The European Commission is preparing a Directive that will require companies with business in the EU to implement due diligence programs in preventing harm to human rights and the environment and to ensure overall good governance. The details of the regulation are still in discussion among the EU government bodies, but the European Parliament recently published a resolution with its expectations for the legislation[1].

The proposed scope (Figure 1) includes large organizations, small and medium size enterprises that are either publicly listed or operating in high-risk sectors. The proposal would also impose obligations on organizations that do business in the EU even if they are not established in the EU.

Figure 1: Scope of due diligence regulation proposed by European Parliament

Proposed requirements for a “Due Diligence Strategy” are specified in Article 4 of the regulation, including the following two excerpts which set the tone of the proposal:

• “… carry out effective due diligence with respect to potential or actual adverse impacts on human rights, the environment and good governance in their operations and business relationships.”
• “…make all efforts within their means to identify and assess, by means of a risk based monitoring methodology that takes into account the likelihood, severity and urgency of potential or actual impacts on human rights, the environment or good governance, the nature and context of their operations, including geographic, and whether their operations and business relationships cause or contribute to or are directly linked to any of those potential or actual adverse impact.”

The European Commission’s proposal is expected in June.

[1] EU Parliament resolution on due diligence, https://www.europarl.europa.eu/doceo/document/TA-9-2021-0073_EN.pdf