the concrete action points in the action 
plan of the Farm -to-Fork Strategy  that could deliver tangible results in making 
agricultural and food  value chains outside the EU sustainable . Apart from the 
proposal for a Regulation on deforestation -free pr oducts, this initiative is also a specific 
action in the action plan of the Biodiversity Strategy  that could require companies to 
contribute to the post -2020 biodiversity framework.  
4.3. Links with relevant international conventions, trade policy and 
development support measures  
The Regulatory Scrutiny Board Opinion pointed to the need for more precision on the 
selected international environmental conventions in the “material scope ” (i.e. what is 
covered)  . To this end, the proposal does not simply put forward a list of internatio nal 
conventions to be covered by due diligence duty (as has been done in the Annex to the 
impact assessment), but  explicitly identifies a list of concrete violations of the relevant 
international agreements , following a strict selection based on the need t o ensure clear 
obligations for companies and legal certainty for EU and non -EU operations.  
With regard to the Paris Agreement, companies (in Group 1) would be required to 
adopt a plan to ensure they contribute to reaching the Union’s climate 
commitments , building on the disclosures under the proposed Corporate Sustainability 
Reporting Directive (see details in the section on the material scope ) and adapt the 
remuneration  of directors  thereto. This approach reflects that companies play an 
important role in delivering on those goals and that it is a shared effort among public and 
private sectors.  
Regarding biodiversity, negotiations on updating existing global standards are currently 
ongoing (Post -2020 Global Biodiversity Framework to the UN Convention on Bio logical 
Diversity). While it is expected that this process would lead to setting action targets 
for 2030, including for businesses to reduce their biodiversity -related impacts , 
implementation in different countries could be varied, in line with the differe nces in 
political commitments and capacities .13 
Global trade  policy  has been used to address human -rights abuses and progress has been 
achieved in including environmental matters in trade agreements, too. The bilateral 
                                                           
13 Target 15 aims for all businesses (public and private, large, medium and small) to assess and report on 
their dependencies and impacts on biodiversity,  from local to global, and progressively reduce negative 
impacts, by at least half and increase positive impacts, reducing biodiversity -related risks to businesses and 
moving towards the full sustainability of extraction and production practices, sourcing and supply chains, 
and use and disposal , see First draft of the post -2020 global biodiversity framework (cbd.int) , p. 7.  
 
EN  6  EN trade agreements of the EU , and of the US, have increasingly included labour -
related provisions , for instance on forced labour, child labour and employment 
discrimination. This said, effective enforcement remains an issue .  
The Commission plans to reinforce further the sustainabili ty dimension of existing 
and future trade agreements  and to strengthen the enforcement  of trade and 
sustainable development commitments. At the same time, as announced in the Trade 
Policy review, EU legislation on corporate  sustainability  due diligence is considered 
to be an important initiative to promote sustainable and responsible value chains . 
As regards unilateral trade instruments , the Union  is reviewing its Generalised Scheme 
of Preferences (GPS) also to strengthen further the scheme’s contribution to sustainable 
development and compliance with international human rights and labour standards, 
environmental protection, and good governance in the beneficiary countries.  
These trade policy measures will create synergies with companies’ due diligence in t he 
value chain.  
3. CHANGES TO THE PREFER RED OPTION  
This section first recalls the content of the preferred option identified in the impact 
assessment, then outlines how – after having reflected on the comments of the Board 
concerning in particular proporti onality, the enforcement mechanism, clarity and the 
scope of the obligations (see especially general comments 2 and 4, and specific 
comments 3 to 11, 16 and 17) – the preferred option was adapted to become more 
focused in content and targeted in scope. For  more details, please also see the 
Explanatory Memorandum which covers this in the section on the impact assessment.  
4.4. Preferred option in the impact assessment  
In the impact assessment, the presented preferred option was a combination of either 
option 3a or  option 3b for corporate due diligence and of option 3 for directors’ duties.  
The preferred option for the corporate  due diligence  obligation  covered three groups of 
companies:  
 Group  1 comprised EU very large limited liability companies that have more 
than 500 employees or net generate a turnover of at least EUR 350  million (sub -
option 3a) or companies that have more than 500 employees and generate at least 
EUR 150  million net turnover (sub -option 3b).  
 Under both scenarios, Group  2 consisted of companies not included in Group  1 
but having more than 50 employees and more than EUR 8  million net turnover 
(midcaps and medium -sized companies) and operating in high -impact sectors. 
These companies were also proposed to be included in the p ersonal scope of the 
initiative, however, with more targeted due diligence obligations.  
 Group  3 included third -country companies which generate a significant turnover 
at the EU market, however, the level of this turnover was not further specified. In 
 
EN  7  EN terms of enforcement, both administrative supervision and civil liability  were 
part of the preferred option.  
Directors’ duties in the preferred option 3  presented in the impact assessment  included 
the following duties:  
 The general duty to take into account the  interests of stakeholders when acting in 
the interest of the company: this was proposed to apply to all EU limited liability 
companies.   
 Specific duties (i) to identify stakeholders, dependencies of the company 
from such stakeholders, and sustainability related risks to the company 
itself, (ii) to manage such sustainability risks, (iii) to incorporate 
stakeholders’ interest and sustainabili ty aspects (risks, opportunities, 
impacts) in the corporate strategy, and (iv) to engage with stakeholders: 
these were proposed with a scope covering all large and all (non -micro) listed 
companies, i.e. all companies covered by the proposal for a Corporate  
Sustainability Reporting Directive (CSRD), as well as medium -sized high -impact 
companies, with a phased in application for SMEs.  
 The specific duty to set up and implement due diligence processes and 
measures:  this was proposed to apply to the same compan ies as those falling 
under the scope of the corporate due diligence obligation (see above).  
 The duty to include in the strategy science -based targets regarding the 
mitigation of greenhouse gas emissions  was proposed to apply only to large 
companies with m ore than 1000 employees.  
Finally, the preferred option also included possible measures on directors’ 
remuneration , namely  a general clause  applicable to all companies under the scope to 
ensure that remuneration schemes facilitate or at least do not hinder compliance 
with the due diligence and directors’ duties.  
4.5. Material scope of the proposal  
The material scope of the revised preferred option (i.e. the content of the obligations) is 
structured mainly  upon the corporate  sustainability  due diligence obligation.  
It also covers obligations for the companies  in Group 1  to combat c limate  change . For 
that purpose 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. Within 
the plan they should identify  the extent to which climate change is a risk for, or an impact 
of, the company’s operations.  If this risk or impact are considered principal for the 
company, the company should also establish emission reduction objectives in its plan.   
Directors’ duties  were changed. While most of the duties are closely linked with the due 
diligence obligations and necessary for the due diligence to be effective, they also 
include the clarification of how directors’ are expected to comply with the duty of care to 
act in th e best interest of the company . The harmonised directors’ duties include the 
 
EN  8  EN following elements:  
 complying with the duty of care by also taking into account the human rights, 
climate and environmental consequences, including in the short, medium and 
long term, of their decisions;  
 setting up and overseeing the company’s various due diligence actions and, in 
particular, the due diligence policy, duly taking into account relevant input from 
stakeholders and civil society organisations. It is spelled out that the directors 
shall report to the board of directors on these issues;  
 adapting the corporate strategy to take into account the company’s adverse human 
rights and environmental impacts and the steps needed to mitigate them.   
The specific duty to identify s takeholders’ interests and dependencies of the company on 
such stakeholder interests are not specified as a separate duty  in the proposal (but are 
implicitly included in the clarified duty of care). The broader duty to manage risks to the 
company related t o stakeholders and their dependencies, as well as the broader duty to 
include the management of sustainability risks to the company in the corporate strategy  
(going beyond the requirement to specify indicative emission reduction objectives in case 
climate change is a principal risk to , or a principal impact of , the company) were not 
retained. Similarly, the specific duty to set up and oversee the implementation of 
processes related to the management of sustainability risks to the company, and the 
mandatory adoption and disclosure of science -based targets were not retained either.  
As regards directors’ remuneration , the proposal specifies for the group 1 that the 
company’s plan to ensure that its business model and strategy are compatible with the 
transition to a sustainable economy and to the EU’s climate commitments is duly taken 
into account in directors’ variable remuneration.  
The due diligence obligation s cover human ri ghts14 and environmental  adverse  impacts 
on the basis of defined provisions of selected international conventions (as universal 
legal standards ) which include precise and specific rights and obligations  that are to 
be respected by companies . The due diligence obligation s require  companies to identify 
and take appropriate measures to prevent and mitigate adverse human rights and 
environmental impacts. The  Annex to the proposal contains details about the content 
of selected human rights  (Part I  Section 1 ), and clarifies that the violation of a right not 
listed there but protected by the human rights agreements listed in the same Annex (Part I 
Section 2 ) is also covered as long as the violation is directly capable of impairing a 
protected legal p osition in a particularly serious manner, and if the impairment of the 
protected right is obvious upon reasonable assessment of all circumstances in question. 
                                                           
14 Internationally recognised human rig hts cover at a minimum the human rights contained in the Universal 
Declaration of Human Rights, as codified in the International Covenant on Civil and Political Rights and 
the International Covenant on Economic, Social and Cultural Rights and the principle s concerning the 
fundamental rights in the ILO’s Declaration on Fundamental Principles and Rights at Work and included in 
the ILO cores conventions, namely freedom of association and effective recognition of the right to 
collective bargaining; elimination of all forms of forced or compulsory labour; effective abolition of child 
labour; elimination of discrimination in respect of employment and occupation.  
 
EN  9  EN As regards environmental adverse impacts, the Annex (Part II) identifies relevant 
violations of i nternationally recognized objective s and prohibitions included in 
environmental  conventions .  
The environmental due diligence obligations were reassessed in view of other EU 
regulations in this field  and the need to outline obligations for companies in a clear 
manner to ensure legal certainty . Only those environmental conventions15 which 
create an obligation that is sufficiently precise and implementable for the companies  
have been maintained but they have been extended.  
Stakeholders’ involvement was limited to what is necessary for the due diligence , 
also taking into account the OECD Guidelines and the practice followed by companies 
when implementing these Guidelines. Directors should take into account the  input 
from stakeholders and civil society associations when  putting in place and overseeing 
the due diligence actions and in particular the due diligence policy , i.e. the company’s 
strategy on how to implement due diligence, including in the l ong-term and its 
prevention and correction action plan, where relevant. The company will also be required 
to operate a complaints mechanism  as part of due diligence which would allow 
stakeholder -complainants to bring potential adverse impacts to the attent ion of the 
company. This will further enable the companies to get a knowledge of possible risks of 
adverse impacts and of how their impact mitigation strategy works on the ground.  
Directors’ duties closely linked to the implementation of due diligence hav e been 
kept , in line with the international voluntary due diligence frameworks and standards that 
also cover due diligence governance. It allows due diligence to become strategic and 
to infiltrate into relevant corporate functions . A due diligence obligati on without a 
proper corporate governance backing and without directors’ responsibilities could 
become a mere compliance issue of secondary relevance. Regulating directors’ duty of 
care was retained .   
Voluntary due diligence systems and existing national d ue diligence laws also 
contain directors’ duties , both (1) to ensure a strategic approach  on due diligence and 
(2) to embed due diligence into corporate management systems . For example:  
 The UN Guiding Principles on Business and Human Rights  state that “ as the 
basis for embedding their responsibility to respect human rights, business 
enterprises should express their commitment to meet this responsibility through a 
statement of policy that: (a) [i]s approved at the most senior level of the business 
                                                           
15 The Minamata Convention on Mercury ; the Stockholm Convention on Persistent Organic Pollutants ; 
Conven tion on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in 
International Trade ; the Vienna Convention for the protection of the Ozone Layer and its Montreal 
Protocol on subst ances that deplete the Ozone Layer ; the Basel Convention on the Control of 
Transboundary  Movements  of Hazardous  Wastes  and their Disposal , Convention on Biological Diversity; 
Convention on International Trade in Endangered Species of Wild Fauna and Flora.  
 
EN  10  EN enterprise  (…) [and] (e) [i]s reflected in operational policies and procedures 
necessary to embed it throughout the business enterprise”16. 
 According to the OECD Due Diligence Guidance for Responsible Business 
Conduct (RBC) , as step 1 of the due diligence process, co mpanies are 
recommended, among others, to “[d]evise, adopt and disseminate a combination 
of policies on RBC issues”, “embed the enterprise’s policies on RBC issues into 
the enterprise’s oversight bodies” and embed these also “into management 
systems so tha t they are implemented as part of the regular business processes”, 
and as practical action, to “assign oversight and responsibility for due diligence to 
relevant senior management and assign board level responsibilities for RBC more 
broadly”17. 
 The German Act on Due Diligence Obligations in the Supply Chains18 states 
that if an enterprise identifies a risk (i.e. of adverse impact) it must issue a policy 
statement on its human rights strategy. Senior management must adopt the policy 
statement.  
 The French Duty  of Vigilance Law  requires the due diligence plan to be 
published as part of the management report of the company, which is the 
responsibility of the management. In addition, the French Loi Pacte19 clarifies the 
duty of care of directors as follows: “ The co mpany is managed in its corporate 
interest, taking into consideration the social and environmental issues related to 
its activity ”. 
4.6. Personal scope of the proposal  
The personal scope  (i.e. which business categories, and the directors of which business 
categories are covered) has been revised to better ensure proportionality and 
adequate implementation.  
On the one hand, the due diligence obligation will remain to be targeted to compan ies 
that have larger operations, or are somewhat smaller in size but operate in sectors where 
adverse external impacts were identified to be  more frequent or significant. Such 
companies are more likely to contribute to potentially significant adverse impacts , 
including in their value chains. On the other hand, the turnover criteria is also a proxy for 
the influence in the value chains (as used in the EU Directive 2019/633 on unfair trading 
practices in the agricultural and food supply chain20). Furtherm ore, combined  with the 
criterion on the number of employees, it can ensure that the due diligence obligation is 
targeted well at those companies – operating at the various levels of the value chain – 
                                                           
16 Guiding Principles on Business and Human Rig hts, Operational principles, policy commitment, point 
16., GuidingPrinciplesBusinessHR_EN.pdf (ohchr.org)  
17 OECD -Due-Diligence -Guidance -for-Responsible -Business -Conduct.pdf , page 23.  
18 Section 6, preventive measures.  
19 La loi PACTE : pour la croissance et la transformation des entreprises | economie.gouv.fr  
20 Directive (EU) 2019/633 of the European Parliament and of the Council of 17 April 2019 on unfair 
trading practices in business -to-business relationships in  the agricultural and food supply chain ;  
https://eur -lex.europa.eu/legal -content/EN/TXT/?uri=CELEX:32019L0633  
 
