COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937
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

EN 

  EN 

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

1.  Can the Union act? What is the legal basis and competence of the Unions’ intended action? 

1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative? 

The legal basis of the proposed initiative is Article 50 TFEU and Article 114 TFEU. 

Article  50(1)  TFEU  and  in  particular  Article  50(2)(g)  TFEU  provide  for  the  EU  competence  to  act  in 
order  to  attain  freedom  of  establishment  as  regards  a  particular  activity,  in  particular  “by 
coordinating  to  the  necessary  extent  the  safeguards  which,  for  the  protection  of  the  interests  of 
members and others, are required by Member States of companies or forms within the meaning of 
the  second  paragraph  of  Article 54  TFEU  with  a  view  to  making  such  safeguards  equivalent 
throughout the Union.” This includes in particular coordination measures concerning the protection 
of  interests  of  companies’  shareholders  and  other  stakeholders  with  a  view  to  making  such 
protection equivalent throughout the Union, where disparities between national rules are such as to 
obstruct freedom of establishment. 

Article 114 TFEU provides for the EU competence to “adopt the measures for the approximation of 
the provisions laid down by law, regulation or administrative action in Member States which have as 
their  object the  establishment  and  functioning  of  the  internal  market”.  The  EU legislator  may  have 
recourse  to  Article  114  TFEU  in  particular  where  disparities  between  national  rules  are  such  as  to 
obstruct the fundamental freedoms or create distortions of competition and thus have a direct effect 
on the functioning of the internal market. 

1.2 Is the Union competence represented by this Treaty article exclusive, shared or supporting in 
nature? 

In the case of the internal market, including the freedom of establishment, the Union’s competence 
is shared. 

Subsidiarity does not apply for policy areas where the Union has exclusive competence as defined in 
Article 3 TFEU1. It is the specific legal basis which determines whether the proposal falls under the 
subsidiarity control mechanism. Article 4 TFEU2 sets out the areas where competence is shared 
between the Union and the Member States. Article 6 TFEU3 sets out the areas for which the Unions 
has competence only to support the actions of the Member States. 

2.  Subsidiarity Principle: Why should the EU act? 

2.1 Does the proposal fulfil the procedural requirements of Protocol No. 24: 

-  Has there been a wide consultation before proposing the act? 
- 

Is there a detailed statement with qualitative and, where possible, quantitative indicators 
allowing an appraisal of whether the action can best be achieved at Union level? 

Before  proposing  this  directive,  the  Commission  consulted  widely.  Those  consultation  activities 

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include, in line with the Commission’s Better Regulation rules: 

  The inception impact assessment (roadmap), which received 114 feedbacks;  
  The open public consultation (OPC), which received 473 461 responses from the public, the 
vast  majority  of  which  were  submitted  through  campaigns  using  pre-filled  questionnaires, 
and 149 of which were position papers;  
  A dedicated consultation of social partners;  
  A  number  of  stakeholder  workshops  and  meetings,  e.g.  meeting  of  the  Informal  Company 
Law Expert Group, mainly composed of company law legal academics (ICLEG), meeting with 
Member State representatives in the Company Law Expert Group (CLEG); and 

  Conferences and meetings with business associations, individual businesses, including SMEs 
representatives, civil society, including non-governmental and not-for-profit organisations, as 
well as international organisations, such as OECD. 

In terms of policy measures, the OPC showed strong support for a mandatory horizontal approach to 
due diligence over a sector-specific or thematic approach, although there is variation as regards the 
preferred details of such approach.   

Detailed information on the  consultation strategy and conclusions of the stakeholder consultations 
can be found in Chapter 3 of the Explanatory Memorandum to the proposal  and in  Annex 2 of the 
impact assessment report. 

The Explanatory Memorandum (Chapter 2) and the Impact Assessment (Chapter 3) contain a section 
on the principle of subsidiarity (see question 2.2. below). 

2.2 Does the explanatory memorandum (and any impact assessment) accompanying the 

Commission’s proposal contain an adequate justification regarding the conformity with the 
principle of subsidiarity? 

The text below summarises the arguments presented in Chapter 2 of the Explanatory Memorandum. 

The  objective  of  fostering  companies’  sustainability  transition  with  regard  to  human  rights  and 
environmental  risks  and  impacts,  by  improving    relevant  corporate  governance  practices,  avoiding 
fragmentation  of  relevant  requirements  in  the  single  market  and  creating  legal  certainty  for 
businesses  and  stakeholders,  can  be  better  achieved  at  Union  level  than  through  Member  States 
individual action, for the following reasons: 

  Member  States’  legislation  alone  in  the  area  is  unlikely  to  be  sufficient  and  efficient.  On 
issues as transnational supply and value chains, success of individual action is hampered by 
inaction of other Member States. 

