After Germany has already set national requirements with the German Supply Chain Due Diligence Act (LkSG) last year, the European Commission will now also extend the responsibility of companies for their supply chain. To this end, the draft “Directive on corporate due diligence in the field of sustainability” (COM/2022/71 final) was published on 23 February 2022 to replace the previous EU Directive 2019/1937.
The draft directive sets out new rules for respecting human rights and environmental aspects in global value chains. Companies are to be obliged to identify negative impacts of their activities on the environment and human rights and to take countermeasures in case of such impacts.
Scope and coverage
While the due diligence obligations essentially correspond to those of the German LkSG, the definition of the supply chain in the EU Supply Chain Act is much broader: The entire value chain must be checked for violations of environmental, climate and human rights. Both upstream and downstream activities, including business contacts, must be assessed. In addition, according to the EU draft, it must be ensured that the company follows the standards of the Paris Agreement and thus the climate target of 1.5°C in its business strategy.
Companies with at least 500 employees and an annual turnover of 150 million euros are likely to be affected. In higher-risk sectors (textiles, agriculture, mining), the directive applies to companies with 250 employees and an annual turnover of €40 million. According to the current draft, the transport, construction, energy and finance sectors are not classified as risk sectors.
The introduction of a reporting obligation is also intended to make the evaluation of business relationships and the effectiveness of measures transparent, among other things. Companies that fall under the CSRD are likely to be exempt from the reporting obligation. Violations may result in civil prosecution and liability.
The EU Supply Chain Act will be negotiated in the next step in the European Parliament as well as in the European Council and adapted if necessary. Once the directive has been adopted, it must be transposed into national (German) law within two years and thus the German LkSG must be adapted accordingly.
Contact at Arqum: Nina Schäfer