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
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) 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}  
 
 
TABLE OF CONTENTS 

1.  FINDINGS  OF  THE  SECOND  OPINION  OF  THE  REGULATORY 

SCRUTINY BOARD ..................................................................................................... 1 

2.  THE PROBLEM AND ITS EVOLUTION ................................................................... 1 

Increasing uptake of sustainability practices and shortcomings .......................... 2 

2.1. 
2.2.  Links  with  other  regulatory  due  diligence  measures  and  with  Green  Deal 

2.3.  Links  with 

measures ............................................................................................................... 3 
international  conventions, 
development support measures ............................................................................ 5 

trade  policy  and 

relevant 

3.  CHANGES TO THE PREFERRED 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 IMPACTS .................................................................................... 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 
Impact on competition ........................................................................................ 25 
4.5. 
Impact on competitiveness ................................................................................. 27 
4.6. 

LIST  OF  HUMAN  RIGHTS  AND  ENVIRONMENTAL  DUE 

DILIGENCE OBLIGATIONS ..................................................................................... 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 ADDRESSED ....................... 42 

EN 

  EN 

 
 
 
 
 
 
 
1. 

FINDINGS OF THE SECOND OPINION OF THE REGULATORY SCRUTINY BOARD 

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  nevertheless  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  (SMEs), 
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  realisation  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 EVOLUTION 

This  section  responds  to  the  Board’s  recommendation  to  specify  better  the  problem 
definition  and  present  a  more  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 

1 

EN 

 
 
 
                                                           
4.1. 

Increasing uptake of sustainability practices 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  expected  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 chain 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 setting, 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 members, and only 30% participated in EU-funded 
sustainability  projects.  See  2021  European  Sustainable  Industry  Barometer  –  Assessing  the  maturity  and 
integration  of  sustainability  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  materials  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 companies 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  implementation  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 

2 

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 European 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. 
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.  

It  also  contributes 

to 

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  Proposal  (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 specific 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 related 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) 2017/821 of the European Parliament and of the Council of 17 May 2017 laying 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 

3 

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 requirements 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  sustainability  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 rules 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 value 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  the  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  Strategy, 
especially  the  proposal  for  a  Corporate  Sustainability  Reporting  Directive,  the 
Sustainable  Finance  Disclosures  Regulation  and  the  Taxonomy  Regulation,  they  will 
have concrete impact in some areas and might raise awareness about external impacts 
of companies’ operations in others.  

This initiative will further contribute to the goals of the European Green Deal, as it 
covers  a  broad  range  of  environmental  adverse  impacts,  which  companies  will  be 
expected  to  effectively  mitigate,  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 

4 

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 products, 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  international 
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 to 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 Biological 
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  differences  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 

5 

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  sustainability  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 the 
value chain. 

3. 

CHANGES TO THE PREFERRED 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  proportionality,  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 personal 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 

6 

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 
incorporate 
itself,  (ii)  to  manage  such  sustainability  risks,  (iii)  to 
stakeholders’ 
interest  and  sustainability  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  companies  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 more than 1000 employees. 

the  preferred  option  also 

Finally, 
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 climate 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  the  best  interest  of  the  company.  The  harmonised  directors’  duties  include  the 

EN 

7 

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 stakeholders’ 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  to  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 obligations cover human rights14 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 obligations 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  position  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 rights 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  principles  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 

8 

EN 

 
 
 
                                                           
As  regards  environmental  adverse  impacts,  the  Annex  (Part  II)  identifies  relevant 
violations  of  internationally  recognized  objectives  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  long-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  attention  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  have  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  obligation  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  due  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; 
Convention 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  substances  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 

9 

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,  companies  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 that 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  company  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  companies 
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).  Furthermore,  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  Rights,  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 

10 

EN 

 
 
 
                                                           
that  have  the  required  influence  and  also  the  corresponding  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  because  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  size 
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  liability  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 limited 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 
tackling  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 

11 

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 
currently 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 securities 
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 covers 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 different 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,  as  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  covered  in  the  proposal  is 
summarised in the following table: 

23 For instance, the  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 the 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  liability  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 fabricated 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 retail sector are excluded for the purposes of these calculations.   

EN 

12 

EN 

 
 
 
                                                           
Number of companies 
Group 1 
Group 2 (100%) 
Total number of EU companies directly 
under the scope 
Total  number  of  EU  companies 
incurring  incremental  compliance  costs 
(i.e. accounting for group effect) 

Option 3a 
23 300 
46 700 

Option 3b 
9 400 
49 500 

Proposal 
9 400 
3 400 

70 000 

58 900 

12 800 

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 firms 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 used 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 takes 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 
categories, 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 data. Depending on the data source for the U.S. firm-level data, the model can 
be  also  be  estimated  for  2019,  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 EUR 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 profit 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  million  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  American  Business 
Chamber and also by using data on foreign direct investment flows and international investment positions. 