  Many  companies  are  operating  EU-wide  or  globally;  value  chains  expand  to  other  EU 
Member  States  and  increasingly  to  third  countries.  Many  companies  have  cross-border 
ownership  and  their  operations  are  influenced  by  regulations  in  some  countries  or  lack  of 
action in others. Frontrunner companies therefore arguably cannot go as far as they would 
want to in addressing sustainability issues including those in the value chains today and ask 
for a cross-border level playing field. 

  Companies operating across the single market and beyond need legal certainty and a level-
playing  field  for  their  sustainable  growth.  Some  Member  States  have  recently  introduced 
legislation  on  due  diligence  while  others  are  in  the  process  of  legislating  or  considering 
action.  Existing  Member  State  rules  and  those  under  preparation  do  have  or  would  most 
likely lead to diverging requirements, which risk being ineffective and leading to an uneven 
playing field. If due diligence requirements are significantly different among Member States, 
this  creates  legal  uncertainty,  fragmentation  of  the  Single  market,  additional  costs  and 

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complexity  for  companies  and  their  investors  operating  across  borders  as  well  as  other 
stakeholders 

  Compared  to  individual  action  by  Member  States,  EU  intervention  can  ensure  a  strong 

European voice in policy developments at the global level. 

2.3 Based on the answers to the questions below, can the objectives of the proposed action be 

achieved sufficiently by the Member States acting alone (necessity for EU action)? 

(a)  Are there significant/appreciable transnational/cross-border aspects to the problems being 

tackled? Have these been quantified? 

Sustainability  issues  are  of  a  European  and  global  dimension  and  have  cross-border  effects  (e.g. 
transnational supply and value chains, climate change). 

(b)  Would national action or the absence of the EU level action conflict with core objectives of 

the Treaty5 or significantly damage the interests of other Member States? 

National  action  and  the  absence  of  EU  level  action  would  conflict  with  the  Treaty  objective  of 
establishing the  internal market as differing legal frameworks  in Member States in the area of  this 
proposal  lead  to  legal  uncertainty,  fragmentation  of  the  Single  market,  distortion  of  competition, 
additional costs and complexity for companies and their investors operating across borders as well as 
other stakeholders.  

(c)  To what extent do Member States have the ability or possibility to enact appropriate 

measures? 

Member  States’  legislation  alone  in  the  area  of  sustainable  corporate  governance  is  unlikely  to  be 
sufficient and efficient as sustainability problems are of a European and global dimension and have 
cross-border  effects.  Unsustainable  behaviour  of  companies  in  one  Member  State  or  in  third 
countries  affects  other  Member  States.  Many  companies  are  operating  EU-wide  or  even  globally; 
value  chains  expand  to  other  EU  Member  States  and  increasingly  globally.  Many  companies  have 
cross-border ownership and their operations are influenced by regulations in some countries or lack 
of action in others. This is one of the reasons why frontrunner companies arguably cannot go as far 
as  they  would  want  to  in  addressing  sustainability  issues  today  and  ask  for  a  cross-border  level 
playing field.  

(d)  How does the problem and its causes (e.g. negative externalities, spill-over effects) vary 

across the national, regional and local levels of the EU? 

The problem and its causes are present across national, regional and local levels throughout the EU. 

(e)  Is the problem widespread across the EU or limited to a few Member States? 

The need to foster the sustainability transition as regards corporate behaviour and avoid regulatory 
fragmentation in this context is widespread across the EU. 

(f)  Are Member States overstretched in achieving the objectives of the planned measure? 

Measures at Member State level alone would not be able to achieve the objectives of the proposed 

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initiative. A harmonised approach at EU level avoids diverging requirements at national level, which 
risk being ineffective and leading to an uneven level playing field; this also creates legal uncertainty, 
fragmentation  of  the  Single  market,  additional  costs  and  complexity  for  companies  and  their 
investors operating across borders as well as other stakeholders.  

(g)  How do the views/preferred courses of action of national, regional and local authorities 

differ across the EU? 

Corporate  due  diligence  is  enshrined  in  existing  international  frameworks  (United  Nations  Guiding 
Principles  on  Business  and  Human  Rights,  OECD  Responsible  Business  Conduct  Standards),  it  is 
therefore  internationally  recognized  as  the  appropriate  tool  to  mitigate  adverse  human  rights  and 
environmental impacts, including in value chains. As regards mandatory rules, some Member States 
have  recently  introduced  legislation  on  sustainable  corporate  governance  or  due  diligence,  while 
others are in the process of legislating or considering action. Some Member States can be expected 
not to legislative in this field. 

