COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937
Date: 2022-02-23
Institutions: Directorate-General for Justice and Consumers, European Commission
Subjects: company law, corporate governance, corporate social responsibility, economic instrument for the environment, environmental impact, environmental liability, environmental protection, human rights, labour law, value chain

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  EN 

   EUROPEAN COMMISSION  Brussels, 23.2.2022  SWD(2022) 43 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a   DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 {COM(2022) 71 final} - {SEC(2022) 95 final} - {SWD(2022) 38 final} - {SWD(2022) 39 final} - {SWD(2022) 42 final}  
 
 
Executive Summary Sheet 

Impact assessment on a proposal for a Directive on sustainable corporate governance 

A. Need for action 

What is the problem and why is it a problem at EU level?  

The  main  problem  addressed  is  the  need  to  reinforce  sustainability  in  corporate  governance  and 
management  systems,  with  two  dimensions:  1)  stakeholder  interests  and  stakeholder-related 
(sustainability)  risks  to  the  company  are  not  sufficiently  taken  into  account  in  corporate  risk 
management  systems  and  decisions;  2)  companies  do  not  sufficiently  mitigate  their  adverse  human 
rights  and  environmental  impacts,  do  not  have  adequate  governance,  management  systems  and 
measures to mitigate their harmful impacts. Problem drivers are market failures, like short-term focus of 
companies  and  directors,  and  regulatory  failures  from  unclear  and  diverging  national  rules  (including 
emerging ones) and ineffective voluntary frameworks. The problem has an EU dimension as companies 
and investors operate across borders, supply chains are transnational and the identified market failures are 
systemic. The problem is expected to grow over time: identification of risks and awareness are expected 
to improve, but change is not expected to be sufficiently quick, even, systemic and wide-spread.  

What should be achieved? 

The general objective is to exploit better the potential of the single market to contribute to the transition 
towards  a  sustainable  economy,  and  to  foster  sustainable  value  creation  and  improve  long-term 
performance  and  resilience  of  EU  companies.  Specific  objectives  are:  clarifying  what  is  expected  from 
directors to fulfil their duty to act in the company’s interest; fostering the integration of sustainability risks 
and  impacts  into  corporate  risk  management;  increasing  accountability  for  identifying,  preventing  and 
mitigating  adverse  impact,  including  in  value  chains;  improving  access  to  remedy;  improving  corporate 
governance practices to better integrate sustainability into directors’ and company decision-making. 

What is the value added of action at the EU level (subsidiarity)?  

Individual  action  of  some  Member  States  could  not  satisfactorily  achieve  the  objectives,  due  to  the 
EU/global  dimension  of  the  problem.  EU  rules  have  better  chances  to  mitigate  short-term  pressures  on 
companies.  New  EU  rules  would  build  on  the  existing  EU  corporate  governance  framework.  EU 
intervention can ensure a strong EU voice globally. 

B. Solutions 

What are the various options to achieve the objectives? Is there a preferred option or not? If not, 
why? 

Options  were  considered  mainly  for  corporate  due  diligence  duty  and  directors’  duties.  Non-regulatory 
options  were  discarded  as  they  have  proven  not  to  be  effective  and  efficient.  On  due  diligence,  certain 
regulatory  options  (e.g.  duty  or  liability  limited  to  value  chain  first  tier)  were  also  discarded  due  to 
ineffectiveness.  Retained  options  vary  in  overall  approach  (sectoral  –  horizontal)  and  personal  scope.  A 
preferred package of options, which complement each other, is proposed.  As regards corporate due 
diligence, a horizontal due diligence duty would be introduced for large limited liability companies (LLC) 
(defined  by  two  possible  alternative  sets  of  employee  number  and  turnover  criteria)  combined  with  a 
simplified  regime  targeting  most  salient  issues  for  medium-sized  and  midcap  LLCs  in  sectors  where 
environmental and human rights adverse impacts are more likely to occur (high-impact sectors). EU rules 
on harmonised civil liability and administrative enforcement would support this. Third-country companies 
generating  significant  turnover  in  the  EU  will  be  included.  On  directors’  duties,  the  preferred  option 
would clarify in a harmonised manner the general directors’ duty to act in the company’s best interest for 
all  LLC  (regulated  in  national  company  laws).  This  would  be  underpinned  by  some  specific  directors’ 
duties (e.g. relating to  risk management, or stakeholder engagement) for large  companies  and phased in 

 
 
for high-impact medium-sized LLCs and listed SMEs. Directors’ duties implementing the corporate  due 
diligence obligation apply to the same companies as that obligation. Additional specific directors’ duties 
relating to strategy setting with science-based targets would apply to large companies with more than 1000 
employees. A  general  clause that  remuneration  should facilitate or  at  least  not  hinder compliance with 
the new rules would complement this.  
What are different stakeholders' views? Who supports which option?  

