In the following, we focus on the main changes that JURI wants to see included in the Due Diligence Directive and which will thus form part of the European Parliament's proposal in the upcoming tripartite negotiations between the European Commission, the European Parliament and the Council of the European Union (the "Council"), if adopted at the upcoming plenary session.
The European Commission presented the proposed Due Diligence Directive in February 2022. In December 2022, the Council adopted a compromise text in the context of its general position, which you can read more about in this article: The Due Diligence Directive - corporate sustainability due diligence.
Expanding the scope
The scope of the Due Diligence Directive is one of several important points that JURI proposes to change compared to the European Commission's original proposal and thereby also the Council's compromise text.
More specifically, JURI's proposal significantly expands the scope of the Due Diligence Directive to cover more companies. The following companies are proposed to be covered:
- EU companies with more than 250 employees and a global net turnover exceeding EUR 40 million, as well as parent companies of a group with more than 500 employees and a global net turnover of EUR 150 million.
- Third-country companies with a global net turnover exceeding EUR 150 million, if at least EUR 40 million has been generated in the EU, as well as third-country parent companies of a group with more than 500 employees and a global net turnover exceeding EUR 150 million, if at least EUR 40 million has been generated in the EU.
JURI proposes a phasing-in model along the same lines as presented in the Council’s compromise text.
Risk-based due diligence but maintaining the "value chain" concept
JURI introduces the same risk-based approach to due diligence as proposed by the Council in its compromise text, while strengthening the rules on prioritisation of negative impacts to ensure that companies are able to fulfil the due diligence obligations.
In the original proposed directive, the due diligence obligation applied throughout the company’s value chain, i.e. both the upstream and the downstream sector. The term value chain was replaced in the Council compromise text by “activity chain”, which included upstream and, to a limited extent, downstream business partners. JURI maintains, with some modifications, the broader value chain concept - compared to the Council's compromise text.
Corporate governance - duties and responsibilities
In line with the Council's compromise text, JURI has chosen to delete the rules on variable remuneration for management members for the discharge of their due diligence obligations.
Compared to the original proposed directive from the European Commission, JURI - unlike the Council - has decided to maintain the rules on the obligation of management members to establish and supervise the due diligence measures and, in discharging their obligations, to act in the best interests of the company and to take into account the short, medium and long-term sustainability implications of their decisions.
Increased fine level and 10-year limitation period
Finally, JURI plans to increase the penalty level for breaches of the directive's provisions. JURI proposes, among other things, that the maximum fine imposed on a company for failure to fulfil the due diligence obligation should be at least 5 % of the company's net turnover.
In addition, it is proposed that the limitation period for claims for compensation under the rules of the Directive should be fixed at minimum 10 years, and that measures should be established to ensure that litigation costs will not be prohibitive for the injured parties.
Next step
When the European Parliament adopts its mandate at a forthcoming plenary session, negotiations with the Council on the final text of the directive can start. Horten’s ESG specialists will closely follow the developments in the area and the legislative process.
We advise on all aspects from the scope of the regulation, how the expected requirements may be implemented and generally how companies may adapt to the new sustainability agenda.