EN 

13 

EN 

 
 
 
 
 
                                                           
4.7.  Enforcement mechanism 

The Board considered that policy options not including civil liability regime should have 
been  assessed  as  “stakeholders  consider  administrative  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  an  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. 

that 

civil 

liability 

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 
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 generic civil liability rules that 
remain applicable in case of the violation of a protected right. 

applicable,  while 

rules 

are 

Moreover, access to effective remedy for the victims is a core component of the UN 
Guiding  Principles  on  Business  and  Human  Rights  (UNGPs).  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 the 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 rules 
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 while 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 enforcement 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 

14 

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  besides  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  the  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  conditions,  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 defined 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  Business  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 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. 
35 For the sake of clarity, the provision on civil liability in the proposal will not give stakeholders 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  relationships  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 

15 

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 it 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 
impact, 

-  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  before  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,  the  civil  liability  regime  is 
complemented by a provision according to which the liability provided for in provisions 
of national law transposing the relevant provision on 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 

16 

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 assessment 

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 
incremental 
comprise 
administrative costs.40  

incremental  substantive  compliance  costs  and 

the 

the 

Substantive compliance costs consist of two main elements: (i) the “procedural costs”, 
i.e. costs 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 are 
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 Sustainability 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 with 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/Tasks/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 classifying 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 prepared for the implementation of 
the One In One Out Principle. 

EN 

17 

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” principle. 

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: 

compliance 

Aggregated 
for 
EU 
(without transition costs), in EUR 
  recurrent 
  one-off 

costs 
companies  

compliance 

Aggregated 
for 
non-EU 
(without transition costs), in EUR 
  recurrent 
  one-off 

costs  
companies  

Option 3a 

Option 3b 

Proposal 

2.37 bn 
0.68 bn 

1.72 bn 
0.50 bn 

0.76 bn 
0.22 bn 

Option 3a 

Option 3b 

Proposal 

Not calc. 
Not calc. 

Not calc. 
Not calc. 

0.24 bn 
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  public  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 incurred 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 

18 

EN 

 
 
 
 
 
                                                           
 
Total  supervisory  costs  in  EU,  
in EUR 
  recurrent (EU companies) 
11.24 mn 
  recurrent (non-EU companies)  Not calc. 
0.13 mn 
  one-off 

Option 3a 

Option 3b 

Proposal 

7.86 mn 
Not calc. 
0.13 mn 

4.42 mn 
1.13 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 companies. 
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, hotlines, 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 sustainability 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 diligence also with regard to their value chains. 

EN 

19 

EN 

 
 
 
 
                                                                                                                                                                            
Taking into account the various impacts, the revised preferred option allows for reducing 
business’  compliance  costs  substantially  and  also  for  lowering  the  supervisory  costs, 
while  only  decreasing 
the  beneficial  human  rights  and 
environmental impacts of the initiative to a relatively 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. 

the  effectiveness  and 

4.10.  Impacts on third countries 

The  proposal’s  scope  covers  certain  non-EU  companies  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  coherence  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  important  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  attain  such  objectives.  It  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 chains.  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 shown 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  companies  having  adverse  impacts  in  third  countries  can  be  found  in  the  Impact 
Assessment Annex 11. 
47  E.g.  Nestlé’s  Child  Labour  Monitoring  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  has  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,  the  risk  of  serious  injury  was  reduced,  and  the  negative 
environmental impact of suppliers brought down. Tesco monitors in key sourcing countries 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  of  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 

20 

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, to 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  enough  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  in  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 operation 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  tables54  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  the  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 identify 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 spinning 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  conducting  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 

21 

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 
United States 
Brazil 
Canada 
Russia 
Ukraine 
United Kingdom 
South Africa 
Indonesia 
Malaysia 
Chile 
Norway 
Turkey 
Peru 
Australia 
Switzerland 
Mexico 
India 
Argentina 

Share  of  imports 
by partner (%) 

Food, drinks and tobacco 
(27%  of  all  extra-EU 
commodities) 

imports  of 

Share  of  imports 
by partner (%) 

12.0 
9.9 
7.2 
6.2 
6.2 
4.8 
4.5 
4.4 
2.7 
2.3 
2.2 
2.2 
2.0 
1.8 
1.7 
1.4 
1.3 
1.2 

United Kingdom 
Brazil 
United States 
Norway 
Turkey 
Switzerland 
Argentina 
  Morocco 

Côte d'Ivoire 
Ukraine 
Vietnam 
Peru 
Ecuador 
South Africa 
Chile 
India 
Russia 
Canada 
Colombia 
Thailand 
Costa Rica 
New Zealand 
Serbia 
Ghana 
Indonesia 

14.0 
7.3 
6.2 
5.9 
4.2 
3.8 
3.5 
3.1 
3.0 
2.7 
2.6 
2.3 
2.2 
2.0 
1.9 
1.8 
1.5 
1.5 
1.5 
1.4 
1.3 
1.2 
1.1 
1.1 
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 contribute 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  manufacturing  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 business 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  green  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 