EN  11  EN that have the required influence and also the correspond ing resources to properly 
conduct due diligence . 
A very recent study on the uptake of corporate social responsibility (CSR) and 
sustainability practices among European SMEs21 confirms that SMEs may face 
constraints to conduct due diligence in practice becau se they lack the resources  to 
monitor their value chains and to investigate beyond their direct suppliers. Furthermore, 
this should be looked at in the context of the COVID -19 pandemic which has hit SMEs 
particularly hard. Meanwhile, SMEs are also commonly  on the receiving end of value 
chain policies  as they are often part of value chains.   
Taking all these considerations into account, it was decided to fully exclude SMEs and 
smaller midcap companies from the scope of application  of the proposed legislation . 
However,  it still includes  larger midcap companies active in economic sectors where the 
risk of significant adverse human rights or environmental impact is particularly high.   
The division of the scope into two main groups of EU companies  have been 
maintained. Group 1 has remained the same as it was in the more restrictive sub -option 
of the impact assessment’s preferred option (option 3b) that defined very large 
companies combining the number of employees and the worldwide net turnover siz e 
criteria cumulatively (i.e. dropping the other preferred sub -option, option 3a, in which the 
two criteria were not used cumulatively). Group 2 has been adapted and better targeted 
both in terms of the size and the sector of the companies it comprises. As  a result, the 
number of companies in this group has been reduced substantially compared to either of 
the two preferred sub -options of the impact assessment. Accordingly, the revised and 
more targeted preferred option covers:  
 Group 1:  large EU limited liab ility companies with more than 500 employees and 
more than EUR  150 million worldwide net turnover (“very large companies” as 
defined in option 3b of the draft impact assessment), irrespective of the sector in 
which they operate, and  
 Group 2:  large EU limit ed liability companies that do not simultaneously reach both 
thresholds of Group 1 but have more than 250 employees and more than 
EUR  40 million worldwide net turnover (“midcap large companies”)22 and that have 
the majority of their operations in high -impact sectors (which are now also based on a 
narrow definition, as explained hereunder). For these companies, the obligations will 
be lighter and phased in (see the next point on proportionality).  
Moreover, the approach to selecting high -impact sectors  has been  changed  to focus 
on sectors for which relevant OECD guidance already exist . The selection of these 
sectors reflects the priority areas of both national and international action aimed at 
tacklin g human rights and environmental issues. These are sectors in particular 
                                                           
21 European Commission, Executive Agency for Small and Medium -sized Enterprises,  Uptake of corporate 
social responsibility (CSR) by European SMEs and start -ups: final report , Publications Office, 2021,   
22 Note that the category of “midcap large companies” is narrower than the “midcaps” of option 3b of the 
impact assessment.  
 
EN  12  EN characterised by high risk of human rights violations (e.g. forced labour, worst forms of 
child labour)23 as better explained in Annex 11 of the Impact Assessment. Such guidance 
curren tly covers the minerals supply chains – with additional guidance on the extractive 
sector –, the agricultural, and the garment and footwear supply chains. OECD guidance 
also exist for companies in the financial sector with respect to their lending and secu rities 
underwriting services and to their activities as institutional investors. However, due to its 
specificities, a different approach is followed with regard to this sector: instead of 
covering more midcap limited liability companies, the proposal cover s more of the very 
large companies in this sector, including also those that do not have a legal form with 
limited liability (e.g. cooperative credit institutions and insurance companies). Covering 
financial sector companies that were established in a diff erent legal form is also in line 
with the scope of sustainability reporting rules under the CSRD proposal.  
Group 1 consists of 9 400 very large companies (same as in option 3b of the impact 
assessment). However, a s a consequence of the changed approach to  the selection of 
high-impact sectors, and due to excluding all SMEs and smaller midcaps from the scope 
completely, the estimated number of companies in Group 2 that will be covered only if 
they operate in high -impact sectors (i.e. taking into account that  about 30% of Group 2 
companies are already indirectly covered as subsidiaries of larger companies) is 
estimated to be reduced from about 34  600 (in option 3b) to approximately 2 300 
companies.24  
Given the changes in Groups 1 and 2, the number of companies in the scope of the 
Directive which will incur incremental compliance costs is reduced  from 44  000 in 
the less extensive preferred option (option 3b) to 11  700 in the proposal.  
The changes and the estimated number of EU companies c overed in the proposal is 
summarised in the following table:  
                                                           
23 For instance, th e OECD’s guidance “Practical actions for companies to identify and address the worst 
forms of child labour in mineral supply chains” points out that, out of the 139 goods on the 2016 List of 
Goods Produced with Child Labor or Forced Labor (TVPRA) compiled by the United States Department of 
Labor’s (USDOL), 29 goods are in minerals and quarrying.  
24 In line with the methodology of the impact assessment, this figure already accounts for the group effects 
as it takes into account the assumption – explained in t he impact assessment – that about 30% of midcap 
companies will already be indirectly under the scope as a subsidiary of a larger parent company in any case 
and, as such, their compliance costs are already included in the aggregate cost estimate. The total number 
of companies that are directly covered by the scope if operating in a high -impact sector has been reduced 
from about 49  500 (in option 3b of the impact assessment) to approximately 3  400, as shown in the table 
below.  
Our estimate includes limited li ability companies involved in the following economic activities: (i) 
extraction and mining of natural resources (crude petroleum, natural gas, coal, lignite, metal ores and other, 
non-metallic minerals and quarry products ), (ii) certain other activities in  the upstream minerals supply 
chains (in particular the wholesale of metals, ores, construction materials, fuels, chemical and other 
intermediate products , and the manufacture of basic metal products, of other non -metallic mineral products 
and of fabricate d metal products, except machinery and equipment) , (iii) agriculture, forestry and fisheries, 
the manufacture of food products and beverages, and the wholesale trade of agricultural raw materials and 
live animals, wood, food, beverages,  as well as (iv) the  manufacture of textiles, wearing apparel, leather 
and related products  (including footwear), and the wholesale trade of textiles, clothing and footwear . 
Companies involved in the r etail sector are excluded for the purposes of these calculations.    
 
EN  13  EN Number of companies  Option 3a  Option 3b  Proposal  
Group 1  23 300 9 400 9 400 
Group 2 (100%)  46 700 49 500 3 400 
Total number of EU companies directly 
under the scope  70 000 58 900 12 800 
Total  number of EU companies 
incurring incremental compliance costs 
(i.e. accounting for group effect)  56 000 44 000 11 700 
 
In addition, the approach and the thresholds to cover third -country companies are 
now better aligned with those applied to EU companies . As a result , third -country 
companies will be covered if they generate a net turnover in the Union  of more than 
EUR  150 million, or less than that but more than EUR  40 million in case they have the 
majority of their operations in high -impact sectors.   
Reflecting on the Board’s opinion, the Commission also estimated the number of third -
country firms  that would fall under the scope irrespective of their sector of economic 
activities. For this, a simple log -linear model was used calculating the number of fir ms as 
a function of their estimated25 intra-EU27 annual turnover26. According to the model, if 
the threshold is set at EUR  150 million annual EU turnover, the scope covers a little less 
than 2 600 non-EU companies. Assuming that the number of midcap large companies in 
high-impact sectors compared to their number in all sectors27 would be the same as in the 
case of EU companies (about 20%), an additional 1 400 non-EU companies with an EU 
turnover of EUR  40 to 150  million will fall under the scope if they are active in high -
impact sectors.28,29  
 
                                                           
25 The turnover in the model is the sum of the remunerations of factors of production (labour, capital) 
augmented by a profit margin that is a proxy for the degree of competitiveness of markets that firms 
operate in. Firm -level data from the ORBIS database were u sed to find comparable values for the labour -
capital shares and profit margins in the EU27.  
26 The model is based on the trade figures with the EU’s three major trading partners for which firm -level 
data are reported: Switzerland, the UK, and the U.S. It t akes the average value of the three estimates based 
on the respective trade shares. It uses OECD data (including the Trade by Enterprise Characteristics 
database for the UK and Switzerland, which reports the number of trading firms for different size 
categ ories, including by number of employees and trading volumes).  
27 In the model, the threshold of EUR 40 million turnover corresponds to 9  600 non -EU companies, 
resulting in about 7  000 non -EU midcap large companies in all sectors.  
28 These are based on 2017 d ata. Depending on the data source for the U.S. firm -level data, the model can 
be also be estimated for 2 019, the results being very similar. If the threshold is decreased to EUR  100 
million, almost 4  000 companies would be covered, if it is increased to EU R 250 million, the number of 
companies covered would be about 1  500. 
Sensitivity analysis:  We used the following parameter values: wage share=0.54, profit margin=8%, weight 
of job rich industries=0.8 . The number of firms increases with respect to the profi t margin, and decreases 
with respect to the wage share and the weight of job rich industries. Setting the profit margin to 15% and 
lowering the share of job rich industries to 50 %, the number of firms in scope increases to more than 3  400 
for the 150 milli on threshold. In the other direction, increasing the wage share to 80% and lowering the 
profit margin to zero, the number of firms for the same threshold falls below 1  600. 
29 The plausibility of this estimation was cross -checked with data reported by the A merican Business 
Chamber and also by using data on foreign direct investment flows and international investment positions.  
 
EN  14  EN 4.7. Enforcement mechanism  
The Board considered that policy options not including civil liability regime should have 
been assessed as “ stakeholders consider administ rative supervision as the preferred 
option and this seems a solution also introduced at Member State levels ”.  
In the open public consultation, stakeholders who indicated that they were in favour of 
administrative supervision were not necessarily against a n accompanying civil liability 
regime.30 At the same time, various position papers from business associations and 
individual companies where asking to either exclude civil liability or limit it to tier -1. 
Existing due diligence laws in two Member States do not exclude civil liability  
regimes for corporate due diligence. The French Loi sur le Devoir de Vigilance  expressly 
stipulates that civil liability rules are applicable, while the German 
Lieferkettensorgfaltspflichtengesetz (LkSG)  clarifies that violation  of the obligations 
under that law does not as such give rise to civil liability but also that (generic) civil 
liability arising from a damage derived from one of the violations covered by the new 
law remains unaffected.31 The German civil law includes gene ric civil liability rules that 
remain applicable in case of the violation of a protected right.  
Moreover, access to effective remedy for the victims is a core component of the UN  
Guiding Principles on Business and Human Rights (UN GPs). The complementarity 
of civil liability and administrative supervision in developing robust enforcement 
approaches has recently been identified by the UN Working Group on Business and 
Human Rights as one of the priority areas on which States should focus on when 
implementing t he UNGPs.32 
An enforcement mechanism based on administrative law and a complementary civil law 
mechanism is used also in other areas of Union law, notably in competition law . 
Below are further considerations as to why an enforcement regime with tailored rul es 
for civil liability significantly increases the effectiveness of enforcement  as compared 
to a regime without express rules on civil liability.  
First, civil liability is an  effective tool for ensuring compliance  with the corporate due 
diligence rules whi le providing legal certainty for companies. Being independent from 
supervisors’ capacities and priorities  in pursuing infringements of the due diligence 
obligation, it can complement Member State’s  supervision in making the enforcement 
                                                           
30 In fact, 320 out of  the 555 respondents choosing  the option supervision , i.e. 58% of them,  also chose the 
option  judicial enforceme nt with liability and compensation in case of harm caused . 
31 Section 3(3) stipulates that “[ a] violation of the obligations under this Act does not give rise to any 
liability under civil law. Any liability under civil law arising independently of this Act remains unaffected .” 
32 See the “ UNGPs 10+” Roadmap for the Next Decade of Business and Human Rights (November 2021, 
ohchr.org) , a stocktaking by the UN Working Group on Business and Human Rights of the first decade of 
implementation of the UNGPs, complemented by forward -looking recommendations (priority goals for 
States, businesses and other key stakeholders) for the next decade in key action areas.  
 
EN  15  EN regime more effective and deterrent . It has been shown that civil liability makes a 
difference in positively driving good corporate behaviour .33  
Second, a clearly defined and proportionate civil liability regime offers legal certainty34 
for both companies and affected persons , and a more  effective remedy to victims  of 
adverse impacts. Companies would know what is expected from them as they may 
already be sued before courts for contributing to harm. As regards victims, civil liability 
can result in different remedies bes ides financial compensation . Victims could ask 
the court for remedial orders  such as clean -up orders, restitution of land, etc.  
Furthermore, the proposal requires Member States  to ensure that victims of human rights 
and environmental harms are not denied t he protection  that is granted in accordance 
with the relevant provisions on due diligence of the Directive where the law applicable to 
such claims is not the law of a Member State. For example, victims would benefit from 
the protection, under certain condi tions, when the relevant damages  caused by the 
failure by the company to respect the due diligence obligations occur outside of the 
Union . Also, if there is a dispute and litigation, this solution would provide legal 
certainty and facilitate the work of the Union  courts , as they can apply the law of 
their own country (i.e. the law of the country in which an action is brought,  lex fori ) 
instead of foreign law.  
The provision on civil liability included in the proposal is in line with the existing civil 
liability rules in Member State laws whereby a person who has caused harm to 
another person has to repair that harm .35  
With a view to make clear how civil liability should apply to harm at the level of indirect 
relationships , the proposal sets out clearly def ined conditions  under which companies 
may be held liable for such harm. It is clarified that  
- civil liability only applies with respect to established  business relationships , 
which requires an element of duration and intensity ;36 and that  
- the company can only be held liable if it did not take appropriate  measures  
required by the proposal,  
                                                           
33 See Steering CSR Through Home State Regulation: A Comparison of the Impact of the UK Bribery Act 
and Modern Slavery Act on Global Supply Chain Governance - LeBaron - 2017 - Global Policy - Wiley 
Online Library ; The importance of civil liability for a corporate human rights duty - (unl.pt) ; Transnational 
Legal Activism in Global Value Chains - The Ali Enterprises Factory Fire and the Struggle for Justice , see 
e.g. at p. 155; Wettstein & Schrempf -Stirling, Journal of Busin ess Ethics Oct. 2017, Human Rights 
Litigation and its Impact on Corporations’ Human Rights Policies .  
34 The proposed civil liability in the legal text concerns only established b usiness relationships with which 
a company has regular and frequent cooperation and applies only where 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 risks through global value chains, liability is limited to harm done in the 
value chain under specific conditions especially beyond direct suppliers.  
35 For the sake of clarity, t he provision on civil liability in the proposal will not give s takeholders the right 
to sue competent authorities if they find that enforcement is not sufficiently strict.  It aims at establishing 
liability of the companies within the scope of the proposal.  
36 According to the proposal, established business relationship s are  direct and indirect business 
relationships which are, or which are expected to be lasting in view of its intensity or duration and which 
does not represent a negligible or merely ancillary part of the value chain.  
 
