- NEW DIRECTIVE ON CORPORATE SUSTAINABILITY DUE DILIGENCE
A press release issued by the European Parliament on 14 December 2023 declared that, in an effort to protect human rights and the environment, the Parliament and the Council had reached an accord on improved corporate due diligence regulations. Despite the requirement for formal approval by the Council, the Legal Affairs Committee, and the European Parliament before being put into effect, this draft of the new directive already signifies an important milestone.
1.1. Target Companies
The implementation of the new directive will extend to both EU companies and their parent companies. Additionally, it will apply to non-EU companies and parent companies.
These corporates must have a worldwide turnover of at least 150 million euros and employ more than 500 employees.
An exception to this main principle, the new rules will apply as well to companies exceeding a turnover of 40 million euros and employing more than 250 employees. However, a minimum of 20 million euros of this turnover must be generated in one of the subsequent industries: "manufacture and wholesale trade of textiles, clothing and footwear, agriculture including forestry and fisheries, manufacture of food and trade of raw agricultural materials, extraction and wholesale trade of mineral resources or manufacture of related products and construction".
1.2. Protected Values and How to Protect Them
The objective of the forthcoming directive is to impose liabilities on corporations to reduce the detrimental impacts on the environment and human rights, including but not limited to child labor, slavery, labor exploitation, pollution, deforestation, excessive water usage, and ecosystem damage.
Corporations will be required to detect, identify, evaluate, prevent, mitigate, cease, and rectify their own and their partners' adverse effects on human health and the environment, encompassing production, supply, transportation and storage, design, and distribution. In order to accomplish this, they will be obligated to devote resources towards investments, demand contractual guarantees from their partners, enhance their business strategy, or offer assistance. In addition, corporations will be compelled to engage effectively with those whose interests are impacted by their activities, install a complaints system, explain their due diligence policies, and routinely assess the efficacy of said policies. Furthermore, the new directive expects that the EU governments would be obligated to establish functional portals detailing criteria and content, as well as relevant Commission guidance and information for stakeholders, that are specifically designed to assist with the due diligence obligations of companies.
1.3. Prospective Supervisory Authorities and Their Powers
As per the proposed regulations, every EU member state is to establish a supervisory authority tasked with overseeing the extent how well companies adhere to these standards.
The aforementioned organizations will collaborate and share exemplary approaches at the EU level through the European Network of Supervisory Authorities.
In addition to conducting inspections and investigations, they will have the authority to penalize non-compliant companies with sanctions such as "naming and shaming" and fines of up to 5% of their net worldwide turnover.
- AN ANALYSIS OF THE OPINION OF ADVOCATE GENERAL JULIANE KOKOTT (ILVA AND OTHERS, CASE C-626/22)
Advocate General Juliane KOKOTT asserted her opinion in Ilva and Others Case, on the 14th of December 2023, the same date specified in the aforementioned press release, regarding corporate due diligence and the safeguards for human health and the environment. The EU, through each of its constituent bodies, demonstrated its progressive outlook on corporate due diligence.
2.1. Fact Summary
A litigation petition has been filed in a Milan court by multiple inhabitants of the southern Italian municipality of Taranto, challenging the ongoing functioning of the "Ilva Steelworks" situated in that city. They assert that Ilva Steelworks fails to adhere to the relevant EU directive on industrial emissions and that its emissions endanger their health and environment. The Italian Court has requested that the CJEU conduct a more comprehensive examination of the general permit conditions of the Industrial Emissions Directive. Furthermore, this implies that the Italian Court has brought a request to the Court of Justice of the European Union (CJEU) concerning whether the "Ilva Steelworks" has been functioning in adherence to the aforementioned standards, as well as the methodology for ascertaining the importance of particular data pertaining to the steelworks' effects on human health and the emissions that should be taken into consideration. Additionally, there has been also an inquiry regarding the permissibility of repeatedly extending the application period for permit conditions.
2.2. The Key Points of the Opinion
Advocate General KOKOTT first emphasizes the necessity of considering all pollutants that are potentially to be released in significant quantities and their potential detrimental effects on health and the environment when authorizing an installation and evaluating a permit.
Furthermore, Advocate General KOKOTT concludes that even when the best available techniques are utilized if the pollution of the environment resulting from the installation causes or is anticipated to result in major damage to human health, supplementary protective measures have to be implemented. In the event that none of these measures are possible, authorization cannot be granted for the installation.
Furthermore, the Advocate General has determined that the repeated delays in enforcing the permit conditions violate the relevant regulations.
2.3. The Analysis of the Opinion
The opinion of the Advocate General pointed out the term "pollution," but this "pollution" has not been regarded as only an actual occurrence, but largely a potential one. Put simply, it is the responsibility of corporations to consider the pollutants that have the potential to be released in substantial volumes. Likewise, the detrimental impact of pollutants does not need to be tangible or actualized; merely possessing the potential to produce adverse effects on human health and the environment is sufficient. Therefore, it is incumbent upon corporations seeking authorization and governments evaluating authorization to anticipate the potential adverse consequences of the activities in question.
Additionally, the Advocate General expands the responsibility of corporations whose operations are expected to cause significant harm to human health to the extent that they are required to implement additional protective measures. Utilizing the most effective methods currently available is therefore insufficient to absolve the company of additional obligations.
Although the AG Opinion is non-binding and the Court will render the final decision, this opinion demonstrates that the concept of corporate due diligence is inconceivable without the government's strict and detailed supervision. It is imperative for all stakeholders in this domain—including governmental bodies, corporations, and courts—to recognize that safeguarding human health and the environment against the harmful operations of corporations is contingent upon their collaborative efforts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