22 

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 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  and  through 

industry schemes and multi-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  important  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 cannot 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  implementation. 
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 

23 

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  countries,  thereby  helping  tackle  the  root 
causes  of  systemic  issues.  It  can  also  help  compliance  of  third-country  companies,  by 
building  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. 

the  Commission’s  assessment,  cooperation  on  due  diligence  pursuing  a 
In 
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  behaviour. 
This  is  being  clarified  in  the  ongoing  revision  of  the  two  Horizontal  (Research  & 
Development  and  Specialisation)  Block  Exemption  Regulations  and 
the 
accompanying 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 
sustainability  standards.  The  guidelines  will  contain  a  safe-harbour  for  sustainability 
(voluntary  and  non-discriminative 
standards,  based  on  procedural  conditions 
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 

24 

EN 

 
 
 
                                                           
attempt  to  acquire  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 more 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 corporate 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 
turnover 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 control 
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 empirical 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  to  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 competitiveness 

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 terms 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  integration  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 

25 

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  as  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  transition  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  management  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 costs.  

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 
investment  opportunities,  and  because 
products, 

technologies,  processes,  and 

EN 

26 

EN 

 
 
 
sustainability will most likely determine, as a factor, the success and profitability of 
companies  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 risks 
(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 that 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  competitive  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 legislation 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  suggest  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 annexes of the impact assessment report, p. 63. 

EN 

27 

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 Article 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  treatment  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  unlawful  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, conscience 
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  reasonable 
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  education  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 

28 

EN 

 
 
 
   
moved  illegally  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 Convention 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  carried  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 offered 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 Forced 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  prohibition  of  disregarding  the  freedom  of  assembly  and 
association in  accordance with Article 20 of the  Universal  Declaration of Human 

EN 

29 

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 the 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; 
the right to strike and the right to collective bargaining; 

d) 

16.  Violation  of  the  prohibition  of  unequal  treatment  in  employment,  unless  this  is 
justified  by  the  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  

impairs the natural bases for the preservation and production of food or 

a) 
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  International  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 land, 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  lands,  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 prohibition 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 

30 

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 

31 

EN 

 
 
 
 
 
2. 

Human rights and fundamental freedoms conventions 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Universal Declaration of 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  Elimination  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  Rights  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 Collective 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) 

– 

– 

Equal Remuneration Convention, 1951 (No. 100) 

Discrimination  (Employment  and  Occupation)  Convention,  1958 
(No. 111)  

EN 

32 

EN 

 
 
 
 
PART II 

VIOLATION  OF  INTERNATIONALLY  RECOGNIZED  OBJECTIVES  AND  PROHIBITIONS 
INCLUDED IN ENVIRONMENTAL CONVENTIONS 

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;  

Violation  of  the  prohibition  to  import  or  export  any  specimen  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. 

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); 

Violation  of  the  prohibition  of  the  use  of  mercury  and  mercury  compounds  in 
manufacturing processes within the meaning 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; 

Violation  of  the  prohibition  of  the  treatment  of  mercury  waste  contrary  to  the 
provisions of Article 11 (3) of the Minamata Convention; 

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),  in  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); 

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; 

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; 

 Violation  of  the  prohibition  of  the  production  and  consumption  of  specific 
substances that deplete the ozone layer (i.e., CFCs, Halons, CTC, TCA, BCM, 
MB,  HBFCs  and  HCFCs)  after  their  phase-out  pursuant  to  the  Vienna 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

EN 

33 

EN 

 
 
 
10. 

Convention for the protection of the Ozone Layer and its Montreal Protocol on 
substances that deplete the Ozone Layer;  

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. 

ii. 

iii. 

iv. 

to  a  party  that  has  prohibited  the  import  of  such  hazardous  and  other 
wastes (Article 4 (1) (b) of the Basel Convention), 
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), 
to  a  non-party  to  the  Basel  Convention  (Article  4  (5)  of  the  Basel 
Convention), 
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. 

12. 

Violation  of  the  prohibition  of  the  export  of  hazardous  wastes  from  countries 
listed in Annex 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); 

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 

34 

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  the 
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  corporate  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,  has  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 due 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 
sustainability,  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  some 
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 for 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 

35 

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 would 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, compliance 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 

Comments  

Which  stakeholder  group  is 
the recipient of the benefit? 