EN  16  EN - at the level of indirect business relationships if it  the company  used contractual 
cascading and assurance as well as measures to verify compliance with i t should 
not be liable, unless it was unreasonable, in the circumstances of the case, to 
expect that the action actually taken, including as regards verifying compliance, 
would be adequate to prevent, minimise, bring to an end or mitigate the adverse 
impac t, 
- Furthermore, the proposal clarifies that, when assessing liability  and its extent , 
due account should be taken of the company’s efforts  to comply with any 
remedial action required of them by a supervisory authority, any investments 
made and any targeted  support provided as well as any collaboration with other 
entities to address adverse impacts in its value chains.  
The Directive is not expected to give rise to an affluence of damages claims . First, the 
experience with the French  Loi de devoir de vigilance  has shown that the Law has not 
led to a multitude of claims for damages after its entry into force.37 Second, past EU 
legislation  introducing civil liability regimes or facilitating claims have not led to a 
strong increase in frivolous cases befor e national courts.38 Third, key elements such as 
the entity legitimated to bring an action , the burden of proof  would not be changed  
by this proposal. In addition, bringing an action  may require considerable financial 
resources , which will be a  disincentive  against ungrounded claims . 
In order to ensure that remedy can be sought effectively, t he civil liability regime is 
complemented by a provision according to which  the liability provided for in provisions 
of national law transposing the relevant provision o n civil liability must be  of overriding 
mandatory application  in cases where the law applicable to claims to that effect is not 
the law of a Member State.   
In response to the Board’s comment that the impact assessment should better explain 
which national authority would be best placed to act (including with respect to third -
country companies), this section also provides further information on the choice of 
supervisory authority. According to the proposal, Member States are free to designate 
one or more authorities  for the purposes of supervising compliance with the proposed 
Directive. It is for the Member States to decide which authority or authorities to 
designate, and they may include an authority that is not traditionally supervising 
compliance with corporate governance rules. It is possible that such “traditional” 
supervisory authorities will not be selected by Member States , although they may choose 
them . Where competent authorities under sectoral legislation exist, Member States could 
identify those as responsible for the application of this Directive in their areas of 
                                                           
37 https://www.vie -publique.fr/sites/default/files/rapport/pdf/275689.pdf  
38 E.g. the Damages Directive for infringements of competition law (Directive 2014/104/EU) or application 
of the 2013 Recommendation  on the Collective Redress.  If there has been increase of justified claims, this 
demonstrates that the awareness of victims of their right to effectively claim damages has enhanced, e.g. 
see Commission Staff Working Document (2020)338.  
 
EN  17  EN competence. They could designate authorities for the supervision of regulated financial 
undertaking also as supervisory authorities for the purposes of this Directive.39     
4. ASSESSMENT OF IMPACTS  
This section addresses the comments of the Board that the impact assessment should be 
more balanced and should better account for potential negative impacts in third countries 
and for potential impacts of the proposal on competition and competitiveness of EU 
companies. It also contains the recalculated cost estimates as suggested by the Board, 
additional considerations regarding cost, benefits and proportionality (See Annex: 
Overview table, General comment 3 and Specific comments 12 to 16).   
4.8. Revised cost a ssessment  
As the scope of the proposal is significantly smaller than the scope of the preferred option 
in the impact assessment, the aggregated direct compliance costs for EU businesses  
implied by this directive  were recalculated .  
As explained in Annex 4 of the Impact Assessment Report, total direct compliance costs 
comprise the incremental substantive compliance costs and the incremental 
administrative costs.40  
Substantive compliance costs  consist of two main elements: (i) the “ procedural costs ”, 
i.e. cos ts of setting up and operating due diligence processes and procedures and (ii) the 
transition costs  – the investment needs – of harm mitigation and of transitioning the 
company to sustainability. The impact assessment only quantified the procedural costs 
(pointing out that the transition costs, on the long run, can even be zero or become 
profitable investments). With the new personal scope and using the relevant firm -level 
costs estimated in the impact assessment, these costs for all EU businesses  covered a re 
now estimated  to amount to EUR 760  million recurrent  and 220 million one -off costs 
(down from EUR 1.72  billion and 500  million, respectively, in option 3b of the impact 
assessment).  
As regards administrative costs , these are linked to reporting to the public . While this 
is an important element of the due diligence framework, all companies covered under the 
new scope will already be required to disclose to the public sustainability and due 
diligence -related information in accordance with the Corporate Su stainability Reporting 
Directive (which, according to the Commission’s 2021 proposal, will apply to all large 
                                                           
39 For instance, in Germany, the Federal Office for Economic Affairs and Export Control is responsible for 
the supervision of the German Act on Corporate Due Diligence in Supply Chains. The Office is not 
responsible for tasks related to corporate governance. It is entrusted w ith administrative tasks in relation to 
foreign trade, promotion of economic development and SMEs, energy, auditor oversight , BAFA - Tasks: 
https://www.bafa.de/EN/Federal_Office/Ta sks/tasks_node.html . 
40 Please note that the Impact Assessment was prepared on the basis of the Better Regulation Guidelines 
and its toolbox as in force at the time, and this document retains the same methodology used by the impact 
assessment for classifyin g and assessing the various cost elements. Nevertheless, the summary of benefits 
and costs of the preferred option is presented here (in Annex 2) according to the recently updated 
guidelines and the new template for the table(s), with a separate table prep ared for the implementation of 
the One In One Out Principle . 
 
EN  18  EN EU companies and all companies listed in the EU, i.e. a broader scope of EU companies 
than this initiative). The CSRD has been taken into account in the dynamic baseline of 
this initiative. Thus, companies will already face most of the administrative costs  
(namely the cost of reporting, as well as data gathering and analysis underpinning this 
reporting)41 under the CSRD . This is why with the reduced scope EU companies will 
not incur any substantial additional administrative costs under this directive . This is 
reflected in the summary table of the expected benefits and costs presented in Annex 2, in 
particular in the table on the “one -in-one-out” princ iple. 
Non-EU companies  are estimated to incur EUR 240  million recurrent and 70  million 
initial procedural compliance costs  (using the newly estimated number of companies 
under the scope and the relevant firm -level costs estimated for large EU companies in the 
impact assessment).  
The following table summarises the total compliance costs for EU and non -EU 
businesses (except for  transition costs) under the previous two preferred sub -options and 
the final proposal:  
Aggregated compliance costs  
for EU companies  
(without transition costs), in EUR  Option 3a  Option 3b  Proposal  
  recurrent  2.37 bn  1.72 bn  0.76 bn  
  one-off 0.68 bn  0.50 bn  0.22 bn  
 
Aggregated compliance costs  
for non -EU companies  
(without transition costs), in EUR  Option 3a  Option 3b  Proposal  
  recurrent  Not calc.  Not calc.  0.24 bn  
  one-off Not calc.  Not calc.  0.07 bn  
 
In line with the reduced personal scope of the corporate due diligence obligation , the 
supervisory costs  incurred annually by existing or newly set up p ublic authorities that 
will be designated by Member States to monitor and enforce compliance will also be  
lower than in the two preferred sub -options of the impact assessment. Following the 
calculation method explained in Annex 4 of the impact assessment, the total recurring 
supervisory costs in the EU are estimated to reach about EUR  5.55 million a year , and 
the initial costs will be about EUR  130 000. The following total annual and initial costs 
are estimated:42 
                                                           
41 Note that  the impact assessment assumed that about half of the costs of data gathering and analysis that 
companies incur in relation to their reporting obligations overlaps with their costs inc urred in relation to 
their due diligence obligations. On average, such overlapping costs decrease the data gathering and 
analysis costs estimated by the impact assessment to be incurred under this initiative by about one third.  
42 The impact assessment does  not count with additional costs for courts implied by the possibly increased 
number of lawsuits: while it is difficult to predict how many cases the courts will have to deal with, the 
cost of civil court procedures are anyway paid by the parties  involved . Estimating the number or cost of 
 
 
EN  19  EN Total supervisory costs in EU,  
in EUR  Option 3a  Option 3b  Proposal  
  recurrent (EU companies)  11.24 mn  7.86 mn  4.42 mn  
  recurrent (non -EU companies)  Not calc.  Not calc.  1.13 mn  
  one-off 0.13 mn  0.13 mn  0.13 mn  
 
4.9. Proportionality  
As explained above, SMEs and smaller midcap companies are not included  in the 
scope of application of the proposed legislation, resulting in much lower direct 
compliance cost for the businesses and lower supervisory costs for the public authorities. 
However, SMEs are often involved in the upstream supply chains of larger com panies. 
Thus, even if they are not required to set up self -standing due diligence mechanisms, 
they will be  indirectly affected by the due diligence undertaken by larger “buyer” 
companies and need to participate in such due diligence steps .43  
The Commission  has considered carefully how to further support SMEs, in order to 
tackle the indirect negative effect of a due diligence legislation on SMEs.44 For example, 
large “buyer” companies will be encouraged to provide targeted support , including 
financial support  for independent on -site checks on suppliers in their value chains  and not 
to have unfair and disproportionate requirements from their SME business partner . 
Furthermore, a strong package of support actions , including e.g. model contractual 
clauses, hotline s, trainings and databases, an observatory for supply chain transparency, 
development policy projects , alignment methodology for self -assessment of industry 
schemes and multi -stakeholder initiatives, and other public support  at Member State 
and EU level  can also play a role in assisting SMEs in the EU and in third countries.  
For midcap companies  that will be covered by the proposal if they are active mainly in 
one of the identified high -impact sectors, the due diligence obligation will be 
simplified:  they would only have to  focus on severe adverse impacts  only.  
Midcap companies in  Group 2 will also have more time to adapt thanks to the phased -in 
implementation : they would need to apply the rules only 2 years after the entry into 
force of the proposed Directive. This additional time does allow these companies to 
smooth out the costs  of establishing the necessary processes and procedures. The 
delayed application could further alleviate their burden, if industry cooperation 
improves  in the meantime, or technological developments, standards, etc. become 
available or cheaper , which may also be prompted by the earlier implementation date 
for larger companies.  
                                                                                                                                                                            
court cases initiated by victims whose complaint was not pursued by the supervisory authority and 
therefore go to court would be highly hypothetical.   
43 The study shows that this can have a positive impact on sustainabili ty uptake in smaller companies, but 
can also be perceived as coercion and increase the costs and administrative burden of SMEs.  
44 Note that the estimated direct business compliance costs also include the costs incurred by large 
companies conducting due di ligence also with regard to their value chains.  
 
EN  20  EN Taking into account the various impacts, the revis ed preferred option allows for reducing 
business’ compliance costs substantially and also for lowering the supervisory costs, 
while only decreasing the effectiveness and the beneficial human rights and 
environmental impacts of the initiative to a relativel y lower extent, making the proposal 
more efficient and proportionate .45 With respect to firm -level cost competitiveness 
under the revised preferred option, please also see section 4.6.  
4.10. Impacts on third countries  
The proposal’s scope covers certain non -EU co mpanies directly. In addition, it obliges 
companies to cover their global value chains in their due diligence efforts. As the most 
salient adverse impacts on human rights and on the environment often occur outside the 
EU, the proposed Directive has a strong external dimension and will inevitably 
affect companies and other stakeholders in third countries, and could affect the 
economies of third countries more broadly . The proposal takes into account that this 
requires cohere nce with the EU’s trade and development policies, and measures to 
mitigate potential negative impacts on our partner countries. Moreover, coherence with 
international frameworks on Responsible Business Conduct as well on Business and 
Human Rights is import ant as it creates synergies for companies and facilitate 
compliance . 
One of the main objectives of this initiative is to reduce adverse human rights and 
environment impacts also in global value chains46, and corporate due diligence is an 
effective tool to a ttain such objectives. I t has to be stressed that due diligence is 
enshrined in international frameworks and it is therefore internationally recognized as the 
appropriate tool to mitigate adverse human rights and environmental impacts, including 
in value c hains. In addition, evidence shows that when companies use due diligence  or 
comparable corporate impact management tools, these are effective in preventing or 
mitigating adverse impacts in their operations and value chains in third countries . It 
has been s hown that corporate sustainability management tools, when used on the basis 
of voluntary individual commitments47 and voluntary industry initiatives48, can have far -
                                                           
45 As the aggregate costs estimated for non -EU companies is relatively low , while expected positive 
impacts are relatively high, proportionality concerns do not arise  in this respect . 
46 Examples of EU companie s having adverse impacts in third countries can be found in the Impact 
Assessment Annex 11.  
47 E.g. Nestlé’s Child Labour M onitoring and Remediation System  (CLMRS) showed effectiveness in 
identifying child labour where it occurs, in supporting families to prevent children performing hazardous 
tasks and in providing enhanced education opportunities. Therefore, recently Nestlé h as developed a 
Human Rights Framework and Roadmap putting due diligence at the core of the approach, with the 
objective of scaling positive impact for rights holders on the ground. Furthermore, Philips supplier 
sustainability Performance programme  achieved to improve the conditions for approximately 302  000 
workers, as labour conditions improved, th e risk of serious injury was reduced, and the negative 
environmental impact of suppliers brought down. Tesco monitors  in key sourcing countri es that salaries are 
paid on time and in full for all hours worked, including overtime premiums, where relevant, and requires 
suppliers to pay any missed wages. In 2019/20 they identified 52 cases, affecting 7  060 workers, where 
payments had fallen short o f what should have been paid, including premiums for overtime, that were 
subsequently addressed as a result of Tesco’s intervention . ASOS has worked with NGOs and suppliers  in 
Turkey to reduce risks to Syrian refugees. By 2019, it had provided 82% of Syrian refugee workers in their 
Turkish supply chain with work permits. Unilever ensured living wages  for Brazil suppliers, and 
 
 
EN  21  EN reaching effects49 in addressing sustainability problems. In addition, relevant legislation  
in France and the US has been found to be effective in enhancing due diligence efforts 
of companies . The French Duty of Vigilance Law was found to have triggered “ internal 
mobilisation around due diligence, to encourage cross -departmental cooperation and to 
better integrate due diligence into corporate governance ”, as well as to “ professionalise ” 
the treatment of due diligence in corporate practices,50 while the US Dodd Frank act 
shows concentration of efforts  where legislation exists.51  
At the same time, t o date, it is difficult to fully assess the possible negative impacts of 
due diligence implementation on companies in third countries  as standards have been 
largely voluntary. Those that have been legislated52 are few, and have not been in effect 
long enoug h to adequately assess change on the ground. Based on the available data, 
reinforcing the respect of the environment and human rights throughout value 
chains can have positive impacts53 but may also have collateral negative impacts . 
While negative impacts i n third countries may not be excluded in some cases, the 
proposal will contain a number of safeguards with a view to mitigating such possible 
impacts (as explained later).  
It is reasonable to conclude that this initiative will lead to significant beneficial impacts  
in those third countries from which the EU imports relatively risky products or 
services in relatively large volumes (i.e. where the current risk of adverse impacts 
linked to the imported raw materials, products, services, or to the oper ation of companies 
in the given sector in the given country is high). Potential negative effects are also 
likely to be highest in these countries and the impact on the ground may be relatively 
higher in developing countries.  
For instance, the following tab les54 show the main trading partners of the Union  (with 
more than 1% share in total extra -EU imports) with regard to the subgroups of imported 
commodities  (also called primary goods) : 
                                                                                                                                                                            
transportation is now being provided to workers. Repsol ensured the protection of indigenous peoples’ 
rights  by conducting a human rights due diligence process that concluded with the company’s decision not 
to carry out the exploratory project due to high cultural impact on sacred spaces of t he Wayuu ethnic 
group, with no possible mitigation measures.  
48 In terms of organised responses to the sustainability problems, the Bangladesh Accord  resulted in 
companies having to participate in a system to id entify risks as well as to induce suppliers to comply and 
do the necessary renovations in order to prevent risks, while the YESS initiative addressed the risks in 
cotton sourcing at fabric mill and spinn ing level.  
49 E.g. Gallup Supplier engagement research  describes the benefit of supplier’s engagement such as higher 
quality, improved planning and product development, greater supplier support and value and lower costs; 
CDP 2018 report  on sustainable supply chain practices show that 551 million Tonnes of CO² have been cut 
by suppliers and that doing so saved these suppliers 14 billion US$.  
50 https://www.e -dh.org/userfiles/Etude%20EDH_Plans_de_vigilance_2019 -2020_Decembre2020.pdf  
51 Evidence  indicated that companies were c onducting due diligence in relation to tin, tungsten and 
tantalum (3T) and gold, covered by legislation, but not in relation to cobalt which was not covered.  
52 E.g. Dodd -Frank Act in the US, Modern Slavery Act in the UK, Duty of Vigilance Law in France, 
Conflict Minerals regulation in the EU.  
53 E.g. Evaluation de la mise en œuvre de la loi relative au devoir de vigilance , January 2020  
54 Source : Eurostat data for 2020, see Extra -EU trade in primary goods - Statistics Explained (europa.eu)  
and related sites.  
 
