Preamble 71 to 80.
(71) In order to complement Member State support to companies, including SMEs, in their implementation of due diligence obligations, the Commission may build on existing Union tools, projects and other actions helping with the due diligence implementation in the Union and in third countries. It may set up new support measures that provide help to companies, including SMEs, on due diligence requirements, including an observatory for chain of activities transparency and the facilitation of industry or multi-stakeholder initiatives.
(72) The Commission could complement Member States’ support measures building on existing Union action to support upstream economic operators to build the capacity to effectively prevent and mitigate adverse human rights and environmental impacts of their operations and business relationships, paying specific attention to the challenges faced by smallholders.
The Union and its Member States within their respective competences are encouraged to use their neighbourhood, development and international cooperation instruments, including trade agreements, to support third-country governments and upstream economic operators in third countries to address adverse human rights and environmental impacts of their operations and upstream business relationships. This could include working with partner country governments, the local private sector and stakeholders on addressing the root causes of adverse human rights and environmental impacts.
(73) This Directive is an important legislative tool to ensure corporate transition to a sustainable economy, including to reduce the existential harms and costs of climate change, to ensure alignment with ‘global net zero’ by 2050, to avoid any misleading claims regarding such alignment and to stop greenwashing, disinformation and fossil fuels expansion worldwide in order to achieve international and European climate objectives.
In order to ensure that this Directive effectively contributes to combating climate change, companies should adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1,5 oC in line with the Paris Agreement and the objective of achieving climate neutrality as established in Regulation (EU) 2021/1119, including its intermediate and 2050 climate neutrality targets. The plan should address, where relevant, the exposure of the company to coal-, oil- and gas- related activities. Such requirements should be understood as an obligation of means and not of results.
Being an obligation of means, due account should be given to the progress companies make, and the complexity and evolving nature of climate transitioning. While companies should strive to achieve the greenhouse gas emission reduction targets contained in their plans, specific circumstances may lead to companies not being able to reach these targets, where this is no longer reasonable. The plan should include time-bound targets related to climate change for 2030 and in five-year steps up to 2050 based on conclusive scientific evidence and, where appropriate, absolute emission reduction targets for greenhouse gas for scope 1, scope 2 and scope 3 greenhouse gas emissions.
The plan should develop implementing actions to achieve the company’s climate targets and be based on conclusive scientific evidence, meaning evidence with independent scientific validation that is consistent with the limiting of global warming to 1,5 oC as defined by the Intergovernmental Panel on Climate Change (IPCC) and taking into account the recommendations of the European Scientific Advisory Board on Climate Change. Supervisory authorities should be required to at least supervise the adoption and design of the plan and the updates thereof, in accordance with the requirements laid down in this Directive.
Since the content of the transition plan for climate change mitigation should be in line with the reporting requirements under Directive 2013/34/EU as regards corporate sustainability reporting, companies that report such a plan under Directive 2013/34/EU should be deemed to have complied with the specific obligation to adopt a plan under this Directive. While the adoption obligation will be considered to have been met, companies should still abide by their obligation to put that transition plan for climate change mitigation into effect and to update it every 12 months to assess progress made towards its targets.
(74) In order to allow for the effective oversight of and, where necessary, enforcement of this Directive in relation to third-country companies, those companies should designate a sufficiently mandated authorised representative in the Union and provide information relating to their authorised representatives.
It should be possible for the authorised representative to also function as a point of contact, provided the relevant requirements of this Directive are complied with. If the third-country company does not designate the authorised representative, all Member States in which the company operates should be competent to enforce the fulfilment of this obligation, especially to designate a natural or legal person in one of the Member States where it operates, in accordance with the enforcement framework set in national law. The Member States initiating such enforcement should inform supervisory authorities of other Member States through a European Network of Supervisory Authorities so that other Member States do not enforce them.
(75) In order to ensure the monitoring of the correct implementation of companies’ due diligence obligations and ensure the proper enforcement of this Directive, Member States should designate one or more national supervisory authorities. These supervisory authorities should be of a public nature, independent from the companies falling within the scope of this Directive or other market interests, and free from conflicts of interest and external influence, whether direct or indirect.
In order to exercise their powers impartially, these supervisory authorities should neither seek nor take instructions from anybody. In accordance with national law, Member States should ensure that each supervisory authority is provided with the human and financial resources necessary for the effective performance of its tasks and exercise of its powers. They should be entitled to carry out investigations, on their own initiative or based on substantiated concerns raised under this Directive.