Direct benefits 

Adverse  human  rights, 
health 
social 
and 
impacts  are  reduced, 
and  value  creation  by 
companies 
becomes 
more 
sustainable, 
responsible and fair. 

including 

Actual and possible victims of 
adverse human rights impact of 
the 
companies, 
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. 

the 

due 

diligence 

reduction  of  human 

Actual  and  possible  victims  will  benefit 
from 
rights 
violations as a result of two factors: (1) the 
corporate 
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  adverse  human  rights 
impact  directly,  including  due  to  reduced 
to  possible 
financial 
litigation. 

related 

risks 

and 

impacts  on 
Adverse 
biodiversity, 
climate, 
the 
pollution, 
environment 
more 
broadly  are  reduced, 
and  value  creation  by 
becomes 
companies 
more 
sustainable, 
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 
the 
company’s value chains and the 
company’s  other  stakeholders, 
will  directly  benefit  from  such 
an impact.  
In  addition,  the  company  itself 
will also reap benefits directly. 

along 

Similarly  to  human  rights  impacts,  benefits 
are  expected  to  arise  due  to  both  the 
requirement  to  stop  harmful  activities  or 
mitigate  actual  and  potential  adverse 
impacts,  and 
the  preventive  effect  of 
victims’ improved access to remedy. 
itself  will  also  benefit 
The  company 
directly,  including  due  to  reduced  financial 
risks related to possible litigation. 

Access  to  remedy  for 
victims  of  human  rights 
of 
violations 
environmental 
harm 
improves. 

and 

of 

human 

Victims 
rights 
violations and of environmental 
damage,  including  those  that 
take  place  in  the  value  chains 
located  in  the  EU  and  in  third 

EN 

36 

EN 

 
 
 
 
I. Overview of Benefits (total for all provisions) – Preferred Option 
Description of benefit 

Comments  

Which  stakeholder  group  is 
the recipient of the benefit? 

countries  will  directly  benefit 
from this. 

long-term 

Medium  to 
competitiveness, 
resilience  and  viability 
company 
of 
the 
(economic 
improves 
sustainability). 

but 

The company itself will benefit 
directly, 
other 
stakeholders,  including  owners 
(shareholders or members), will 
also benefit (indirectly). 

all 

face 

in  relation 

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 
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  benefits  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 
environmental 
consequences  of  those  decisions  and  their 
likely consequences in the long term, which, 
among 
proper 
management  of  sustainability-related  risks 
and  dependencies  on  natural  and  human 
capital.  

involves 

others, 

rights, 

and 

the 

This  will  directly  benefit  the 
company. 

Better  medium  to  long-
term  competitiveness  in 
global  markets  (beyond 
to 
EU) 
the 
benefitting 
first 
mover’s advantages. 

due 
from 

low, 

remain 

relatively 

As  additional  company-level  costs  per 
revenue 
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  global  demand  for  sustainable 
first-movers  benefits 
products.  Further 
include:  securing  access 
resources, 
technology, gaining economies of scale vis-
à-vis competitors that later  market entrants, 
etc. 

to 

Indirect benefits 

Sustained 

financial  The 

company’s 

owners  These  benefits  derive  form  the  fact  that 

EN 

37 

EN 

 
 
 
I. Overview of Benefits (total for all provisions) – Preferred Option 
Description of benefit 

Comments  

Which  stakeholder  group  is 
the recipient of the benefit? 

return  on 
over 
a 
horizon. 

investment 
time 

longer 

or 

(members 
shareholders, 
including  financial  investors), 
will directly benefit from this. 

improved 

companies  with 
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, 
sourcing 
sustained 
opportunities 
and 
continued access to after-
sales 
for 
customers  etc.,  problem-
free  repayment  of loans 
(or  profitable  return  on 
bonds), etc. 

services 

their 

In  addition  to  direct  positive 
impacts,  employees,  suppliers 
(and 
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. 

resilience, 
Improved 
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. 

Better 
working 
conditions and increased 
environmental 
standards  and  respect 
for human rights 

Faster 
more 
and 
systematic  transition  to 
a  sustainable,  i.e.  green 
and  fair  economy  and 
society 

standards 

Third  countries,  in  particular 
regarding 
where 
working  conditions  and  respect 
by  companies  for  human  rights 
lower, 
the  environment  are 
will, 
benefit 
in 
indirectly. 

general, 

entire 

economy 

On  the  top  of  direct  benefits, 
the 
and 
society,  including  current  and 
future  generations  of  people 
in  the  EU  and  around  the 
world will benefit indirectly. 

is 

the 

indirect  effect 

This 
result  of 
companies’  longer  term  competitiveness, 
resilience  and  viability:  companies  that 
remain  successful  over  the  medium  and 
long run are likely to continue employing 
the  workers, 
their 
purchasing 
from 
their  products  and 
suppliers,  providing 
services to their clients, including reparation 
etc., service their loans (or bond payments), 
etc.  Their 
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.  

sustained  contribution 

to 

in  medium 

The cumulative medium to long-term net 
benefits  for  companies  are  expected  to 
result 
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, 
to 
sustainability-related  shocks,  as  well  as 
impact  mitigation  will  all  contribute  to  this 
impact. 

resilience 

improved 

and 

climate 

Reduced 
environmental 
footprint,  better  respect  for  human  rights, 
diminishing  adverse  health  and  social 
impact  on  workers  and  other  people  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 

38 

EN 

 
 
 
 
 
 
 
II. Overview of costs – Preferred option 

/ 
Citizens 
Consumers 

Businesses 

Administrations 

Rec.  One-off 

Recurrent 

One-off 

Recurrent 

One-
off 

Direct 
adjustment 
costs 

N/A  N/A 

Direct 
administrative 
costs 

N/A  N/A 

N/A 

N/A 

EUR  760  million 
for  EU  companies 
and 
EUR  240  million 
non-EU 
for 
companies 

No other additional 
is 
recurrent  cost 
expected. 

