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Members from the EU European Parliament (MEPs) adopted its position for negotiations with member states on rules to integrate human rights and environmental impact into companies’ governance - Corporate Sustainability Due Diligence Directive (CSDDD), aim to push companies to mitigate their negative social and environmental impact.
Due diligence must be integrated into the way companies are managed
Addressing child labour, slavery, labour exploitation, pollution, environmental degradation and biodiversity loss
Fines of at least 5% of a company’s net worldwide turnover if they do not comply
Companies will be required to identify, and where necessary prevent, end or mitigate the negative impact of their activities on human rights and the environment such as on child labour, slavery, labour exploitation, pollution, environmental degradation and biodiversity loss. They will also have to monitor and assess the impact of their value-chain partners including not only suppliers but also sale, distribution, transport, storage, waste management and other areas.
The new rules will apply to EU-based companies, regardless of their sector, including financial services, with more than 250 employees and a worldwide turnover of over 40 million euro as well as to parent companies with over 500 employees and a worldwide turnover of more than 150 million euro. Non-EU companies with a turnover higher than 150 million euro, if at least 40 million was generated in the EU, will also be included.
Companies will have to implement a transition plan to limit global warming to 1.5° and in the case of large companies with over 1000 employees, meeting the plan’s targets will have an impact on a director’s variable remuneration (f.e. bonuses). The new rules also require firms to engage with those affected by their actions, including human rights and environmental activists, introduce a grievance mechanism and regularly monitor the effectiveness of their due diligence policy. To facilitate investors’ access, information about a company’s due diligence policy should be also available on the European Single Access Point (ESAP).
In addition, under the provisional agreement, the ESAP platform is expected to beavailable from summer 2027 and gradually phased in to allow for a robust implementation.
GC Insights: Supply Chain Assessment shall follow the identifications of adverse impacts across different criteria (such as child labour, slavery, labour exploitation, pollution, environmental degradation and biodiversity loss, etc.) and the measurements for effectiveness in managing these adverse impacts. With the establishment of the following indicators:
Indicators of good governance
Indicators of active management
Indicators of assurance of the monitoring processes
Indicators of an assured process for assessing the baselines and adverse impacts
Indicators of improvement of adverse impact and management processes
Indicators of reasonable measurement
Indicators of transitions
Indicators of preventions
Indicators of risk control
Indicators of low-risk
Indicators of good compliance processes
Indicators of the effectiveness of action plans, and the timeline for action, etc.
Above all, transparency for both qualitative and quantitative measurement should deem to help neutralise the adverse impact or adequately mitigate its extent by restoring the affected persons, groups and communities and/or the environment back to a situation equivalent or as close as possible to their situation prior to the adverse impact. Contact us to find out more about the supply chain ESG assessment solutions from GC Insights.
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