EU agrees corporate due diligence rules on human rights and environment

EU Parliament and Council negotiators agreed a corporate sustainability due diligence directive requiring companies to identify and remedy human rights and environmental harms across their supply chains. Indian exporters and suppliers to large EU firms face indirect compliance pressure as due diligence obligations cascade through global value chains.

EU co-legislators reached informal agreement on a corporate sustainability due diligence directive obliging companies to integrate human rights and environmental impacts into management systems, covering child labour, slavery, pollution, deforestation and ecosystem harm. It applies to EU companies with over 500 employees and worldwide turnover above 150 million euros, and to firms over 250 employees with turnover above 40 million euros in high-impact sectors. Supervisory authorities can impose fines of up to 5% of net worldwide turnover for breaches.

The directive affects EU and non-EU companies with equivalent EU turnover, including financial-sector firms and parent companies, across textiles, agriculture, food, mineral extraction and construction. Affected firms must identify, prevent, mitigate and remedy negative impacts, including those of supply chain partners, through investment, contractual assurances and support to SME partners. Companies must also adopt a plan ensuring their business model aligns with limiting global warming to 1.5°C, with firms over 1000 employees receiving financial benefits for implementation.

Indian suppliers and subsidiaries serving large EU buyers should prepare for cascading due diligence requests, contractual assurances and complaints mechanisms. Companies should monitor formal approval by the Legal Affairs Committee, the European Parliament and the Council before the law enters into force. Affected entities should review supply chain mapping, establish grievance processes and assess exposure to the up-to-5% turnover penalty, while noting that due diligence compliance can serve as an award criterion for public and concession contracts.

Key figure — Maximum penalty: fines of up to 5% of net worldwide turnover