EUR  220  million  for 
EU  companies  and 
EUR  70  million  for 
non-EU companies 

+  Cost  of  transition 
to  sustainability  (not 
but 
quantified, 
and 
qualitative 
quantitative 
examples  with  cost 
ranges  are  given  in 
impact 
the 
assessment) 

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 
the 
necessary  data  collection,  data  analysis, 
documentation  etc.  costs  have  already 
been counted as a direct compliance costs 
under that proposal. 

reporting  and 

related 

to 

N/A 

N/A 

Direct 
regulatory 
fees 
charges 

N/A  N/A  N/A 

and 

N/A 

N/A 

N/A 

EUR  0.13 
million 

EUR  5.55 
million 

N/A 

N/A 

Direct 
enforcement 
costs 

N/A  N/A  N/A 

N/A 

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 
to 
costs  could 
companies  (including  SMEs)  which  are 
not  under  the  scope  but  belong  to  the 
value  chain  of  companies  which  are 
themselves 
proposal 
covered.  The 
includes  safeguards  to  minimise  such 
impacts on SMEs. 

trickle  down 

still 

Any  direct  or 
indirect costs 

included 

N/A  N/A  The costs of directors’ duties linked to the 
corporate  due  diligence  obligations  are 
already 
the  cost  of  due 
in 
diligence  above.  Directors  or  companies 
will  not 
incur  any  substantial  other 
additional costs as a result of harmonising 
other  directors’  duties:  these  costs  should 
remain minimal and can even be regarded 
as part of business as usual. 

N/A 

N/A 

e
c
n
e
g
i
l
i
d
e
u
d
e
t
a
r
o
p
r
o
C

s
e
i
t
u
d
’
s
r
o
t
c
e
r
i
D

EN 

39 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
n
o
i
t
a
r
e
n
u
m
e
r

’
s
r
o
t
c
e
r
i
D

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 

N/A  N/A  EUR  220  million  for 

EUR  760  million 
for EU companies  

Direct 
adjustment 
costs  

Indirect 
adjustment 
costs 

Admin.  costs 
(for 
offsetting) 

EU companies  
+ 
Cost  of  transition  to 
sustainability 
(not 
quantified) 

the 

N/A  N/A  Some  indirect  compliance  costs  deriving 
from 
for 
trickle-down 
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). 

effect 

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 
data 
the 
collection,  data  analysis,  documentation 
etc.  costs  have  already  been  counted  as  a 
direct  compliance  costs  under 
that 
proposal. 

necessary 

and 

(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 
costs;  
calculation 
(3) One-off costs for companies are not immediate costs and can be spread across several years;  

calculating 

firm-level 

method 

of 

EN 

40 

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 (forming the basis of the legislative proposal) and in this Staff Working Document 
(SWD) accompanying the legislative proposal.  

RSB 

comments 

General 
(i.e. summary of main findings) 
(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. 

Description of how the general comments of 
the RSB have been addressed 
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 improving 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;  

information  on 

-  more 
links  with 
international  obligations,  trade  policy  and 
development  support  measures  and  impact  of 
trade and development support measures.  

the 

(2) The  presented  policy  options  remain  too 
limited  in  scope.  Key  policy  choices  are 
not identified nor fully assessed 

See  more  details  below  under  the  RSB 
specific  comments  No.  1  and  2,  notably 
regarding the problem definition. 

for  companies.  The 

The narrative and preferred option put forward 
by  the  impact  assessment  were  reviewed 
following the second opinion from the Board. 
As  a  result,  the  proposal  sets  out  a  more 
focused  and 
targeted  due  diligence 
impact 
obligation 
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  fragmentation  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 

41 

EN 

 
 
 
   
General 
(i.e. summary of main findings) 

RSB 

comments 

legislative 

Description of how the general comments of 
the RSB have been addressed 
proposed 
text  have  been 
significantly  reviewed  and  revised,  leaving 
out  part  of the  directors’  duties and  of  the 
rules  on  directors’  remuneration  (apart 
from  the  obligation  to  take  into  account  the 
emission 
setting 
reduction  plan  when 
directors’  variable  remuneration).  For  more 
details  about  directors’  duties  not  retained, 
please  see  the  response  to  specific  comment 
No.  3.  The  legislative  proposal  now  focuses 
on  external 
impact  mitigation  through 
value  chain  due  diligence  and  only  covers 
the  general  duty  of  directors  to  take  into 
account  the  consequences  of  their  decisions 
for  sustainability  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 regards due diligence are the 
followings:  

the 

impact  assessment. 

