Background

The European Commission has adopted a proposal for a directive that would require large companies based or operating in the European Union to identify and prevent, end, or mitigate adverse human rights and environmental impacts throughout their supply chains. EU member states would be able to impose fines in case of noncompliance, and victims would have the opportunity to take legal action for damages that could have been avoided with appropriate due diligence measures.

The Commission said that while a number of EU member states have already introduced national rules on corporate due diligence, and some companies have taken measures at their own initiative, “there is need for a larger scale improvement that is difficult to achieve with voluntary action.”

To comply with the new corporate due diligence duty, companies would need to take the following steps.

- integrate due diligence into corporate policies

- identify actual or potential adverse human rights and environmental impacts

- prevent or mitigate potential impacts

- bring to an end or minimize actual impacts

- establish and maintain a complaints procedure

- monitor the effectiveness of the due diligence policy and measures

- publicly communicate on due diligence

The new rules would apply to (1) all EU limited liability companies with 500+ employees and EUR 150 million+ in net turnover worldwide, (2) other EU LLCs operating in defined high-impact sectors that do not meet both group 1 thresholds but have more than 250 employees and a net turnover of EUR 40 million worldwide, and (3) non-EU companies active in the EU with turnover thresholds aligned with groups 1 and 2 above, generated in the EU.

The proposal applies to individual companies’ own operations, their subsidiaries, and their value chains (direct and indirect established business relationships).

The proposal will next be presented to the European Parliament and the European Council for approval. Once it is adopted, EU member states will have two years to transpose the directive into national law.

Sandler, Travis & Rosenberg offers a comprehensive suite of services to help companies address forced labor concerns, including supply chain reviews, due diligence strategies, and proactive remediation. ST&R also maintains a frequently updated web page offering a broad range of information on forced labor-related efforts in the U.S. and around the world and offers an on-demand webinar on forced labor and supply chain transparency. For more information, please contact ST&R at supplychainvisibility@strtrade.com.

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