The consultative activities, in particular the public consultation  yielding almost half a million responses, 
show  overall  support  for  the  objective  for  EU  action  and  the  majority  of  the  proposed  actions.  On 
directors’  duties,  the  majority  of  respondents  across  stakeholder  groups  recognized  the  need  for 
companies  and  directors  to  take  account  of  stakeholders`  interests  in  corporate  decisions,  especially  as 
regards integrating sustainability into corporate strategy, with the largest support from NGOs, followed by 
individual companies and business associations. Those latter express concern on setting measurable targets 
and  balancing  the  interests  of  all  stakeholders.  On  corporate  due  diligence,  all  stakeholder  groups 
confirm  with  vast  majority  the  need  for  a  horizontal  EU  legal  framework,  providing  for  harmonisation, 
level playing field and legal certainty. There is overall support for an ambitious approach as regards the 
content of a due diligence duty, along the lines of the preferred option. As regards reducing the burden on 
SMEs, measures such as a toolbox, national helpdesks, capacity-building support, including funding, and 
non-binding  guidelines,  are  considered  effective.  Remuneration  seems  recognized  as  complementary, 
with somewhat limited replies. 
C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise of main ones)?                                     

The  package  of  preferred  options  would  allow  companies  to  improve  financial  performance,  based  on 
different factors such as better risk management, improved operational efficiency and cost savings, better 
resilience, more innovation. Not all benefits will arise immediately, some may manifest in the medium to 
long-term, nor will they arise equally to all companies in the scope. Positive  impacts on human rights, 
including labour rights, and on the environment are expected, also in third countries where supply chains 
are located. The preferred package would be effective in achieving those benefits.  

What are the costs of the preferred option (if any, otherwise of main ones)?                                    

Compliance costs for companies consist of the costs of establishing and operating due diligence processes 
and  procedures,  as  well  as  transition  costs,  i.e.  expenditures  and  investments  necessary  to  change  the 
company’s own operations and value chains to mitigate adverse impacts. Additional cost of reporting to 
the  public  will  be  incurred  only  by  high-impact  non-listed  medium-sized  companies  as  they  are  not 
covered  by  the  Commission’s  proposal  on  the  Corporate  Sustainability  Reporting  Directive.  Estimated 
direct compliance costs taking into account the number of companies affected amount to one-off costs of 
EUR 500 to 680 million, and EUR 1.72 to 2.37 billion recurrent (annual) costs (depending on the selected 
employee number / turnover criteria to define large companies covered by full due diligence rules). Some 
companies  (subsidiaries,  value  chain  partners)  that  are  not  under  the  scope  of  the  initiative  would  bear 
indirect  (trickle-down)  costs.  Directors’  duties  will  imply  a  one-off  cost  of  EUR  445 million,  while  the 
cost impact of remuneration is very limited. 

What are the impacts on SMEs and competitiveness?  

Under  the  preferred  package,  small  and  micro  companies  are  excluded  from  due  diligence  measures; 
medium-sized and midcap companies are only covered when active in particularly high-impact economic 
sectors with  more targeted obligations and phased-in.  As described, an indirect  effect  is  expected  on all 
companies that are part of value chains; the preferred package therefore includes measures to prevent that 
the burden of compliance is put on SME value chain partners, while additional support measures will also 
help minimise the costs for SMEs. Overall,  the preferred option should lead to improvements in company 
resilience, long-term performance  (see “Benefits”), in particular in the mid to long-term, bringing about 

 
 
similar benefits at the level of the economy. As the cost impact is relatively low compared to the revenue 
of  companies,  no  significant  negative  distortions  are  expected  as  regards  the  competitiveness  of  EU 
companies  in  global  markets  and  the  mid  to  long-term  competitiveness  impacts  are  expected  to  be 
positive.   

Will there be significant impacts on national budgets and administrations?  

Under the preferred option, the total supervisory costs for the public administration in all Member States 
would  amount  to  a  one-off  cost  of  EUR 0.13  million  and  an  annually  recurrent  cost  of  EUR 7.86  to 
11.2 million  (depending  on  the  selected  employee  number  /  turnover  criteria  to  define  large  companies 
covered  by  full  due  diligence  rules).  These  calculations  apply  to  the  risk-based  supervisory  review  as 
regards  due  diligence  compliance.  No  additional  supervisory  costs  are  expected  for  the  directors’  duties 
and  remuneration  part.  Member  States  may  also  incur  some  low  additional  enforcement  costs  from 
litigation.  

Will there be other significant impacts?  

Due  to  the  global  outreach  via  value  chains,  third-country  companies  and  economies  will  be  affected. 
Positive  effects  are  expected  on  human  rights  and  the  environment,  and  on  local  communities,  through 
increased  stakeholder  awareness,  improved  sustainability-related  practices,  increased  adoption  of 
international standards in developing nations, better access to remedy for victims, sustainable investment. 
Potential negative impacts include: compliance costs on third-country companies, and subsequent moving 
of producers from third countries to uncontrolled product markets; the risk of companies switching to less 
risky suppliers. Mitigation measures are described. 

Proportionality?  

The  proposed  measures  do  not  go  beyond  what  is  necessary  to  address  the  drivers  and  achieve  the 
objectives of the initiative. Burden on companies stemming from compliance costs, has been adapted to 
the size and resources available to the company, and the risk profile (see also on impacts on SMEs above). 

D. Follow up 

When will the policy be reviewed?  

5 years after transposition, taking account of the time needed for application and data collection.