-  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 
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 most 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 
to  define  high-impact 
changed  approach 
sectors  and 
increase  of  applicable 
the 
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 

42 

EN 

 
 
 
General 
(i.e. summary of main findings) 

RSB 

comments 

(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. 

(4) The 

report  does  not 

sufficiently 
demonstrate  the  proportionality  of  the 
preferred option. 

Description of how 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  options  in  terms  of 
scope  and  enforcement.  Please  see  also  the 
follow-up to the Boards specific comments No 
3 to 11. 

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  designing  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. 

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 
their  business 
from 
requirements 
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 
business 
established 
indirect 
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 

43 

EN 

 
 
 
General 
(i.e. summary of main findings) 

RSB 

comments 

Description of how the general comments of 
the RSB have been addressed 
estimated in the impact assessment).  

EN 

44 

EN 

 
 
 
 
 
Specific RSB comments 

(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 sustainability 
practices,  the  report  should  identify,  and 
substantiate  with  evidence,  the  obstacles 
that  may  prevent  companies from  pursuing 
sustainable 
management 
corporate 
practices.  It  needs  to  demonstrate  more 
convincingly  why 
and 
competitive  dynamics  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  practical  effect  in  tackling 
the problems 

the  market 

the 

(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, 
large 
(ii) 
related  measures  already 
number  of 
adopted  and  parallel  regulatory  measures 
being  developed  (including  sectoral  and 
sustainable  product  due  diligence),  (iii)  the 
comprehensive  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 
development support measures. 

(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  requires 
risk  management  and  engagement  with 
stakeholders’ interests. It should justify why 
stand-alone  options  covering  directors’ 
duties  or  due  diligence  requirements  only 
subsequently 
identified  and 
were  not 

in 

How  the  specific  RSB  comments  have  been 
addressed 
To address this comment additional evidence is 
presented 
this  accompanying  document 
(section 2) on why the market and competitive 
dynamics together with the further evolution of 
risk 
companies’  corporate  strategies  and 
management 
considered 
systems 
insufficient.  

are 

As  regards  the  recommendation  from  the 
identify,  and  substantiate  with 
Board 
to 
evidence, 
that  may  prevent 
the  obstacles 
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  arise 
with  respect  to  SMEs  which  have  now  been 
excluded 
this 
the  scope, 
document  does  not  contain  new  analysis  on 
this.     

therefore 

from 

Additional  evidence 
accompanying document on: 

is  presented 

in 

this 

- 

- 

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). 

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 
of 
in 
governance, 
existing 
light 
(UNGPs,  OECD 
standards 
international 
guidelines),  directors’  duties  linked  to  due 
been  maintained.  This 
diligence 

have 

the 

EN 

45 

EN 

 
 
 
Specific RSB comments 

compared with the combination options. 

How  the  specific  RSB  comments  have  been 
addressed 
encompasses  directors’  duties  relating  to 
putting 
in  place  and  overseeing  due 
diligence  processes  and  measures,  including 
their 
integrating  due  diligence 
corporate  policies  and  having  in  place  a  due 
diligence policy. 

into  all 

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. 
interests, 
duty 
to 
dependencies  of 
such 
to 
stakeholder interests;  

stakeholders’ 
the  company 

identify 

-  the  directors’  duty  to  manage  risks  to  the 
company  related  to  those  stakeholders  and 
related  dependencies,  set  up  and  oversee  the 
implementation  of  processes 
to 
management  of  sustainability  risks  to  the 
company;  

related 

- 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  diligence  policy 
options  that  do  not  include  a  civil  liability 
regime  without  providing  evidence  of  their 
apparent  lack  of  effectiveness.  Given  that 
administrative 
consider 
stakeholders 
supervision as the preferred option (and this 
seems a solution also introduced at Member 
State levels), the report should better assess 
feasible  enforcement 
and  compare  all 
options, 
stand-alone 
administrative 
supervision  option.  The 
report should also include more detail on the 
functioning,  efficiency  and  effectiveness  of 
the 
(e.g. 
sanction 
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 

envisaged 

including 

regimes 

a 

accompanying 

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 
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. 

document 

on 

As regards the selected 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 

46 

EN 

 
 
 
Specific RSB comments 

possible overriding mandatory provisions as 
regards  applicable 
law  and  assess  any 
unintended consequences. 

How  the  specific  RSB  comments  have  been 
addressed 
brought to an end or its extent minimised 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 beyond direct suppliers. 

regards  administrative 
proposal  with 

As 
legislative 
explanatory 
comprehensive  details 
sanctions and their functioning.  

memorandum 

as 

sanctions, 
recitals 

the 
and 
contains 
such 

regards 

(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  legislative 
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 
unjustified 
compliance  burden  on  SMEs  in  their  value 
chain.  If  this  comes  with  policy  choices,  it 
should present and analyse alternatives. 

companies 

impose 

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 this accompanying document   

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.  

list  of  high-impact 

Also,  a  new  approach  has  been  adopted  to 
define “high-impact sectors”.  Annex  11  of the 
indicative 
impact  assessment  proposed  an 
“maximum” 
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,  the 
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 
those  effects. 
Additional  support  will  be  provided  through 
development projects in producing countries. 

to  prepare 

for 

EN 

47 

EN 

 
 
 
Specific RSB comments 

(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. 

