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In February 2022, the European Commission (EC) proposed a draft on Corporate Sustainability Due Diligence (CSDD). This draft aims to create a just and sustainable economy with legislation that guarantees respect of human rights and environment in global value chains.

The EC Directive would apply for the following categories of companies:

• Group 1: All Limited Liability Companies (LLCs) based in the European Union, which have more than 500 employees and has a net turnover worldwide of more than 150 million Euros.
• Group 2: EU based Limited Liability Companies acting in high impact sectors, which have more than 250 employees and a has net turnover worldwide of more than 40 million Euros. For these companies rules will start to apply 2 years later than Group 1.
• Non-EU companies active in the European Union and with a turnover threshold aligned with Group 1 and 2, generated in the EU.

The companies must integrate due diligence into their company's policy. Furthermore, companies should investigate and identify actual or potential adverse human rights and environmental impacts Thus, preventing any potential impact or minimizing it. Moreover, companies are asked to set up and maintain a complaints procedure. Hence, monitoring effectiveness of the due diligence policy. Finally, companies should announce publicly that they are committed and following due diligence.

The EC Draft Directive suggests sanctions for those companies that do not comply with this legislation. The sanctions are not specified but they should be effective, proportionate and dissuasive Thus, in case that a company fails to meet its Human Rights and Environmental Due Diligence (HREDD) obligations and would cause any damages, the company would be liable for those damages.

The EC Directive will been presented to the European Parliament and the European Council for approval. Once adopted each Member State has two years to transpose the Directive into national law.

Companies need to act in accordance with the following steps in order to comply with the EC Directive:

1. Identify their company suppliers and define the nature of the connection between the supplier and the company.
2. Create HREDD policies and procedures and implement them into the company policy.
3. Set up a checklist for the company’s suppliers and assess their human rights and working environment.
4. Set up a program to regularly assess the human rights and working environment and conditions of the company’s suppliers.
5. Implement a system to take corrective action and manage it.
6. Create a system to manage compliance and respond to complaints.