EN  22  EN Raw materials  (54% of all extra -EU imports 
of commodities):  
non-manufactured goods like oilseeds, cork, 
wood, pulp, textile fibres, ores and other 
minerals, animal and vegetable oils  Share of imports 
by partner (%)   
Food, drinks and tobacco  
(27% of all extra -EU imports of 
commodities)  Share of imports 
by partner (%) 
United States  12.0  United Kingdom  14.0 
Brazil  9.9  Brazil  7.3 
Canada  7.2  United States  6.2 
Russia  6.2  Norway  5.9 
Ukraine  6.2  Turkey  4.2 
United Kingdom  4.8  Switzerland  3.8 
South Africa  4.5  Argentina  3.5 
Indonesia  4.4  Morocco  3.1 
Malaysia  2.7  Côte d'Ivoire  3.0 
Chile  2.3  Ukraine  2.7 
Norway  2.2  Vietnam  2.6 
Turkey  2.2  Peru 2.3 
Peru 2.0  Ecuador  2.2 
Australia  1.8  South Africa  2.0 
Switzerland  1.7  Chile  1.9 
Mexico  1.4  India  1.8 
India  1.3  Russia  1.5 
Argentina  1.2  Canada  1.5 
   Colombia  1.5 
   Thailand  1.4 
   Costa Rica  1.3 
   New Zealand  1.2 
   Serbia  1.1 
   Ghana  1.1 
   Indonesia  1.1 
However, in certain sectors or commodities55 there is lower procurement power, and EU 
companies may have more limited leverage  to bring about change as the product comes 
only from few countries and sometimes also from a limited number of suppliers. On the 
other hand, because of the limited number of sources, continuous engagement is 
paramount and gives strong incentives  to contri bute to change. About half of imports 
of the products identified in Commission analysis on strategic dependencies originate in 
China (52%), followed by Vietnam (11%) and Brazil (5%).  
There is a certain risk that those suppliers in producing countries will prefer to sell to 
other regions  where due diligence rules are not in place or less stringent. At the same 
time, given  the Union  market’s size and the  safeguards in the proposal  requiring that 
the EU company engages locally and contributes to the costs of new production 
processes, infrastructures if necessary, and shares burden with SMEs, will lower such 
risks.   
Furthermore, a range of raw materials of relevance for the manufact uring of various 
goods can only be sourced from countries with a high risk profile .56 This heightens 
the risk of EU companies abandoning certain suppliers, regions and even countries. On 
the other hand, this risk of disengagement (termination of the busines s relationship)  is 
mitigated through the following factors and safeguards in the initiative:  
                                                           
55 The Commission’s analysis “ Strategic dependencies and capacities” , accompanying the updated EU 
industrial strategy , has identified 137 products in sensitive sectors  on which the  EU is highly dependent , 
such as raw materials,  processed materials, chemicals (these 3 categories cover 99 products out of 137),  
active pharma ingredients as well as other products relevant to support the gr een and digital 
transformations (batteries,  semiconductors, cloud and edge technologies) .  
56 Also, as explained above, the risk of certain adverse impacts is higher in specific product groups or raw 
materials.  
 
EN  23  EN - The cost of reorganising value chains may be higher than making it sustainable ; 
- The proposal does not target specific geographies or products . If it was, the impact 
would also be more pronounced for certain territories (see further in the impact 
assessment);  
- There are safeguards  in the proposal to ensure that disengagement is only a last 
resort option, such as the following:  
(1) measures ensuring that the emphasis is on preventing and mitigating  
adverse impacts, rather than banning certain products originating from certain 
areas,  
(2) prevention and mitigation should include proper investments, where 
necessary,  
(3) prevention and mitigation should include targeted financial or other support 
for the SME t rading partner, where necessary,   
(4) collaborat ion with other entities, including, where relevant, to increase the 
company’s ability to bring the adverse impact to an end , 
(5) terminat ion of  the business relationship only if the potential adverse impact is 
sever e, and where the law governing their relations so entitles companies to do so.  
- Collaborative efforts  will also be fostered through support  measures  and through 
industry schemes and mul ti-stakeholder initiatives .   
- The proposal is also likely to incentivise third -country governments  to strengthen 
rule of law, improve legislation, enforcement and good governance practices that 
support sustainable development.   
Furthermore, it is importan t to note that any potential negative impact is framed by 
reference to the commitments of the EU and international communities, including 
developing countries, to promote sustainable  development  – not just any kind of 
economic development. Therefore – even  if indirectly – incentivising unsustainable 
practices, which may also be illegal  according to legislation in developing countries, 
and/or go against international commitments  of the Union  and third countries,57 is 
neither in the interest of the Union  nor of the developing countries. It can be expected 
that most cases where de -risking will result in disengagement with suppliers and 
abandoning certain activities will concern illegitimate or illegal business practices, or 
other risks and impacts which can not be mitigated by a company by any other means.  
4.11. Contribution of potential soft mitigation measures  
While the proposal itself already includes safeguards against unintended consequences, 
focused accompanying measures can improve the effectiveness of impl ementation . 
Companies may rely on industry schemes and multi -stakeholder initiatives  to support 
the implementation of their obligation . The Commission and the Member States may 
facilitate the dissemination of information on such schemes or initiatives and their 
outcome.   
                                                           
57 e.g. ILO declaration on fundamental rights at work, bill of human rights, SDGs  
 
EN  24  EN In particular, support provided by Member States and the EU to public authorities 
and companies in the framework of development cooperation  can foster the creation 
of a stronger regulatory environment in third countr ies, thereby helping tac kle the root 
causes of systemic issues. It can also help compliance of third -country companies, by 
build ing capacity on the ground, where most needed. For instance, the new 
Neighbourhood, Development and International Cooperation Instrument58 and relevant 
Team Europe initiatives59 in third countries can provide support to governments for 
aligning their legislation and enforcement with international labour standards, and can 
provide specific support for suppliers in third countries to adhere to sustainability 
standards in their own operations and to exercise due diligence in their value chains.  
A comprehensive mapping of existing EU -funded actions that support public authorities 
and companies in partner countries to build capacities in addressing  a wide range of 
human rights and environment -related impacts identified about 75 relevant Commission 
actions. These are on -going and have a combined funding volume of approximately 
EUR  660 million, the majority of which being funded through EU development  
cooperation instruments. Moreover, in the programming of EU development cooperation 
instruments for the 2021 -2027 Multiannual Financial Framework, about two thirds of 
partner countries identified supply chain sustainability among the objectives or results  of 
proposed priority areas for their development cooperation with the Union . 
4.12. Impact on competition  
The Board’s opinion also pointed to the need to assess the impacts on competition that 
may arise from potentially increased vertical integration or from the  exchange of 
commercially sensitive information resulting from joint company value chain due 
diligence efforts.  
In the Commission’s assessment, cooperation on due diligence pursuing a 
sustainability objective  or the exchange of information limited to what is necessary  
for this purpose as such is unlikely to raise concerns of anti -competitive behaviou r. 
This is being clarified in the ongoing revision of the two Horizontal (Research & 
Development and Specialisation) Block Exemption Regulations and the 
accompa nying Horizontal Guidelines  which have a dedicated chapter on sustainability 
agreements, possibly relevant in the context of joint industry efforts whereby companies 
pool their resources to assess suppliers and vet those that do not meet the required 
susta inability standards. The guidelines will contain a safe -harbour for sustainability 
standards, based on procedural conditions (voluntary and non -discriminative 
participation for companies, transparency, proper mechanism for vetting suppliers etc.).  
In the same vein, it is unlikely that mandatory due diligence will result in anti -
competitive behaviour as a result of potentially increased vertical integration . In 
sectors with limited number of suppliers, it is also unlikely that companies will 
                                                           
58https://ec.europa.eu/info/funding -tenders/find -funding/eu -funding -programmes/global -europe -
neighbourhood -development -and-international -cooperation -instrument_en  
59 https://europa.eu/capacity4dev/wbt -team -europe  
 
EN  25  EN attempt to acqu ire them  – leaving their competitors without available independent 
suppliers to source from – directly as a result of mandatory due diligence rules because it 
remains a relatively costly course of action. Literature on the topic60 suggests that firms 
are mo re likely to increase the supply chain risk management activities, which implies in 
particular stronger communication and monitoring activities  both upstream and 
downstream. The same literature suggests a positive association of increased supply 
chain risk  management with all forms of supply chain integration; however, in those 
increases of supply chain integration, supplier integration is shown to be much less 
effective compared to increased control within firms and groups of firms  (i.e. within 
existing co rporate legal entities); similarly, the increase of customer integration can be 
expected to be weak  as well, hence the risk of anti -competitive effect is lower. In 
addition, EU merger control rules , that are triggered once companies realise a certain 
turno ver on the Union market, will limit the risks of anticompetitive vertical integration 
that may lead to input foreclosure or customer foreclosure. Similarly, third countries’ 
merger control rules  (most of the countries in the world have a modern merger cont rol 
regime) should address at least part of these risks.  
As a result, while there will always be individual cases where supplier integration will 
reduce the availability of suppliers to other companies (and this could very well be a 
strategic motive of the acquisition of the supplier to begin with), the empirica l literature 
surveyed does not suggest that stronger due diligence requirements by themselves 
(and the related costs) would be a sufficient/material incentive for the acquisition  of 
a strategic supplier; both the acquiring and the acquired firm risk losing  specialization 
gains  and risk increase in complexity61.  
On the other hand, vertical integration by EU companies , be it by form of acquisition 
compliant with competition rules or by a decision to start supplying a certain input 
internally, may contribute t o EU companies gaining market share , or deciding to 
invest more  to allow for the development of new products and sustainable technologies 
and fostering competition in sustainable products and services , in line with the 
market demand.   
4.13. Impact on competitiv eness  
The Board’s opinion recommended to assess in more detail the impact the initiative will 
have on the competitiveness of EU companies, especially when companies have less 
                                                           
60 Cigdem Ataseven, Anand Nair, Assessment of supply chain integration and performance relationships: 
A meta -analytic investigation of the literature , International Journal of Production Economics, Volume 
185, 2017, Pages 252 -265, and Manal Munir, Muhammad Shakeel Sadiq Jajja, Kamran Ali Chatha, Sami 
Farooq, Supply chain risk management and operational performance: The enabling role of supply chain 
integration , International Journal of Production Economics, Volume 227, 2020.  
61 For example, in t erms of information system requirements external integration remains challenging: as 
Ataseven et al (2017), surveying the supply chain integration literature up to 2017 note (on page 262), “(...) 
[i]nternal integration should generally precede external int egration since it is important for the processes 
within an organization to be  aligned before engaging in information sharing and collaboration activities 
with external supply chain partners.”  
 
EN  26  EN possibility to diversify their suppliers, and the impact on companies’ innovation  capacity, 
dynamism and agility, also in the context of possible increase of litigation.  
This initiative has been designed so as to limit the possible negative impacts on EU 
competitiveness to minimum , including by designing clear criteria for civil liability  
and linking it to more stringent  conditions when it comes to value chain relationships 
beyond first -tier suppliers, by providing supporting measures  within the Union  and in 
producing countries outside the Union , and by making disengagement only a s last 
resort requirement  and only for severe adverse impacts . The dynamic  character of 
due diligence processes may prove as an additional tool for companies to diversify 
suppliers, where available, or  actively engage with existing suppliers  to mitigate 
adverse impacts. Abandoning certain high -risk suppliers could result in European 
companies paying higher prices  if sourcing possibilities become more limited or more 
expensive than those available to non -European suppliers. By covering third -country 
company competitors, this risk is also reduced .  
While the initial cost  of setting up due diligence will affect companies to certain extent, 
given their size and economic capacity, and the fact that  under the revised scope  all of 
the companies covered are already subject to non -financial reporting obligations or will 
be covered by the new sustainability reporting rules, it is likely that they have or will 
have, at least partially, some relevant processes already in place , as regards for 
instance impact identification and analysis.  
These large companies are likely to be able to absorb the initial costs  of establishing – 
or topping up existing – processes more easily. They are also more likely to be able to 
bear the one -off t ransition costs , i.e. to invest in the sustainability transition of the 
company, and then reap the benefits of this , in particular in the medium to longer run.  
Annex 4 of the impact assessment provides a list of available evidence on how 
companies can benefit from improving their sustainability performance and specifically 
from implementing sustainable corporate governance practices (including due diligence). 
While risk managem ent will not be specifically required under the revised preferred 
option, the risk identification duty and due diligence will still provide important data for 
corporate risk management, which will help the company manage its own sustainability 
risks, too, including its dependencies on its employees, suppliers, stakeholders, and on 
natural resources. The impact identification and assessment process, as well as 
engagement with business partners, can also point to opportunities for the company. 
Evidence listed  in the impact assessment clearly shows that benefits do not only arise in 
the form of improved external impacts but also in the form of concrete financial 
benefits for the company itself , via numerous possible channels that increase revenue or 
decrease co sts.  
One of the sources of improved financial performance of companies with sustainable 
corporate governance practices is sustainability -linked product and process 
innovation . As the impact assessment explains, this initiative has a strong potential to 
lead to innovation benefits, which is also backed by the growing demand for sustainable 
products, technologies, processes, and investment opportunities, and because 
 
EN  27  EN sustainability will most likely determine, as a factor, the success and profitability of 
comp anies in the long term . The initiative, including the specific due diligence 
requirements, directors’ duties and duty of care, have been designed so as to spur 
investment  for the benefit of the long -term sustainable development of the company.  
It should be also stressed that by abandoning/limiting commercial relationships that 
include risks of flagrant violation of human rights (e.g. forced labour, worst forms of 
child labour), when such risks cannot be mitigated, companies reduce their legal ri sks 
(most of these practices are illegal) as well as their reputational risks  (e.g. customers 
may boycott products issued from forced labour) and respond to the expectations of their 
customers and of society as large. In fact, not curbing such practices th at are often illegal 
(child labour, forced labour), but still pursed by some companies, introduces moral 
hazard  opportunities and distorts the level playing field  for the companies who respect 
their obligations. When taking an overall picture, an alleged c ompetitive advantage 
built not on the merits, but on exploitation and against European values does not 
seem very durable  and is not something the Union as a society, including both the 
private and public sector, should pursue . This proposal may contribute to enhance the 
resilience and competitiveness  of EU companies by ensuring that also throughout the 
value chain, they control better their risks and they offer more sustainable products. The 
Commission will nonetheless closely monitor the impact of this leg islation on companies 
and other affected stakeholders.   
As explained in the impact assessment62, the above -mentioned considerations that 
companies can reduce their risk of litigation by conducting due diligence properly seems 
to be supported by the actual experience with the French law, which shows that  the law 
did not lead to an increased number of litigation  and thus the potential negative 
impact on competitiveness has not materialized. In addition, in the proposal the civil 
liability is based on clear conditions, and includes stricter conditions for liability beyond 
direct value chain business relationships.   
Even if there remains a certain degree of uncertainty that all the benefits mentioned in the 
impact assessment or in this document would materialize, and the extent to which they 
arise will not be the same for all companies, the  above considerations sugg est that the 
benefits  of the requirements of this initiative are expected to outweigh its costs even at 
the corporate level, and will bring competitive advantages, at least in the medium to 
long-term.   
   
