From Exploitation to Accountability: How the EU is Cracking Down on Corporate Bad Behaviour
By Dori Felber. Read: 2 min 12s
Abstract stick-figures gesticulating around a table. Image by: Messer Woland, created: 15 March 2007, uploaded: 8 May 2024. Adapted by Dori Felber (3 December 2024), by putting “Due Diligence” on the table.
Have you ever wondered what happens to corporations, such as Shein, that have reported cases of child labour and exploitation of workers within their supply chains? The Directive on corporate sustainability due diligence (Directive 2024/1760) aims to combat exactly these issues by proposing legislation that aims to foster sustainable and responsible corporate behaviour throughout global value chains. According to this Directive, companies are required to identify and, if necessary, prevent, stop, or reduce the negative effects of their operations on the environment, such as pollution and biodiversity loss, and human rights, for example, child labour and worker exploitation. The proposal also lays out the duties of directors, including establishing due diligence, overseeing its implementation, and integrating it into the company's overarching plan. The corporate plan will act as an incentive for compliant directors who will receive variable compensation to assist in the fight against climate change.
The companies to which the new EU rules will apply are the following: large EU limited liability companies and partnerships, as well as large non-EU companies. SMEs and microcompanies are, however, not covered by Directive 2024/1760.
In order to ensure that such a Directive is enforced adequately, administrative supervision is necessary. Member States have the responsibility to designate a special authority that supervises and enforces the rules through injunctive orders and effective, proportionate, and dissuasive penalties (specifically fines). Furthermore, at the European level, to provide a coordinated approach, the Commission shall set up a European Network of Supervisory Authorities that will bring together representatives of the national bodies. Equally, civil liability will also be utilised as a tool for enforcement. Member States must ensure that victims obtain compensation for damages resulting from an intentional or negligent failure to carry out due diligence.
Timeline of Directive 2024/1760:
Legislative initiative adopted in 2020: Parliament called on the Commission to introduce mandatory due diligence legislation.
23 February 2022: The Commission proposed a directive laying down rules on corporate due diligence obligations, directors’ duties, civil liability, and protection of persons that have reported breaches.
April 2022: The directive was referred to the Parliament’s Committee on Legal Affairs (JURI), with Lara Wolters appointed as rapporteur.
14 July 2022: The European Economic and Social Committee (EESC) adopted a mandatory opinion.
7 November 2022: The rapporteur published the draft report, and eight Parliament committees provided opinions.
1 December 2022: The Council adopted its negotiation position, including a phase-in approach for company obligations.
25 April 2023: The JURI Committee adopted its report, recommending key amendments.
1 June 2023: Parliament adopted amendments to the proposal, focusing on areas such as scope, due diligence, stakeholder exchanges, and climate change.
14 December 2023: Parliament and Council reached a provisional agreement, setting thresholds for company applicability but failing to secure a Council majority.
15 March 2024: The Belgian presidency secured Council agreement after revising the proposal.
19 March 2024: The JURI Committee adopted the final text.
24 April: Parliament approved the directive in plenary.
24 May: The Council adopted the directive.
13 June: The Presidents of Parliament and Council signed the final text.
5 July: The directive was published in the EU Official Journal.
25 July: The directive entered into force.
Member States have until July 26, 2026, to transpose the requirements of the Directive into their national laws. Will they enforce it within the time limit? What’s to come next is uncertain.
