Directive (EU) 2024/1760 on corporate sustainability due diligence entered into force on 25 July 2024. This does not yet make the corporate duties immediately applicable. Member States must transpose the Directive into national law, and the application dates for companies will follow in stages.
Position covered: 25 July 2024. This article is based on the original version of Directive (EU) 2024/1760 published in the Official Journal on 5 July 2024. National transposition law has not yet been enacted.
Entry into force and application are different dates
Member States must adopt and publish the necessary provisions by 26 July 2026. Article 37 provides for phased application: from 26 July 2027 first to Union companies with more than 5,000 employees and worldwide net turnover exceeding EUR 1.5 billion, from 26 July 2028 to companies with more than 3,000 employees and turnover exceeding EUR 900 million, and from 26 July 2029 to the other companies in scope.
For companies formed in the Union, the general scope principally requires more than 1,000 employees and worldwide net turnover exceeding EUR 450 million. Special criteria apply to ultimate parent companies, certain franchising and licensing arrangements and third-country companies. Group structure, turnover and employee numbers must therefore be assessed under each relevant condition and reference year.
The chain of activities reaches far into automotive supply
Upstream, the chain of activities covers activities of direct and indirect business partners connected with the production of goods or the provision of services. It expressly includes development, extraction and sourcing of raw materials, manufacture, transport, storage and supply of raw materials, products or parts of products. Numerous tiers of an automotive supply chain may therefore be involved.
Downstream, for products and subject to specified conditions, the definition covers distribution, transport and storage by business partners carrying out those activities for the company or on its behalf. Disposal of the product is not included in the defined chain of activities. The scope should neither be reduced to the direct supplier nor extended to the entire product life cycle without examination.
Due diligence is a regulated risk process
Companies in scope must integrate due diligence into policies and risk-management systems, identify and assess actual and potential adverse impacts and, where not all impacts can be addressed at once, prioritise them according to severity and likelihood. Measures must then prevent or mitigate potential impacts, bring actual impacts to an end or minimise their extent and provide remediation where required.
Stakeholder engagement, a notification mechanism and complaints procedure, monitoring of measures and public communication are also required. The Directive requires appropriate measures, not a guarantee that every adverse impact will be excluded from every business relationship. A reasoned process, justified priorities and documented follow-up are central.
Procurement, contracts, liability and the climate plan require separate work
Contractual assurances from business partners may form part of prevention or corrective action, but do not replace the other statutory steps. Supply and development agreements should address information duties, cascading of requirements, audit rights, corrective action plans and escalation. Under the Directive, suspension or termination of a business relationship is a last resort in specified circumstances; possible adverse effects of termination must also be assessed.
Member States must provide for public supervision and penalties. The Directive also regulates conditions for civil liability and requires a transition plan for climate-change mitigation. Procurement, sustainability, legal, finance and operational teams therefore need clearly separated responsibilities for supplier risks, contracts, complaints, evidence, the climate plan and potential liability cases.
Review points following entry into force
- Document scope, group structure and the relevant phased application date.
- Map raw materials, parts, development services and business partners in the chain of activities.
- Define risk assessment, prioritisation, remediation, complaints and monitoring procedures.
- Review supply and development agreements for information, audits and escalation.
- Prepare supervision, liability and the climate plan under separate responsibilities.
Related insight
Official source
This article explains the original published version and the position under Union law on 25 July 2024. Specific action requires examination of the exact scope, the relevant reference year and the national transposition law still to be adopted.