                                                           
62 Please refer to the a nnexes of the impact assessment re port, p . 63. 
 
EN  28  EN 
  
List of human rights and environmental due diligence obligations  
1. Violations of rights and prohibitions included in international human rights 
agreements  
1. Violation of the people's right to dispose of a land's natural resources and to not be 
deprived of means of subsistence in accordance with Arti cle 1 of the International 
Covenant on Civil and Political Rights;  
2. Violation of the right to life and security in accordance with Article 3 of the 
Universal Declaration on Human rights;  
3. Violation of the prohibition of torture, cruel, inhuman or degrading t reatment in 
accordance with Article 5 of the Universal Declaration of Human Rights;  
4. Violation of the right to liberty and security in accordance with Article 9 of the 
Universal Declaration of Human Rights ; 
5. Violation of the prohibition of arbitrary or unla wful interference with person's 
privacy, family, home or correspondence and attacks on their reputation, in 
accordance with Article 17 of the Universal Declaration of Human Rights;  
6. Violation of the prohibition of interference with the freedom of thought, c onscience 
and religion in accordance with Article 18 of the Universal Declaration of Human 
Rights;  
7. Violation of the right to enjoy just and favourable conditions of work including a 
fair wage, a decent living, safe and healthy working conditions and reason able 
limitation of working hours in accordance with Article 7 of the International 
Covenant on Economic, Social and Cultural Rights;  
8. Violation of the prohibition to restrict workers’ access to adequate housing, if the 
workforce is housed in accommodation provided by the company, and to restrict 
workers’ access to adequate food, clothing, and water and sanitation in the work 
place, in accordance with Article 11 of the International Covenant on Economic, 
Social and Cultural Rights;  
9. Violation of the right of the child to have his or her best interests given primary 
consideration in all decisions and actions that affect children in accordance with 
Article 3 of the UN Convention of the Rights of the Child; violation of the right of 
the child to develop to his or  her full potential in accordance with Article 6 of the 
UN Convention of the Rights of the Child; violation of the right of the child to the 
highest attainable standard of health in accordance with Article 24 of the UN 
Convention on the Rights of the Child, violation of the right to social security and 
an adequate standards of living in accordance with Article 26 and 27 of the UN 
Convention on the Rights of the Child ; violation of the right to educat ion in 
accordance with Article 28 of the UN Convention on the Rights of the Child;  
violation of the right of the child to be protected from all forms of sexual 
exploitation and sexual abuse and, and to be protected from being abducted, sold or 
 
EN  29  EN moved illega lly to a different place in or outside their country for the purpose of 
exploitation, in accordance with Articles 34 and 35 of the UN Convention of  the 
Rights of the Child;  
10. Violation of the prohibition of the employment of a child under the age at which 
compulsory schooling ends according to the law of the place of employment, 
provided that the age of employment is not less than 15 years, except where the law 
of the place of employment so provides in accordance with Article 2 (4) and 
Articles 4 to 8 of Conv ention No. 138 of the International Labour Organization of 
26 June 1973 concerning Minimum Age for Admission to Employment;  
11. Violation of the prohibition of the worst forms of child labour for children under 18 
years of age; in accordance with Article 3 of Convention No. 182 of the 
International Labour Organization of 17 June 1999 concerning the Prohibition and 
Immediate Action for the Elimination of the Worst Forms of Child Labour. This 
includes:  
a) All forms of slavery or practices similar to slavery, such as  the sale and 
trafficking of children, debt bondage and serfdom, as well as forced or 
compulsory labour, including the forced or compulsory recruitment of children 
for use in armed conflicts,  
b) The use, procuring or offering of a child for prostitution, for the production of 
pornography or for pornographic performances,  
c) The use, procuring or offering of a child for illicit activities, in particular for 
the production of or trafficking in drugs,  
d) Work which, by its nature or the circumstances in which it is car ried out, is 
likely to harm the health, safety or morals of children;  
12. Violation of the prohibition of forced labour; this includes all work or service that 
is exacted from any person under the menace of any penalty and for which the said 
person  has not off ered himself or herself voluntarily, for example as a result of debt 
bondage or trafficking in human beings; excluded from forced labour are any work 
or services that comply with Article 2 (2) of ILO Forced Labour Convention, 1930 
(No. 29) concerning Force d or Compulsory Labour or with Article 8 (3) (b) and (c) 
of the International Covenant on Civil and Political Rights;  
13. Violation of the prohibition of all forms of slavery, practices akin to slavery, 
serfdom or other forms of domination or oppression in the  workplace, such as 
extreme economic or sexual exploitation and humiliation in accordance with 
Article 4 of the Universal Declaration of Human Rights, Art. 8 of the International 
Covenant on Civil and Political Rights;  
14. Violation of the prohibition of human  trafficking in accordance with Article 3 of 
the Palermo Protocol to Prevent, Suppress and Punish Trafficking in Persons 
Especially Women and Children, supplementing the United Nations Convention 
against Transnational Organized Crime;  
15. Violation of the proh ibition of disregarding the freedom of assembly and 
association in accordance with  Article 20 of the Universal Declaration of Human 
 
EN  30  EN Rights, Articles 21 and 22 of the International Covenant on Civil and Political 
Rights and Article 8 of the  International Covenant on Economic, Social and 
Cultural Rights , ILO -Convention No. 87 concerning  Freedom of Association and 
Protection of the Right to Organise , ILO -Convention No. 98 concerning the  right to 
organise and Collective Bargaining , including th e 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) workers’ organisations are free to operate in accordance with applicable in line 
with their constitutions and rules without interference from the authorities;  
d) the right to strike and the right to collective bargaining;  
16. Violation of the prohibition of unequal treatment in employment, unless this is 
justified by t he requirements of the employment; unequal treatment includes, in 
particular, the payment of unequal remuneration for work of equal value;  
17. Violation of the prohibition of withholding an adequate living wage in accordance 
with Article 7 of the International  Covenant on Economic, Social and Cultural 
Rights ;   
18. Violation of the prohibition  of causing any measurable environmental degradation, 
such as harmful soil change, water or air pollution, harmful emissions or excessive 
water consumption or other impact on natural resources, that  
a) impairs the natural bases for the preservation and production of food or  
b) denies a person access to safe and clean drinking water or  
c) makes it difficult for a person to access sanitary facilities or destroys them or  
d) harms the health,  safety, the normal use of property or land or the normal 
conduct of economic activity of a person or  
e) affects ecological integrity, such as deforestation,  
in accordance with Article 3 of the Universal Declaration of Human Rights, Article 
5 of the Internati onal Covenant on Civil and Political Rights , Article 12 of the 
International Covenant on Economic, Social and Cultural Rights ; 
19. Violation of the prohibition to unlawfully evict or take land, forests and waters 
when acquiring, developing or otherwise use lan d, forests and waters, including by 
deforestation, the use of which secures the livelihood of a person in accordance 
with Article 11 of the International Covenant on Economic, Social and Cultural 
Rights ;  
20. Violation of the indigenous peoples’ right to the l ands, territories and resources 
which they have traditionally owned, occupied or otherwise used or acquired based 
on Article 25, 26 (1) and (2), 27, and 29 (2) of the United Nations Declaration on 
the Rights of Indigenous Peoples;  
21. Violation of a prohibitio n not covered by points 1 to 20 above but included in  the 
human rights agreements listed in Section B of this Part, which directly impairs a 
legal interest protected in those agreements, provided that the company concerned 
could have reasonably established  the risk of such impairment and any appropriate 
 
EN  31  EN measures to be taken in order to comply with the obligations referred to in Article 4 
of this Directive taking into account all relevant circumstances of their operations, 
such as the sector and operational context . 
  
 
EN  32  EN 2. Human rights and fundamental freedoms conventions  
 The Universal Declaration o f Human Rights;  
 The International Covenant on Civil and Political Rights;  
 The International Covenant on Economic, Social and Cultural Rights;  
 The Convention on the Prevention and Punishment of the Crime of Genocide;  
 The Convention against Torture and other Cruel, Inhuman or Degrading Treatment 
or Punishment;  
 The International Convention on the Elimination of All Forms of Racial 
Discrimination;  
 The Convention on the E limination of All Forms of Discrimination against 
Women;  
 The Convention on the Rights of the Child;  
 The Convention on the Rights of Persons with Disabilities;  
 The United Nations Declaration on the Rights of Indigenous Peoples;  
 The Declaration on the Righ ts of Persons Belonging to National or Ethnic, 
Religious and Linguistic Minorities;  
 United Nations Convention against Transnational Organised Crime and the 
Palermo Protocol to Prevent, Suppress and Punish Trafficking in Persons 
Especially Women and Children, supplementing the United Nations Convention 
against Transnational Organized Crime;  
 The International Labour Organization’s Declaration on Fundamental Principles 
and Rights at Work ; 
 The International Labour Organization’s Tripartite declaration of  principles 
concerning multinational enterprises and social policy ; 
 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 Collect ive 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)  
– Equa l Remuneration Convention, 1951 (No. 100)  
– Discrimination (Employment and Occupation) Convention, 1958 
(No. 111)   
 
EN  33  EN PART II 
VIOLATION OF INTERNAT IONALLY RECOGNIZED OBJECTIVE S AND PROHIBITIONS 
INCLUDED IN E NVIRONMENTAL  CONVENTIONS  
1. Violation of the obligation to take the necessary measures related to the use of 
biological resources in order to avoid or minimize adverse impacts on biological 
diversity, in line with Article 10 (b) of the 1992 Convention on Biological 
Diversity , [and taking into account possible amendments  following the post 
2020 UN Convention on Biological Diversity] ], including the obligations of the 
Cartagena Protocol on the development, handling, transport, use, transfer and 
release of living modified organisms  and of the Nagoya Protocol on Access to 
Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from 
their Utilization to the Convention on Biological Diversity of 12 October 2014;   
2. Violation of the prohibition to import or export any spec imen included in an 
Appendix of the Convention on International Trade in Endangered Species of 
Wild Fauna and Flora (CITES) of 3 March 1973 without a permit, pursuant to 
Articles III, IV and V . 
3. Violation of the prohibition of the manufacture of mercury -added products 
pursuant to Article 4 (1) and Annex A Part I of the Minamata Convention on 
Mercury of 10 October 2013 (Minamata Convention) ; 
4. Violation of the prohibition of the use of mercury and mercury compounds in 
manufacturing processes within the me aning of Article 5 (2) and Annex B Part I 
of the Minamata Convention from the phase -out date specified in the 
Convention for the respective products and  processes;  
5. Violation of the  prohibition  of the treatment  of mercury  waste  contrary  to the 
provisions  of Article  11 (3) of the Minamata  Convention;  
6. Violation of the  prohibition  of the production  and use of chemicals  pursuant  to 
Article  3 (1) (a) and Annex A of the Stockholm Convention of 23 May 2001 on 
Persistent Organic Pollutants (POPs Convention), i n the version of Regulation 
(EU) 2019/1021 of the European Parliament and of the Council of 20 June 2019 
on persistent organic pollutants (OJ  L 169 of 26 May 2019  pp. 45-77), as last 
amended  by Commission  Delegated  Regulation  (EU) 2021/277 of 16 December 
2020 (OJ L 62 of 23 February pp.  1-3); 
7. Violation of the prohibition of the handling, collection, storage and disposal of 
waste in a manner that is not environmentally sound in accordance with the 
regulations in force in the applicable jurisdiction under  the provisions of Article 
6 (1) (d) (i) and (ii) of the POPs  Convention ; 
8. Violation of the prohibition of  importing those of the chemicals  listed  in Annex 
III of the Convention on the Prior Informed Consent Procedure for Certain 
Hazardous Chemicals and Pesticides in International Trade (UNEP/FAO) (The 
PIC Convention) Rotterdam, 10 September 1998, as indicated by the importing 
Party to the Convention in line with the Prior Informed Consent (PIC) 
Procedure ; 
9.  Violation of the prohibition of the productio n and consumption of specific 
subst ances that deplete the ozone l ayer (i.e., CFCs, Halons, CTC, TCA, BCM, 
MB, HBFCs and HCFCs ) after their phase -out pursuant to t he Vienna 
 