How  the  specific  RSB  comments  have  been 
addressed 
When having recalibrated the preferred option, 
the  personal  scope  (i.e.  coverage  of  business 
categories)  has  been  better  aligned  with  the 
proposed  Corporate  Sustainability  Reporting 
ensuring 
Directive 
(CSRD) 
proportionality.  Therefore,  while  a 
larger 
number  of  companies  will  be  subject  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. 

while 

Therefore,  full  alignment  with  the  scope  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, 
text  envisages  an 
implementation  report,  to  be  provided  7  years 
after  the  transposition  period,  opening  the 
possibility  to  further  extend  and  align  the 
scope, if necessary. 

legal 

the 

(7) The report should be more precise which 
environmental 
international 
selected 
conventions  should  be 
in  the 
material 
the  due  diligence 
obligations and why. It should ensure that it 
specific  EU 
does  not  unduly  extend 
commitments (e.g. from the Climate Law) to 
third countries. 

scope  of 

included 

The  legislative  proposal  and  the  explanatory 
memorandum  specify  and  explain  which 
violations based on environmental conventions 
are  included  in  the  retained  policy  choice  (for 
example  Minamata  Convention  on  mercury, 
Stockholm  convention  on  persistent  organic 
pollutants,  etc.).  Only  those  environmental 
conventions  were 
that  can  be 
translated into clear obligations for businesses. 

retained 

the 

transition 

As  regards  climate  change,  companies  are 
required  to  adopt  a  plan  to  ensure  that  the 
business  model  and  strategy  of  the  company 
to  a 
are  compatible  with 
sustainable  economy  and  with  the  limiting  of 
global warming to 1.5 °C in line with the Paris 
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  an  assessment  on 
whether  the  Directive  should  be  reviewed  to 
include climate change in due diligence.    

specify  and 

(8)  Regarding  the  inclusion  of  companies 
without  an  EU  establishment,  the  report 
should 
the 
‘adequate  turnover’  threshold  should  be 
(the  annex  mentions  EUR  350  million)  or 
the 
assess  alternative  options 
Commission  enjoys  discretion  on  this.  It 
should make an effort to estimate how many 

justify  what 

in  case 

in 

the 

The  net  turnover  threshold  for  third-country 
companies  covered  by  the  scope  has  been 
specified 
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 

48 

EN 

 
 
 
Specific RSB comments 

foreign  companies  would  be  affected 
respectively,  as  this  is  important  to  assess 
the proportionality 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). 

How  the  specific  RSB  comments  have  been 
addressed 
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. 

interests 

(9)  The  description  of  the  directors'  duties 
to 
should  clarify  how  directors  need 
incorporate 
of 
conflicting 
stakeholders  and  sustainability  aspects.  It 
should clarify whether or not there is a long-
term  interest  of  the  company  that  could 
supersede 
of 
stakeholders  or  beneficiaries  or  particular 
sustainability considerations. 

particular 

interests 

report 

should 

(10)  The 
justify  and 
substantiate  with  evidence  the  need  for  a 
mandatory  science  based  target  for  climate 
change  mitigation  (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. 

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 
their  decisions  on 
the  consequences  of 
sustainability  matters, 
including,  where 
applicable,  human  rights,  climate  change  and 
environmental  consequences,  including  in  the 
short, medium and long term.    

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 
from  due 
climate  change  was  excluded 
diligence  obligations. 
largest 
the 
Instead, 
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 

49 

EN 

 
 
 
Specific RSB comments 

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 
authorities  would  be  ensured,  for  instance 
launching ex-officio procedures or imposing 
sanctions and what role a ‘mechanism of EU 
cooperation/coordination’ would play. 

proposal, 

How  the  specific  RSB  comments  have  been 
addressed 
legislative 
including  which 
supervisor  is  to  act  with  respect  to  third 
country  companies.  Article  18  lays  down  in 
powers, 
detail 
including  as  regards  powers  to  carry  out 
investigations and checks on companies,   

supervisory 

authorities’ 

Concerning  the  supervision  of  third-country 
to 
companies,  Member  States  are 
designate  the  national  authority  they  consider 
that  it  has  more  relevant  experience  to  carry 
out the tasks set out in the proposal. 

free 

Article  21  stipulates  the  framework  for  a 
European Network of Supervisory Authorities, 
including  the  possibility  to  coordinate  within 
in  case  of  doubts  which 
this  network 
supervisory authority is competent to carry out 
investigations 
administrative 
sanctions  vis-à-vis  third  country  companies. 
Comprehensive  explanations  are  provided  in 
the recitals and the Explanatory Memorandum. 

