Negotiators from the European Parliament and European Council have agreed on new corporate due diligence rules for companies based or operating in the European Union.

According to a Parliament press release, the new directive sets obligations for companies to mitigate their negative impact on human rights and the environment such as child labor, slavery, labor exploitation, pollution, deforestation, excessive water consumption, or damage to ecosystems. Companies will have to identify, assess, prevent, mitigate, bring to an end, and remedy their negative impact and that of their upstream and downstream partners, including production, supply, transport and storage, design, and distribution, “on people and the planet.”

Toward this end companies will be required to make investments, seek contractual assurances from their partners, improve their business plans, or provide support to their partners from small and medium-sized enterprises. They will also have to meaningfully engage with those affected by their actions, introduce a complaints mechanism, communicate their due diligence policies, and regularly monitor their effectiveness.

The press release states that these obligations will apply to the following.

- EU companies and parent companies having more than 500 employees and a worldwide turnover higher than €150 million

- companies with over 250 employees and a turnover of more than €40 million if at least €20 million are generated in one of the following sectors: manufacture and wholesale trade of textiles, clothing, and footwear; agriculture, including forestry and fisheries; manufacture of food and trade of raw agricultural materials; extraction and wholesale trade of mineral resources or manufacture of related products; and construction

- non-EU companies and parent companies with equivalent turnover in the EU

Each EU country will monitor compliance with these obligations and will be able to launch inspections and investigations and impose penalties on non-compliant companies, including “naming and shaming,” fines of up to five percent of the company’s net worldwide turnover, and using compliance as part of the award criteria for public and concession contracts. In addition, victims will have the opportunity to take legal action for damages that could have been avoided with appropriate due diligence measures.

According to the press release, the agreed draft law must be formally approved by the Legal Affairs Committee and the European Parliament as a whole, as well as the EU Council, before it can enter into force.

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