EN  34  EN Convention for the protection of the Ozone Layer and its Montreal Protocol on 
subst ances that deplete the Ozone Layer ;  
10. Violation of the prohibition of exports of hazardous waste within the meaning of 
Article 1 (1) and other wastes within the meaning of Article 1 (2) of the Basel 
Convention on the Control of Transboundary  Movements  of Hazardous  Wastes  
and their Disposal  of 22 March  1989  (Basel  Convention),  as last amended  by the 
Third  Ordinance amending Annexes to the Basel Convention of 22 March 1989 
of 6 May 2014 , and within the meaning of Regulation (EC) No 1013/2006 of the 
European  Parliament and of the Council of 14 June 2006 on shipments of waste 
(OJ L 190 of 12 July  2006  pp. 1-98) (Regulation  (EC)  No 1013/2006),  as last 
amended  by Commission  Delegated Regulation (EU) 2020/2174 of 19 October 
2020 (OJ L 433 of 22 December 2020 pp.  11-19)  
i. to a party  that has prohibited  the import  of such hazardous  and other  
wastes  (Article  4 (1) (b) of the Basel Convention),  
ii. to a state of import as defined in Article 2 no. 11 of the Basel Convention 
that does not consent in writing to the specific import, in the case where 
that state of import has not prohibited the import of such hazardous 
wastes (Article 4 (1) (c) of the Basel  Convention),  
iii. to a non -party to the Basel Convention (Article 4 (5) of the Basel  
Convention),  
iv. to a state of import if such hazardous wastes or other wastes are not 
managed in an environmentally sound manner in that state or elsewhere 
(Article 4 (8) sentence 1 of the Basel  Convention);  
11. Violation of the prohibition of the export of hazardous wastes from countries 
listed in A nnex VII to the Basel Convention to countries not listed in Annex VII 
(Article 4A of the Basel Convention, Article 36 of Regulation (EC) No 
1013/2006) ; 
12. Violation of the prohibition of the import of hazardous wastes and other wastes 
from a non -party to the Basel Convention (Article 4 (5) of the Basel 
Convention );  
 
EN  35  EN 
  
Summary of costs and benefits  
Annex 3 of the Impact Assessment Report summarised, in a qualitative manner, the 
benefits of the preferred option for the various stakeholder groups impacted by t he 
initiative. The same annex also gave an overview of the estimated aggregated business 
compliance costs and costs incurred by public institutions, and it included a qualitative 
summary of other costs that had not been quantified.  
The following two tables present an overview of the expected benefits and costs of the 
revised preferred option, i.e. taking into account the final content of the Commission’s 
proposal. The tables are presented according to the Better Regulation Guidelines  as 
revised in the meantime, the main implication of which is that administrative costs are 
now also presented in an additional table to support the implementation of the “One -In-
One-Out” principle.  
Regarding the benefits, the proposal has been carefully calibrated so that the expected 
benefits for the company’s stakeholders in terms of less human rights violations and 
environmental harm remain high. At the same time, due to the reduced scope, only a 
smaller number of companies will directly reap benefits such as those deriving from 
improved corporate management systems, long -term operational costs savings, new 
marketing opportunities, or attracting talents. Benefits related to the specific obligation to 
manage risks – beyond mitigating the adverse corporat e impacts in line with the due 
diligence obligations – will not manifest themselves fully due to the reduced content of 
the proposal, even though the obligation to identify sustainability risks, together with the 
duties related to the corporate strategy, h as the potential to improve corporate risk 
management to a similar extent.  
The most significant changes in the impacts nevertheless concern the quantified cost 
elements, due to the reduced scope and content of the initiative (which will now only 
include d ue diligence -related cost elements due to the dropping of those directors’ duties 
for which the impact assessment calculated with additional compliance costs). In parallel 
with this, the non -quantified cost elements, namely the costs of transition to 
susta inability, the indirect business compliance costs in relation to the corporate due 
diligence obligation, the costs of other directors’ duties, will also be smaller. While some 
of the companies that are now out of the direct scope will nevertheless incur so me 
indirect costs in relation to due diligence now as value chain partners of larger 
companies, such indirect costs for SMEs are likely to be smaller now also due to the 
provisions that specifically address the trickle -down effect in the proposal. Costs fo r non -
EU companies were not quantified in the impact assessment but are now quantified 
(monetised) and presented separately, and the supervisory costs now include the costs 
incurred both with regard to EU and non -EU companies’ supervision.  
As explained in  the impact assessment, directors’ duties will result in some additional 
compliance costs for businesses as internal processes and management systems would 
need to be revised to ensure that directors are able to meet their clarified general duty to 
 
EN  36  EN promote  the best interest of the company, and their harmonised specific obligations. 
However, as also explained in the impact assessment the duties that were retained in the 
proposal are not expected to result in significant cost increases in addition to the (new ) 
due diligence obligation and the public reporting obligation under the CSRD, due to 
overlaps between the impact and risk identification and between the reporting rules and 
the substantive duties, as well as due to already existing practices. Accordingly,  we will 
not calculate with additional recurrent costs (the one -off costs elements for risk 
management and science -based target setting will not arise under the revised preferred 
option).  
As a result of the new rules on directors’ remuneration, companies w ould need to revise 
their remuneration policies and bear the related adjustment costs. These costs should be 
very small, in particular for non -listed companies which neither have to publish their 
remuneration policy nor to report on it. Therefore, complian ce and adjustment costs will 
be minor and could even be regarded as part of business as usual.  
I. Overview of Benefits (total for all provisions) – Preferred Option  
Description of benefit  Which stakeholder group is 
the recipient of the benefit?  Comments  
Direct benefits  
Adverse human rights, 
health and social 
impacts are  reduced , 
and value creation by 
companies becomes 
more sustainable, 
responsible and fair . Actual and possible victims  of 
adverse human rights impact of 
companies, including the 
employees  of the company and 
its value chain partners , as 
well as local communities  will 
benefit directly from this.  
In addition, the company  itself 
will also reap benefits directly.  Actual and possible victims will benefit 
from the reduction of human rights 
viola tions as a result of two factors: (1) the 
corporate due diligence obligation 
includes a specific requirement to cease or 
minimise  actual adverse impacts, and also 
has a requirement to prevent  potential 
adverse impacts to the extent possible, (2) 
improved access to justice for victims of 
human rights violations via harmonised 
civil liability  rules will have a preventive 
effect .  
The company itself will also benefit from 
the reduction of its adv erse human rights 
impact directly, including due to reduced 
financial risks re lated to possible 
litigation . 
Adverse impact s on 
climate, biodiversity, 
pollution, and the 
environment more 
broadly are reduced , 
and value creation by 
companies becomes 
more sus tainable, 
responsible and “green”.  The environment , as well as 
actual and possible  victims  of 
the environmental harm which 
companies cause or contribute 
to, including people and local 
communities along the 
company’s value chains and the 
company’s other sta keholders, 
will directly benefit from such 
an impact.  
In addition, the company  itself 
will also reap benefits directly.  Similarly to human rights impacts, benefits 
are expected to arise due to both the 
requirement to stop harmful activities or 
mitigate ac tual and potential adverse 
impacts, and the preventive effect of 
victims’ improved access to remedy.  
The company itself will also benefit 
directly, including due to reduced financial 
risks related to possible litigation.  
Access to remedy for 
victims of human rights 
violations and of 
environmental harm 
improves . Victims  of human rights 
violations and of environmental 
damage, including those that 
take place in the value chains  
located in the  EU and in  third  
 
EN  37  EN I. Overview of Benefits (total for all provisions) – Preferred Option  
Description of benefit  Which stakeholder group is 
the recipient of the benefit?  Comments  
countries  will directly benefit 
from this.  
Medium to long -term 
competitiveness, 
resilience and viability 
of the company 
improves (economic 
sustainability).  The company  itself will benefit 
directly, but all other 
stakeholders, including owners 
(shareholders or members), will 
also benefit (indirectly) . This beneficial impact  derives from the 
due diligence obligation as the identification 
of the actual and possible adverse impacts 
will directly help companies know their 
value chains better , as a result of which the 
company can better identify and manage 
their dependencies and other financial risks 
they face in relation to sustainability 
matters. Furthermore, the harm mitigation 
obligation can also contribute to long -term 
competitiveness and  viability by catalysing 
investments into more sustainable and 
future -proof technologies and into the 
workforce  etc. Companies with reduced 
harmful external impacts are also likely to 
have competitive benefits as a more 
sustainable (responsible and green) 
company in the labour, customer and 
suppliers markets  (also using the first 
movers’ advantages referred to in the next 
point).  
The benefits can materialise already in the 
medium term  in the form of improved 
financial performance  of the company.  
Such benefi ts are also reinforced by the 
requirement that directors , when fulfilling 
their duty to act in the best interest of the 
company and taking decisions in their 
capacity as directors, take into account the 
human rights, and environmental 
consequences of those  decisions and their 
likely consequen ces in the long term, which, 
among others, involves the proper 
management of sustainability -related risks 
and dependencies on natural and human 
capital.  
Better medium to long -
term competitiveness in  
global markets  (beyond 
the EU) due to 
benefitting from first 
mover ’s advantages . This will directly benefit the 
company . As additional company -level costs per 
revenue remain relatively low, no 
significant negative distortions for EU 
exporters are expected. At the same time,  
EU companies could reap the first movers’ 
competitive advantages. These derive from 
being able to grab the opportunities 
offered by the sustainability transition 
sooner  than competitors and increasing 
their market shares in global markets due to 
growing g lobal demand for sustainable 
products. Further first -movers benefits 
include: securing access to resources, 
technology, gaining economies of scale vis -
à-vis competitors that later market entrants, 
etc. 
Indirect benefits  
Sustained financial The company’s owners  These benefits derive form the fact that 
 
EN  38  EN I. Overview of Benefits (total for all provisions) – Preferred Option  
Description of benefit  Which stakeholder group is 
the recipient of the benefit?  Comments  
return on investment 
over a longer time 
horizon.  (members or shareholders, 
including financial investors), 
will directly benefit from this.  companies with improved financial 
performance, resilience, competitiveness 
and viability over the longer run are able 
to pay  sustained financial returns to their 
shareholders over the longer run, too.  
Sustained job 
opportunities , sustained 
demand for suppliers’ 
products and services , 
sustained sourcing 
opportunities  and 
continued access to after -
sales services for 
customers etc., problem -
free repayment of loans  
(or profitable return on 
bonds), etc.  In addition to direct positive 
impacts, employees, sup pliers 
(and their employees), 
customers , as well as creditors  
(or bond -holders) are also 
indirectly benefitting from the 
new directive.  
In addition, local communities , 
and the economy  as a whole 
will benefit.  This indirect effect is the result of 
companie s’ longer term competitiveness, 
resilience and viability: companies that 
remain successful over the medium and 
long run are likely to continue employing 
the workers, purchasing from their 
suppliers, providing their products and 
services to their clients, i ncluding reparation 
etc., service their loans (or bond payments), 
etc. Their sustained contribution to 
employment,  and participation in the 
flow of economic activities , has, in turn, a 
positive impact on the local communities 
and the economy as a whole.  
Improved resilience , 
and improved medium 
to long -term 
competitiveness of the 
EU economy  The entire EU economy  as well 
as indirectly impacted third 
countries  will benefit from this 
impact.  The cumulative medium to long -term net 
benefits for companies  are ex pected to 
result in medium to long -term 
competitiveness gains for the economy. A 
focus on the long -term interest of the 
company, better risks management, lower 
dependency on increasingly scarce natural 
resources, improved resilience to 
sustainability -related shocks, as well as 
impact mitigation will all contribute to this 
impact.  
Better working 
conditions and increased 
environmental 
standards and respect 
for human rights  Third countries , in particular 
where standard s regarding 
working conditions and respec t 
by companies for human rights 
the environment are lower , 
will, in general, benefit 
indirectly.   
Faster and more 
systematic transition to 
a sustainable , i.e. green 
and fair economy and 
society  On the top of direct benefits, 
the entire economy and 
society , including current and 
future generations  of people 
in the EU and around the 
world  will benefit indirectly.  Reduced climate and environmental 
footprint, better respect for human rights, 
diminishing adverse health and social 
impact on workers and other peo ple will 
contribute to speeding up the transition to a 
greener and fairer society and economy, and 
to ensuring better conditions for life for the 
future generations.  
Administrative cost savings related to the ‘one  in, one out’ approach*  
(direct/indirect)  N/A N/A 
 
 
 
 
EN  39  EN II. Overview of costs – Preferred option  
 Citizens /  
Consumers  Businesses  Administrations  
One-
off Rec. One-off Recurrent  One-off Recurrent  Corporate due diligence  
Direct 
adjustment 
costs  N/A N/A EUR 220 million for 
EU companies and  
EUR 70 million for 
non-EU companies  
 
+ Cost of transition 
to sustainability (not 
quantified, but 
qualitative and 
quantitative 
examples with cost 
ranges are given in 
the impact 
assessment)  EUR 760 million 
for EU companies 
and 
EUR 240 million 
for non -EU 
companies  
 
No other additional 
recurrent cost is 
expected.  N/A N/A 
 Direct 
administrative 
costs  N/A N/A No substantial additional administrative 
costs will be incurred by EU companies as 
all of the companies covered by the scope 
of the revised preferred option are also 
under the CSRD proposal, and a such their 
costs related to reporting and the 
necessary data collection, data analysis, 
documentation etc. costs have already 
been counted as a direct compliance costs 
under that proposal.  N/A N/A 
Direct 
regulatory 
fees and 
charges  N/A N/A N/A N/A N/A N/A 
Direct 
enforcement 
costs  N/A N/A N/A N/A EUR 0.13 
million  EUR 5.55 
million  
Indirect costs  N/A N/A While part of such indirect costs are  
included in the qualitative estimations of 
direct costs (which cover the cost of due 
diligence through the entire value chain 
and in subsidiaries), some compliance 
costs could still trickle down  to 
companies (including SMEs) which are 
not under the scope b ut belong to the 
value chain of companies which are 
themselves covered. The proposal 
includes safeguards to minimise such 
impacts on SMEs.  N/A N/A Directors’ duties  
Any direct or 
indirect costs  N/A N/A The costs of directors’ duties linked to the 
corporate due diligence obligations are 
already included in the cost of due 
diligence above. Directors or companies 
will not incur any substantial other 
additional costs as a result of harmonising 
other director s’ duties : these  costs should  
remain minimal  and can even be regarded 
as part of business as usual.  N/A N/A 
 
EN  40  EN Directors’ 
remuneration  
Any direct or 
indirect costs  N/A N/A Costs related to adjustment of existing 
remuneration policies - and, for listed 
companies, reporting – have not been 
quantified but should remain minimal  and 
can even be regarded as part of business 
as usual . N/A N/A 
Costs related to the ‘one in, one out’ approach  
Total  
Direct 
adjustment 
costs  N/A N/A EUR 220 million for 
EU companies  
+ 
Cost of transition to 
sustainability (not 
quantified)  EUR 760 million 
for EU companies    
Indirect 
adjustment 
costs  N/A N/A Some indirect compliance costs deriving 
from the trickle -down effect for 
companies, incl. SMEs, belonging to the 
value chains of large companies can occur 
in addition to those already included in the 
estimated direct costs (not quantified).    
 Admin. costs 
(for 
offsetting)  N/A N/A No substantial additional administrative 
costs will be incurred  by EU companies 
under this directive as all of the companies 
that are under the scope of the revised 
preferred option are also under the CSRD 
proposal, and as such their costs related to 
reporting and the necessary data 
collection, data analysis, document ation 
etc. costs have already been counted as a 
direct compliance costs under that 
proposal.    
(1) Estimates  are provided with respect to the dynamic baseline (including the CSRD proposal);  
(2) Aggregated direct costs for companies are likely to be overestimated because of the cautious 
calculation method of calculating firm -level costs;  
(3) One -off costs for companies are not immediate costs and can be spread across several years;   
 