impose 

or 

This  accompanying  document  provides  more 
explanations as regards the expected impacts of 
the  proposed  intervention  on  competition  and 
competitiveness  (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  the  exchange  of 
result  of  vertical 
information,  or  as  a 
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  possible  impacts  on 
companies’ innovation capacity. While there is 
the 
certain  degree  of  uncertainty  about 
materialization  of  all  benefits  projected  in  the 
impact  assessment  for  EU  companies,  the 
design  of  this  initiative  is  such  to  reduce  the 
possibly  negative  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 
suppliers  while  mitigating  adverse 
with 
impacts, 
and 
instead  of  disengagement 
diversification of suppliers.  

in 

(12)  The  report  should  be  more  balanced 
terms  of  presenting 
and  complete 
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  number  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  competition 
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 
potentially 
increased  risk  of  (unsuccessful)  litigation 
could also make EU companies less dynamic 
and agile. 

that  may  arise 

the 

(13)  The  report  should  better  account  for 
potential  negative 
third 
countries,  notably  in  developing  countries, 

impacts 

in 

to 
the 
The  details  about 
unintended  impacts  on  third  countries  are 
this  accompanying  document 
presented 

relating 

risks 

in 

EN 

50 

EN 

 
 
 
Specific RSB comments 

by  being  more  realistic  on  risks  and  costs 
and 
the  contribution  of  potential  soft 
mitigation  measures.  It  should  better  assess 
the  risk  of  ‘sustainability  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  supply  chain  control,  while 
leaving  no  improvement  in  overall  human 
rights and environmental performance. 

How  the  specific  RSB  comments  have  been 
addressed 
(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  mitigation  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.  

in 

leakage 

is  present 

Sustainability 
few 
industry  sectors  but  doesn’t  seem  to  be  a 
widespread  practice  so  far.  As  explained,  the 
continuous 
safeguards 
engagement  and  disengagement  is  only  likely 
for severe adverse impacts such as   in case of 
State imposed forced labour .   

ensure 

aim 

to 

field 
companies, 

(14) Based on a clarification of the personal 
scope, 
the  report  should  assess  more 
thoroughly the impacts of the options on the 
global 
and 
playing 
level 
in 
competitiveness  of  EU 
particular for SMEs in scope. While a large 
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  indicated 
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  should 
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 reduced 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  system  and  EUR 5 000  for  the 
external  validation  of  science  based  targets) 
have  not  been  retained  now  for  the  legislative 
proposal put forward. 

EN 

51 

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 
sustainability 
corporate 
governance rules would fit with the different 
national 
corporate  governance  models 
existing  in  the  EU,  given  the  national  focus 
of company law. 

(16)  While  the  report  provides  greater 
clarity  on  the  substantial  costs  of  the 
initiative,  it  still  does  not  sufficiently  reflect 
the  high  uncertainty  that  the  estimated 
benefits  will  actually  materialise  on  a  scale 
to  outweigh  the  costs.  The  report  should 
the 
therefore 
proportionality 
the 
(preferred)  option(s)  by  reconsidering  the 
arguments for the inclusion of medium-sized 
EU  companies  operating  in  high  impact 
sectors  and  the  broad  scope  of  mandatory 
measures. 

assessment 

improve 

further 

of 

(17)  The  comparison  of  options  in  terms  of 
effectiveness  should  analyse  the  expected 
specific  objectives 
achievement  of 
identified in the objectives section. 

the 

(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 views of SMEs 
should  be  singled  out  to  support  the 
discussion on scope and options. 

the 

national 

different 

Explanations  as  to  how  the  proposed  rules  fit 
with 
corporate 
governance  models  have  been  provided  in  the 
Explanatory  Memorandum.  Overall, 
as 
company  law  is  to  a  large  extent  harmonised 
already,  corporate  governance  models  are 
gradually converging. 

As  explained  above, the  personal scope  of the 
initial  preferred  option  was  considerably 
reviewed  (exclusion  of  SMEs  and  smaller 
midcaps,  reducing  the  number  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  diligence  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 
revised  preferred  option  all 
companies will be able to bear the initial costs 
and  also  enjoy  the  benefits  of  sustainable 
corporate  governance  practices,  which  are 
expected  to  outweigh  the  costs  even  at  the 
company’s level, in particular in the medium or 
long run. 

the 

The comment of the Board concerns the quality 
of  the  impact  assessment.  It  was  decided  to 
provide  utmost  transparency  and  publish  the 
initial 
report  without 
changes.  However,  additional  evidence  and 
explanations 
this 
accompanying document. 

impact  assessment 

presented 

are 

in 

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 
activities 
collected 
consultative 
correspond 
to  overall  companies’ 
views.  

the 
largely 

in 

EN 

52 

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. 

the  proposed 

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 
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. 

changes 

to 

EN 

53 

EN