2.4 Based on the answer to the questions below, can the objectives of the proposed action be 

better achieved at Union level by reason of scale or effects of that action (EU added value)? 

(a)  Are there clear benefits from EU level action?  

Yes. The absence of applicable rules as regards sustainability due diligence at the European level puts 
frontrunner  companies  at  a  competitive  disadvantage  and  rewards  unsustainable  behaviour.  This 
situation  hampers  the  necessary  transition  towards  a  sustainability  economy  and  society.  If  due 
diligence  requirements  are  significantly  different  among  Member  States,  this  creates 
legal 
uncertainty, fragmentation of the Single market, additional costs and complexity for companies and 
their investors operating across borders as well as other stakeholders. EU action can avoid this and 
therefore has added value. 

(b)  Are there economies of scale? Can the objectives be met more efficiently at EU level (larger 

benefits per unit cost)? Will the functioning of the internal market be improved? 

Yes. As the addressed sustainability issues are of a European and global dimension and have cross-
border effects, EU level measures will be more efficient. The functioning of the internal market will 
be improved by avoiding fragmentation through differing emerging national frameworks. 

(c)  What are the benefits in replacing different national policies and rules with a more 

homogenous policy approach? 

Businesses need legal certainty, and a harmonised approach in the Internal market. EU level rules are 
expected  to  be  more  efficient  and  allow  to  better  exploit  the  potential  of  the  single  market  to 
contribute to the transition to a sustainable economy. 

(d)  Do the benefits of EU-level action outweigh the loss of competence of the Member States 
and the local and regional authorities (beyond the costs and benefits of acting at national, 
regional and local levels)? 

While  competence  is  shared  between  the  EU  and  the  Member  States  in  the  area  of  the  internal 
market,  including  freedom  of  establishment,  EU-wide  measures  are  necessary  to  effectively  foster 
the  sustainability  transition,  while  avoiding  fragmentation  of  the  internal  market.  As  the  chosen 
instrument is a directive, Member States will be able – by transposing the EU rules into their national 

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laws – to take account of the need for consistency and coherence within the national/regional legal 
systems. 

(e)  Will there be improved legal clarity for those having to implement the legislation? 

It is expected that EU harmonised rules in the area of sustainability due diligence lead to improved 
legal certainty as compared to today’s fragmented legal framework. 

3.  Proportionality: How the EU should act 

3.1  Does the explanatory memorandum (and any impact assessment) accompanying the 

Commission’s proposal contain an adequate justification regarding the proportionality of the 
proposal and a statement allowing appraisal of the compliance of the proposal with the 
principle of proportionality? 

The explanatory memorandum (Chapter 2) contains a section on the principle of proportionality, as 
summarised below. 

The  proposed  measures  do  not  go  beyond  what  is  necessary  to  achieve  the  objectives  of  the 
initiative. In particular, burden on companies stemming from compliance costs has been adapted to 
the size and resources available to the company, and the risk profile. 

  As regards the personal scope of the due diligence obligations, proportionality is ensured as 

follows: 

o  small and medium sized enterprises as well as micro companies  are excluded from 
the  due  diligence  duty.  They  will still  be  exposed  to some  of  the  costs  and  burden 
through business relationships with companies in scope, hence supporting measures 
will be necessary to help them build operational and financial capacity. 

o 

o  very  large  companies  (with  more  than  500  employees  and  more  than  150  Mio 
turnover)  will  be  within  the  scope  of  the  full  due  diligence  obligation.  In  particular 
the  selected  turnover  criteria  will  filter  those  having  the  largest  impact  on  the  EU 
economy. 
regarding  companies  with  lower  turnover  and  less  employees  ,  the  due  diligence 
obligation is limited to larger midcap companies (with more than 250 employees and 
more than EUR 40 million net turnover but not exceeding the 500 employee and EUR 
150 million net turnover thresholds simultaneously) which are  active in particularly 
high-impact sectors covered by existing sectoral OECD guidance. For them, the due 
diligence  obligation  will  be  simplified  as  they  would  only  focus  on  severe  adverse 
impacts and perform the scoping of the risks that is commensurate to the complexity 
of  the  value  chain,  sector,  product  or  geography.  The  due  diligence  obligation  will 
apply to them only 3 years later than to other companies. 