EN  41  EN 
  
Overview of  how the comments of the Regulatory Scrutiny Board 
have been addressed  
This comparison table describes how the four general comments and the 19 specific 
recommendations for improvements made by the Regulatory Scrutiny Board (RSB) in its 
second opinion of 26  November 2021 have been addressed in the amended preferred 
option (fo rming the basis of the legislative proposal) and in this Staff Working Document 
(SWD) accompanying the legislative proposal.  
General RSB comments  
(i.e. summary of main findings)  Description of h ow the general comments of 
the RSB have been addressed  
(1) The problem description remains vague 
and does not demonstrate the scale and 
likely evolution of the problems the 
initiative aims to tackle. It does not 
provide convincing evidence that EU 
businesses, in particular SMEs, do not 
already sufficiently reflect  sustainability 
aspects or do not have sufficient 
incentives to do so. This comment has been addressed by 
providing additional evidence as regards the 
problem description in this accompanying 
document.   
The following has been added :    
- evidence on impro ving sustainable operation 
of companies but insufficient or slow uptake 
of value chain due diligence by the majority of 
companies ;  
- more information on the added value of the 
initiative with regard to related measures;   
- more information on the links with 
international obligations, trade policy and 
development support measures and impact of 
trade and development support measures.   
See more detail s below under the RSB 
specific comments No . 1 and 2, notably 
regarding the problem definition.  
(2) The presente d policy options remain too 
limited in scope. Key policy choices are 
not identified nor fully assessed  The narrative and preferred option put forward 
by the impact assessment were  reviewed 
following the second opinion from the Board. 
As a result, the propo sal sets out a more 
focused and targeted due diligence 
obligation  for companies. The impact 
assessment options have not been revised as 
such for the sake of transparency, but the 
initiative is now based on a  combination of 
elements that represents a new preferred 
option  compared to the impact assessment 
report.  The narrative emphasises – in addition  
to the contribution of the initiative to the 
sustainability transition – the need to address 
the risk of fragme ntation  in the Single 
Market due to new legal frameworks on due 
diligence requirements emerging in Member 
States.  
The measures selected for inclusion in the 
 
EN  42  EN General RSB comments  
(i.e. summary of main findings)  Description of h ow the general comments of 
the RSB have been addressed  
proposed legislative text have been 
significantly reviewed  and revised , leaving 
out part of the dir ectors’ duties  and of the 
rules on directors’ remuneration  (apart 
from the obligation to take into account the 
emission reduction plan  when setting 
directors’ variable remuneration) . For more 
detail s about directors ’ duties not retained, 
please see the response to specific comment 
No. 3. The legislative proposal now focus es 
on external impact mitigation through 
value chain due diligence  and only  cover s 
the general duty of directors to t ake into 
account  the consequences of their decisions 
for sustaina bility matters, including where 
applicable, the climate, environmental and 
human rights consequences in the short, 
medium and long term,  and the duty to set up 
and oversee the due diligence  and integrate it 
into the corporate strategy .    
The changes as re gards due diligence  are the 
followings:  
- first, it has a reduced personal scope  (i.e. 
who / which business categories are covered) 
as compared to the preferred policy option put 
forward by the impact assessment. In 
particular, SMEs  and certain midcaps have 
been completely excluded , and the coverage 
of high -impact sectors has been shifted to 
“midcap” companies only ( companies with 
more than  250 employees and more than EUR 
40 million net turnover but not exceeding the 
500 employee and EUR 150 million net 
turnover thresholds simultaneously) . While 
the impact assessment presented  in its Annex 
11 an indicative “maximum” list and two 
scenarios for more limited lists of possible 
high-impact sectors for political decision , the 
now selected option builds on the m ost limited 
one. The high -impact sectors  falling under 
this proposal have been limited  to sectors and 
parts of the value chains that are covered by 
existing OECD due diligence guidance . The 
changed approach to define high -impact 
sectors and the increase of  applicable 
minimum size thresholds result in a decrease 
of the total number of EU companies in the 
scope to about 12  000.  
The choices made  to ensure that the proposal 
is more  proportionate to the goals of the 
initiative  (e.g. by excluding SMEs, limiting 
the number of high impact sectors, aligning 
 
EN  43  EN General RSB comments  
(i.e. summary of main findings)  Description of h ow the general comments of 
the RSB have been addressed  
the scope of third country companies covered 
with the one of EU companies, etc.)  is 
provided in the Explanatory Memorandum.  
This accompanying document  contains in 
section 3 further detailed explanations on the 
redesign of the selected option s in terms of 
scope and enforcement. Please see also the 
follow -up to the Boards specific comments No 
3 to 11.  
(3) The impacts are not assessed in a 
sufficiently complete, balanced and 
neutral way. Uncertainty related to the 
realisation of benefits is not sufficiently 
reflected . Additional assessment and evidence regarding 
impacts (on competition, competitiveness, 
impact on third countries) is provided in this 
accompanying document . 
Concerning the uncertainty on the realisation 
of benefits for the companies, it is presented 
how the design of this initiative makes sure 
that possible negative impacts on EU 
competitiveness are limited to the minimum 
(for instance, by d esigning clear criteria for 
liability, by providing supporting measures 
within EU and in producing countries and by 
making disengagement from value chain 
partners only a last resort to be applied  and 
only for severe adverse impacts ).  
For more details on the assessment of 
additional impacts please see below as regards 
the Board’s specific comments No. 12 to 15.  
(4) The report does not sufficiently 
demonstrate the proportionality of the 
preferred option.  The preferred option has been amended to 
make it more proportionate to the goals of the 
initiative by:  
(1) excluding all SMEs  and shielding 
them from  unfair and disproportionate 
requirements from their business 
partners in the scope of the proposal ,  
(2) limiting the number of midcap 
companies in high impact sectors by 
reducing the range of high impact 
sectors  and their obligations ,  
(3) aligning the scope of third -country 
companies covered with the one of 
EU companies , and  
(4) providing specific  conditions for civil 
liability for damages at the level of 
indirect established business 
relationships .  
The number of companies  was very 
significantly reduced  to about 12  000 EU and 
an additional approximately 4  000 non -EU 
companies (this latter figure had not been 
 
EN  44  EN General RSB comments  
(i.e. summary of main findings)  Description of h ow the general comments of 
the RSB have been addressed  
estimated in the impact assessment).  
  
 
EN  45  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
(1) The report continues to provide little 
specific evidence on the scale and evolution 
of the environmental and sustainability 
problems directly linked to the apparent 
absence or insufficient use of corporate  
sustainability management practices by EU 
companies to be tackled by this initiative. 
While the assessment of benefits provides 
ample evidence on the competitive, financial 
and reputational advantages that companies 
achieve by applying corporate sustainab ility 
practices, the report should identify, and 
substantiate with evidence, the obstacles 
that may prevent companies from pursuing 
sustainable corporate management 
practices. It needs to demonstrate more 
convincingly why the market and 
competitive dynamic s together with the 
further evolution of companies’ corporate 
strategies and risk management systems are 
considered insufficient. Moreover, it needs 
to substantiate better the assumed causal 
link between using corporate sustainability 
tools and their pract ical effect in tackling 
the problems  To address this comment additional evidence is 
presented in this accompanying document  
(section 2) on  why the market and competitive 
dynamics together with the further evolution of 
companies’ corporate strategies and risk 
management systems are considered 
insufficient .  
As regards  the recommendation from the 
Board to  identify, and substantiate with 
evidenc e, the obstacles that may prevent 
companies from pursuing sustainable corporate 
management practices , the impact assessment 
report contains ample analysis and specific 
obstacles such as for example cost, knowledge 
or limited resources are more likely to ar ise 
with respect to SMEs which have now been 
excluded from the scope, therefore this 
document does not contain new analysis on 
this.     
(2) The report should present a sufficiently 
developed and more balanced dynamic 
baseline scenario that integrates (i)  the 
increasing trend of take up of corporate 
sustainability practices, (ii) the large 
number of related measures already 
adopted and parallel regulatory measures 
being developed (including sectoral and 
sustainable product due diligence), (iii) the 
compreh ensive package of measures to 
promote sustainability under the Green Deal 
and (iv) the developments expected in third 
countries with sustainability sub -standards 
resulting from own commitments as well as 
substantial EU and international trade and 
developme nt support measures.  Additional evidence is presented in this 
accompanying document  on: 
- the description of the dynamic baseline 
scenario, in particular the increasing trend of 
take up of corporate sustainability practices, 
also prompted by transparency requirements 
by investors and consumers (section 2.1 ); 
and on  
- the possible evolution of the problem within 
the context of the European Green Deal and 
other EU due diligence measures alone and 
in synergy with  the proposed initiative 
(section 2.2) . 
(3) The report is not clear about why it is 
necessary to regulate directors’ duties on 
top of due diligence requirements. It should 
better explain and assess the value - added of 
regulating directors’ duties, considering that 
the due diligence option already requir es 
risk management and engagement with 
stakeholders’ interests. It should justify why 
stand -alone options covering directors’ 
duties or due diligence requirements only 
were not identified and subsequently The proposal  differs  from the initial  preferred 
options package in the impact assessment by 
significantly focusing the directors’ duties 
element to those necessary for the proper 
implementation of the due diligence.  
As it is crucial that compliance with the due 
diligence obligation is integrated  in corporate 
governance, in light of the existing 
international standards (UNGPs, OECD 
guidelines), directors’ duties linked to due 
diligence have been maintained. This 
 
EN  46  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
compared with the combination options.  encomp asses directors’ duties relating to 
putting in place and overseeing  due 
diligence  processes and measures , including  
integrating  due diligence into all their 
corporate policies and hav ing in place a due 
diligence policy . 
Directors ’ duties not retained  – as compared 
to those put forward as part of the preferred 
option in the impact assessment – concern  
- the duty  to manage sustainability risks to the 
company and adopt science based targets, i.e. 
duty to identify stakeholders’ interests, 
dependencies of the c ompany to such 
stakeholder interests;  
- the directors ’ duty to manage risks to the 
company related to those stakeholders and 
related dependencies, set up and oversee the 
implementation of processes related to 
management of sustainability risks to the 
company;  
- the directors’ duty to include the management 
of sustainability risks to the company in the 
corporate strategy, mandatory adoption and 
disclosure of science based targets.  
In order to fully reflect directors’ role in light 
of the corporate due diligence obligations, the 
general directors’ duty of care for the company 
which is present in all Member State laws is 
being clarified to make clear that directors take 
the consequences of their decisions on 
sustainability matters into account.   
(4) As regards enforcement, the report 
discards mandatory due dili gence policy 
options that do not include a civil liability 
regime without providing evidence of their 
apparent lack of effectiveness. Given that 
stakeholders consider administrative 
supervision as the preferred option (and this 
seems a solution also introd uced at Member 
State levels), the report should better assess 
and compare all feasible enforcement 
options, including a stand -alone 
administrative supervision option. The 
report should also include more detail on the 
functioning, efficiency and effectivene ss of 
the envisaged sanction regimes (e.g. 
withdrawal of products from the market, 
exclusion from public procurement), in 
particular with respect to non -complying 
third country undertakings. It should be 
clearer on the feasibility and impacts of As the impact assessment report was not 
revised, no new options have been assessed. 
However, to address this observation made by 
the Board,  additional evidence is presented in 
this accompanying document  on the 
enforcement mechanism, in particular further 
expanding on the added value of a two -pillar 
enforcement system building on administrative 
enforcement and civil liability, also in light 
with what is done with other areas of Union 
law. 
As regards the sele cted option on civil liability, 
the legislative proposal clarifies that civil 
liability concerns only established business 
relationships which are expected to be lasting, 
in view of their intensity or duration  non 
negligible or non -ancillary character  and 
applies only where the adverse impact could 
have been identified , prevented, mitigated , 
 
EN  47  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
possible o verriding mandatory provisions as 
regards applicable law and assess any 
unintended consequences.  brought to an end or its extent minimised with 
appropriate due diligence measures. As it will 
in practice be difficult to prevent all ri sks 
through global value chains,  liability is limited 
to harm done in the value chain under specific 
conditions beyond direct suppliers.  
As regards administrative sanctions, the 
legislative proposal with recitals and 
explanatory memorandum contains 
comprehensive details as regards such 
sanctions and their functioning.  
As regards international private law elements, 
in particular as regards applicable law, the 
legislative proposal provides details as to the 
content of the selected solution  for overcoming 
problems linked to applicable law. Explanation 
is contained in the  Explanatory Memorandum 
and t his accompanying document    
(5) The options extending the scope into 
medium -sized companies should better 
account for the results of the new SME 
study, which shows both a significant uptake 
already in exposed sectors as well as an 
important trickle -down effect through the 
value chain of measures adopted for large 
companies. The report should better justify 
and substantiate with evidence why certain 
medium -sized companies operating in ‘high -
impact’ sectors should be included in the 
personal scope. It should present clear and 
objective criteria that would be used in 
determining such sectors. To the extent that 
specifying the selection design comes with 
policy choices (including on the legislativ e 
technique to be used, as implementing 
legislation is mentioned in the annex), these 
should be assessed and compared in terms of 
costs and benefits. The report needs to be 
clearer on the envisaged phasing in of the 
requirements for medium -sized companies.  
It should also be more specific on the 
safeguards it would include to prevent that 
large companies impose unjustified 
compliance burden on SMEs in their value 
chain. If this comes with policy choices, it 
should present and analyse alternatives.  As already  explained with regard to the 
Board’s general comment No. 2 (i.e. coverage 
of business categories), the personal scope of 
the selected option has been considerably 
reduced. SMEs and smaller midcap companies 
have been fully excluded.  
Also, a new approach h as been adopted to 
define “high -impact sectors”.  Annex 11 of t he 
impact assessment proposed  an indicative 
“maximum”  list of high -impact sectors 
covering almost 50  000 companies (in option 
3b) and several alternative or  more limited 
approaches to determine the list for a political 
decision . From among these approaches, the 
now selected option builds on the most limited 
one and is based now mainly on the relevant 
OECD guidance for companies..  
The phase -in period for those companies in 
high-impact sectors has been set at  2 years and 
the expected benefits have been explained.  
As regards the trickle -down effect on SMEs in 
value chains as referred to by the Board, t he 
proposal itself will contain such safeguards  
(e.g. duty to provide targeted support if 
necessary,  fair and proportionate treatment of 
SME business partner,  contractual clauses, 
supporting measures) and the Explanatory 
Memorandum provides details on other  support 
to be given to  companies  by Member States , in 
particular to prepare for those effects. 
Additional support will be provided through 
development projects in producing countries.  
 
EN  48  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
(6) To ensure greater regulatory coherence, 
the report should consider aligning the 
personal scope better with the scope of 
parallel initiatives, such as the Corporate 
Sustainability Reporting Directive. It should 
also discuss more thoroughly how coherence 
will be ensured with the parallel sectoral 
and product due diligence initiatives and 
whether these could become (partially) 
superfluous.  When having recalibrated the p referred option, 
the personal scope (i.e. coverage of business 
categories) has been better aligned with the 
proposed Corporate Sustainability Reporting 
Directive (CSRD) while ensuring 
proportionality. Therefore, while a larger 
number of companies will be s ubject to 
reporting obligations under the CSRD, only 
those companies having a certain capacity and 
economic power will have a material due 
diligence duty. The CSRD proposal does not 
cover the third -country companies.  
Therefore, full alignment with the scop e of 
CSRD is not achieved, i.e. for instance this 
directive will not cover listed SMEs (as the 
new preferred option excludes all SMEs). 
However, the legal text envisages an 
implementation report, to be provided 7 years 
after the transposition period, openi ng the 
possibility to further extend and align the 
scope, if necessary . 
(7) The report should be more precise which 
selected international environmental 
conventions should be included in the 
material scope of the due diligence 
obligations and why. It should ensure that it 
does not unduly extend specific EU 
commitments (e.g. from the Climate Law) to 
third countries.  The legislative proposal and the explanatory 
memorandum specify and explain which 
violations based on environmental conventions 
are include d in the retained policy choice (for 
example Minamata Convention on mercury, 
Stockholm convention on persistent organic 
pollutants, etc.). Only those environmental 
conventions were retained that can be 
translated into clear obligations for businesses.  
As regards climate change , companies are 
required to  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 Pari s 
Agreement. This plan shall, in particular, 
identify, on the basis of information reasonably 
available to the company, the extent to which 
climate change is a risk for, or an impact of, 
the company’s operations . The review clause 
explicitly provides for a n assessment on 
whether the Directive should be reviewed to 
include climate change in due diligence.     
(8) Regarding the inclusion of companies 
without an EU establishment, the report 
should specify and justify what the 
‘adequate turnover’ threshold shou ld be 
(the annex mentions EUR 350 million) or 
assess alternative options in case the 
Commission enjoys discretion on this. It 
should make an effort to estimate how many The net turnover threshold for third -country 
companies covere d by the scope has been 
specified in the legislative proposal (net 
turnover of at least EUR  150 million in the EU)  
to reflect the criteria of EU companies in the 
scope while not discriminating the non -EU 
companies. Third -country companies with a 
turnover of EUR 40  to 150 million that are 
 
EN  49  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
foreign companies would be affected 
respectively, as this is important to assess 
the pr oportionality of the measures in terms 
of overall benefits and costs. It should 
clarify whether all worldwide activities of 
foreign companies would be subject to the 
due diligence duty or only activities with a 
clear (turnover) link to the EU. Similarly, 
for companies established in the EU, the 
report should clarify whether all their global 
activities under control would be covered 
(e.g. products produced in China and sold 
exclusively in the US).  operating in high -impact sectors are also now 
covered , with the same obligations and phase 
in as EU companies  of a corresponding size. 
The relevant criteria are being explained in the 
Explanatory Memorandum  and the employee 
criterion was not retained as it would make it 
difficult to identify such companies.  
This accompanying document  contains more 
explanations of applicability and  estimations as 
regards the number of third -country companies 
covered . 
(9) The description of the directors' duties 
should clarify how directors need to 
incorporate conflicting interests of 
stakeholders and sustainability aspects. It 
should clarify whether or not there is a long -
term interest of the company that could 
supersede p articular interests of 
stakeholders or beneficiaries or particular 
sustainability considerations.  As specified in response to the Board’s specific 
comment No. 3, and as opposed to the 
preferred package put forward in the impact 
assessment, the proposal significantly reduces  
the directors’ duties element  by linking it only 
to the due diligence duty. A number of specific 
directors ’ duties that were included in the 
initial preferred option, has been removed (for 
a list of the removed directors ’ duties please 
see above follow to specific RSB comment No . 
3). In the same vein, the clarification of the 
directors’ duty of care for the company as 
present in Member States laws has been limited 
to making clear that directors take into account 
the consequences of their decisions on 
sustainability matters , including, where 
applicable, human rights, climate change and 
environmental consequences, including in the 
short, medium and long term .    
(10) The report should justify and 
substantiate with evidence the need for a 
mandatory science based target for climate 
change mitigatio n (and potentially also for 
biodiversity) as part of the corporate 
strategy of very large companies. It should 
clarify which gap in climate mitigation 
legislation it would fill. It should explain 
how these targets would be established and 
function and how independent validation 
would be ensured. It should justify why the 
requirement for science -based targets is 
linked to the size of a company and not to 
the scale of emissions it is responsible for. 
The report should explain why science based 
target setting is part of directors’ duties and 
not due diligence, which already requires 
companies to mitigate adverse effects.  The focus of the selected option has been 
readjusted compared to the one put forward by 
the impact assessment . As described above, 
mandatory science based targets are no longer 
part of the chosen policy mix.  
As explained in specific comment No. 7, due to 
a lack of clear obligations for companies 
climate change was excluded from due 
diligence obligations. Instead,  the largest 
companies need to  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 . 
(11) The report should better explain the 
precise role of public authorities in checking Detailed provisions on the role and powers of 
supervisory authorities are put forward in the 
 
EN  50  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
the corporate strategy and the scientific 
targets. It should also better explain which 
national authority would be best placed to 
act with respect to non -compliance of third -
country undertakings. It should also explain 
how effective coordination among national 
authoriti es would be ensured, for instance 
launching ex -officio procedures or imposing 
sanctions and what role a ‘mechanism of EU 
cooperation/coordination’ would play.  legislative proposal, including which 
supervisor is to act with respect to third 
country companies. Article 18 lays down in 
detail supervisory authorities’ powers, 
including as regards powers to carry out 
investigations and checks on companies,   
Concerning th e supervision of third -country 
companies, Member States are free to 
designate the national authority they consider 
that it has more relevant experience to carry 
out the tasks set out in the proposal.  
Article  21 stipulates the framework for a 
European Netwo rk of Supervisory Authorities, 
including the possibility to coordinate within 
this network in case of doubts which 
supervisory authority is competent to carry out 
investigations or impose administrative 
sanctions vis -à-vis third country companies. 
Comprehe nsive explanations are provided in 
the recitals and the Explanatory Memorandum.  
(12) The report should be more balanced 
and complete in terms of presenting 
potential impacts concerning competition, 
innovation, agility and litigation risks. While 
stricter sustainability requirements may 
spur innovation, there is also a risk that due 
diligence will make companies less dynamic 
and agile – and more dependent on a set of 
fixed providers, in particular in highly 
concentrated sectors, with only a very 
limited num ber of suppliers. The report 
should assess to what extent the measures 
envisaged will make it more difficult for 
certain industry sectors to diversify their 
suppliers and to improve the resilience of 
their supply chain. It should assess impacts 
on competit ion that may arise from 
potential increased vertical integration by 
businesses as well as from the exchange of 
commercially sensitive information resulting 
from joint company value chain due 
diligence efforts. It should assess more 
thoroughly whether the p otentially 
increased risk of (unsuccessful) litigation 
could also make EU companies less dynamic 
and agile.  This accompanying document provides more 
explanations as regards the expected impacts of 
the proposed intervention on competition and 
competitivenes s (sections 4.5 and 4.6) . In 
particular, explanations are provided to dispel 
concerns that the proposed measures would 
lead to anti -competitive behaviour, as a result 
of cooperation on due diligence pursuing a 
sustainability objective or t he exchange of 
information, or as a result of vertical 
integration.  
As explained under point 3 of the general RSB 
comments, impacts on competitiveness were 
further assessed taking into account possible 
dependencies of EU companies and the risk of 
litigations, as well as p ossible impacts on 
companies ’ innovation capacity. While there is 
certain degree of uncertainty about the 
materialization of all benefits projected in the 
impact assessment for EU companies, the 
design of this initiative is such to reduce the 
possibly nega tive ones to the minimum. This  
document includes an explanation about what 
safeguards have been used in the proposal to 
make sure that companies continue engaging 
with suppliers while mitigating adverse 
impacts, instead of disengagement and 
diversification of suppliers.  
(13) The repor t should better account for 
potential negative impacts in third 
countries, notably in developing countries, The details about the risks relating to 
unintended impacts on third countries are 
presented in this accompanying document 
 
EN  51  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
by being more realistic on risks and costs 
and the contribution of potential soft 
mitigation measures. It should better assess 
the risk of ‘sustaina bility leakage’. If EU 
companies will ultimately have to withdraw 
from certain suppliers due to sustainability 
issues, third -country companies (if out of the 
personal scope) could take over these 
suppliers and thereby gain a competitive 
advantage and suppl y chain control, while 
leaving no improvement in overall human 
rights and environmental performance.  (section 4.3), as well as the safeguards in the 
proposal against such  impacts. Such safeguards 
include:   
(1) measures ensuring that the emphasis is on 
preventing and mitigating adverse impacts, 
rather than banning certain products 
originating from certain areas,  
(2) prevention and mi tigation should include 
proper investments, where necessary,  
(3) prevention and mitigation should include 
targeted financial or other support for the 
SME trading partner, where necessary.  
(4) collaboration with other entities, including, 
where relevant, to increase the company’s 
ability to bring the adverse impact to an 
end 
(5) termination of the business relationship 
only if the potential adverse impact is 
severe, and where the law governing their 
relations so entitles companies to do so.  
Collaborative  efforts will also be fostered 
through support  measures . 
Those third countries that are main EU trading 
partners and where the standards linked to 
sustainability are generally lower will be 
impacted the most by this initiative.  
Sustainability  leakage is present in few 
industry sectors but doesn’t seem to be a 
widespread practice so far. As explained, the 
safeguards aim to ensure continuous 
engagement and disengagement is only likely 
for severe adverse impacts such as   in case of 
State imposed  forced labour .   
(14) Based on a clarification of the personal 
scope, the report should assess more 
thoroughly the impacts of the options on the 
global level playing field and 
competitiveness of EU companies, in 
particular for SMEs in scope. While a lar ge 
number of EU SMEs active in ‘high impact’ 
sectors would be covered (e.g. turnover 
higher than EUR 8 million), this is not the 
case for their ‘SME competitors’ established 
in (neighbouring) third countries (as they 
are very unlikely to be above the indic ated 
much higher EU turnover threshold of EUR 
350 million). The report needs to assess the 
potential competitive disadvantage for the 
affected EU SMEs. Similarly, as directors’ 
duties obligations would apply only to EU 
established companies, the report sho uld 
assess more thoroughly the impacts on their As explained in reaction to the Board’s general 
comment No. 1 and specific comment No. 5, 
SMEs are no longer covered by due diligence 
obligations under the new policy mix 
underlying the proposal. The concerns raised 
by the Board would therefore not arise in this 
new scenario. As regards directors’ duties, as 
explained, these have also been r educed in the 
proposal, linking them to due diligence. This 
implies that the two items that were explained 
in the impact assessment (section 6.2.1.3) to 
possibly raise one -off costs for a limited 
number of companies (EUR  5 000 for the risk 
management syste m and EUR  5 000 for the 
external validation of science based targets) 
have not been retained now for the legislative 
proposal put forward.  
 
EN  52  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
competitiveness, including the risk that EU 
companies may relocate their headquarters 
to (neighbouring) third countries.  
(15) The report should assess how the 
proposed EU corporate sustainability 
governance rules would fit with the diffe rent 
national corporate governance models 
existing in the EU, given the national focus 
of company law.  Explanations as to how the proposed rules fit 
with the different national corporate 
governance models have been provided in the 
Explanatory Memorandum. O verall, as 
company law is to a large extent harmonised 
already, corporate governance models are 
gradually converging.  
(16) While the report provides greater 
clarity on the substantial costs of the 
initiative, it still does not sufficiently reflect 
the hig h uncertainty that the estimated 
benefits will actually materialise on a scale 
to outweigh the costs . The report should 
therefore further improve the 
proportionality assessment of the 
(preferred) option(s) by reconsidering the 
arguments for the inclusion o f medium -sized 
EU companies operating in high impact 
sectors and the broad scope of mandatory 
measures.  As explained above, the personal scope of the 
initial preferred option was considerably 
reviewed (exclusion of SMEs and smaller 
midcaps, reducing the nu mber of high -impact 
sectors) particularly to improve  further the 
proportionality, based on the additional 
evidence and considerations following the 
Board’s second opinion. The material scope of 
the revised preferred option is also more 
focused on the due d iligence obligation of 
companies, while directors’ duties were 
significantly reduced (keeping only those that 
are linked  to the corporate due diligence 
obligation). In addition, this accompanying 
document includes more assessment of the 
impact on firm -level competitiveness. This 
shows that as a consequence of including only 
larger companies in the scope, it is more likely 
under the revised preferred option all 
companies will be able to bear the initial costs 
and also enjoy the benefits of sustainable 
corpor ate governance practices, which are 
expected to outweigh the costs even at the 
company’s level, in particular in the medium or 
long run.  
(17) The comparison of options in terms of 
effectiveness should analyse the expected 
achievement of the specific objectives 
identified in the objectives section.  The comment of the Board concerns the quality 
of the impact assessment. It was decided  to 
provide utmost transparency  and publish the 
initial impact assessment r eport  without 
changes. However, additional evi dence and 
explanations are presented in this 
accompanying document.  
(18) The report should present more 
systematically the views of different 
stakeholder categories. It should find a 
better balance between supportive and 
critical views expressed. The view s of SMEs 
should be singled out to support the 
discussion on scope and options.  This comment of the Board mainly concerns 
the quality of the impact assessment.  
The presentation of the consultation results in 
the Explanatory Memorandum has been 
reviewed by adding the SME views. Overall, 
the views of SMEs and SME associations as 
collected in the consultative activities 
correspond largely to overall companies’ 
views .  
 
EN  53  EN Specific RSB comments  How the specific RSB comments have been 
addressed  
It is recalled that SMEs have been excluded 
from the options.  
(19) The report would benefit from a more 
precise summary of the final preferred 
option, including in terms of the variation in 
scope across elements.  This comment of the Board concerns the 
quality of the impact assessment.  As it has 
been decided, to provide utmost transparency, 
and not to revise the Impact Assessment 
Report,  the proposed changes to the 
presentation of the impact assessment could 
therefore not been made.  The initial preferred  
option has been revised, as explained above, 
and additional explanations provided in this 
accompanying document  and the Explanatory 
Memorandum .