  As  regards  enforcement,  the  Directive  will  provide  for  a  combination  of  administrative 

sanctions and civil liability. 

o  As regards private enforcement through civil liability going beyond harm done at the 
level  of  the  direct  supplier,  the  approach  concerns  only  established  business 
relationships  with  which  a  company  has  regular  and  frequent  cooperation  and 
applies only 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. 
o  The  measures  related  to  public  enforcement  of  the  due  diligence  duty  do  not  go 
beyond what is necessary. The power of public authorities to supervise and impose 

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proportionate pecuniary sanctions in case of non-compliance as provided for in the 
proposal is key to the effective enforcement regime.  

3.2 Based on the answers to the questions below and information available from any impact 
assessment, the explanatory memorandum or other sources, is the proposed action an 
appropriate way to achieve the intended objectives? 

(a)  Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on 

their own, and where the Union can do better? 

Yes, as detailed above in the replies to the sub-questions of question 2.3.  

(b)  Is the form of Union action (choice of instrument) justified, as simple as possible, and 

coherent with the satisfactory achievement of, and ensuring compliance with the objectives 
pursued (e.g. choice between regulation, (framework) directive, recommendation, or 
alternative regulatory methods such as co-legislation, etc.)? 

The proposed instrument is a Directive, since Article 50 TFEU requires the European Parliament and 
the Council to act by means of directives. Consequently, Member States will be able – by transposing 
the  EU  rules  into  their  national  laws  –  to  take  account  of  the  need  for  consistency  and  coherence 
within the national legal systems. 
In order to supplement the  content of the reporting obligations  under the Directive  for companies 
not falling under Directive 2013/34/EU, delegated acts will be adopted. 
In order to provide support to companies or to Member State authorities on how companies should 
fulfil their due diligence obligations, the Commission may issue guidelineson different aspects of the 
proposed directive. 

(c)  Does the Union action leave as much scope for national decision as possible while achieving 
satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimum 
standards or use a less stringent policy instrument or approach?) 

It is not possible to limit the European action further, e.g. to voluntary measures. Using the existing 
international  voluntary  standards  on  responsible  business  conduct  (UNGP,  OEDC  guidance),  an 
increasing number of EU companies are using due diligence as a tool to identify risks in their value 
chains  and  build  resilience,  but  companies  also  may  face  difficulties  when  considering  the  due 
diligence  for  their  activities.  Also  voluntary  standards  do  not  result  in  legal  certainty  for  neither 
companies nor victims in case harm occurs. Finally, voluntary action does not appear to have resulted 
in  large  scale  improvement  across  sectors  and,  as  a  consequence,  negative  externalities  from  EU 
production and consumption are being observed both inside and outside EU. 

(d)  Does the initiative create financial or administrative cost for the Union, national 

governments, regional or local authorities, economic operators or citizens? Are these costs 
commensurate with the objective to be achieved? 

The  proposed  directive  does  not  entail  unnecessary  costs  for  the  Union,  national  governments, 
regional or local authorities. It will leave it up to the Member States how to organise enforcement. 
Administrative  supervision  can  be  carried  out  by  existing  authorities.  To  reduce  the  costs  and 
improve  the  supervision,  coordination,  investigation  and  exchange  of  information  the  Commission 
will  set  up  a  European  Network  of  Supervisory  Authorities.  Supervisory  costs  incurred  under  the 
proposed directive by existing or newly set up public authorities that will be designated by Member 

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States  to  monitor  and  enforce  compliance  have  been  estimated  in  detail  in  the  Staff  Working 
Document  (SWD)  accompanying the  legislative  proposal  (“Follow-up to then second opinion of the 
Regulatory  Scrutiny  Board”)(Section  4.1.),  adapted  from  the  initial  calculations  in  the  Impact 
Assessment (Annex 4). 
Aggregated  direct  compliance  costs  for  EU  businesses  under  the  proposed  directive  have  been 
estimated in the SWD (Section 4.1.), adapted from the initial calculations in the Impact Assessment 
(Annex 4).  
The  expected  estimated  costs  are  commensurate  with  the  objective  to  be  achieved,  as  a  more 
limited EU action is not expected to achieve the objectives and yield the expected results.  

(e)  While respecting the Union law, have special circumstances applying in individual Member 

States been taken into account? 

Existing Member States’ laws in the area of corporate sustainability due diligence, as well as findings 
on  experience  with  them  (e.g.  on  the  French  legislation  on  the  “Devoir  de  vigilance”)  have  been 
thoroughly examined in the preparation of this proposal, as well as the current practices in Member 
States building on the existing voluntary framework. 

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