Those investigations could include, where appropriate, on-site inspections and the hearing of relevant stakeholders. Where competent authorities under sectoral legislation exist, Member States could identify those as responsible for the application of this Directive in their areas of competence.
Supervisory authorities should publish and make available on a website an annual report on their past activities, including the most serious breaches identified. Member States should establish an accessible mechanism for receiving substantiated concerns, free of charge or with a fee limited to covering administrative costs only, and ensure that practical information is made available to the public on how to exercise this right.
(76) In order to ensure effective enforcement of the provisions of national law transposing this Directive, Member States should provide for dissuasive, proportionate and effective penalties for infringements of those measures. In order for such penalties regime to be effective, penalties to be imposed by the national supervisory authorities should include pecuniary penalties and a public statement indicating the company responsible and the nature of the infringement if the company fails to comply with a decision imposing a pecuniary penalty within the applicable timeframe.
That penalties regime is without prejudice to the power to withdraw and to prohibit the placing, making available on the market and export of products under other Union legislative acts providing for more extensive or more specific due diligence obligations, such as Regulation (EU) 2023/1115. Member States should ensure that the pecuniary penalty is commensurate to the company’s worldwide net turnover when being imposed. However, that should not oblige the Member States to base the pecuniary penalty solely on the net turnover of the company in every case.
The Member States should decide in accordance with national law whether the penalties should be imposed directly by supervisory authorities, in collaboration with other authorities or by application to the competent judicial authorities. In order to ensure public oversight of the application of the rules set out in this Directive, the decisions of the supervisory authorities imposing penalties on companies due to a failure to comply with the provisions of national law transposing this Directive should be published, sent to the European Network of Supervisory Authorities and remain publicly available for at least three years.
The published decision should not contain any personal data in accordance with Regulation (EU) 2016/679 of the European Parliament and of the Council. The publication of the company’s name should be allowed even if it contains the name of a natural person.
(77) In order to prevent an artificial reduction of potential administrative fines, Member States should ensure that, when imposing a pecuniary penalty on a company belonging to a group, such penalties are calculated taking into account the consolidated turnover calculated at the level of the ultimate parent company.
(78) In order to ensure consistent application and enforcement of provisions of national law adopted pursuant to this Directive, national supervisory authorities should cooperate and coordinate their action. For that purpose a European Network of Supervisory Authorities should be set up by the Commission and the supervisory authorities should assist each other in performing their tasks and provide mutual assistance.
(79) In order to ensure that victims of adverse impacts have effective access to justice and compensation, Member States should be required to lay down rules governing the civil liability of companies for damage caused to a natural or legal person, on condition that the company intentionally or negligently failed to prevent or mitigate potential adverse impacts or to bring actual impacts to an end or minimise their extent and, as a result of such a failure, damage was caused to the natural or legal person. Damage caused to a person’s protected legal interests should be understood in accordance with national law, for example death, physical or psychological injury, deprivation of personal liberty, loss of human dignity, or damage to a person’s property.
The condition that the damage has to be caused to a person as a result of the company’s failure to comply with the obligation to address the adverse impact, when the right, prohibition or obligation listed in the Annex to this Directive, the abuse or violation of which is resulting in the adverse impact that should have been addressed, is aimed to protect the natural or legal person to whom the damage is caused, should be understood as meaning that derivative damage (caused indirectly to other persons who are not the victims of adverse impacts and who are not protected by the rights, prohibitions or obligations listed in the Annex to this Directive) is not covered.
For example, if an employee of a company suffered damage due to the company’s violation of safety standards in the workplace, the landlord of such an employee should not be allowed to bring a claim against the company for an economic loss caused by the employee not being able to pay the rent. Causality within the meaning of civil liability is not regulated by this Directive, with the exception that the companies should not be held liable under this Directive if the damage is caused only by the business partners in the chains of activities of the companies (so-called ‘being directly linked to’ as referred to in the international framework).
Victims should have the right to full compensation for the damage caused in accordance with national law and in line with such common principle. Deterrence through damages (punitive damages) or any other form of overcompensation should be prohibited.
(80) As the adverse impacts should be prioritised according to their severity and likelihood and addressed gradually, if it is not possible to address at the same time to the full extent all adverse impacts it has identified, a company should not be liable under this Directive for any damage stemming from any less significant adverse impacts that were not yet addressed.
The correctness of the company’s prioritisation of adverse impacts should, however, be assessed when determining whether the conditions for the company’s liability were met as part of the assessment of whether the company breached its obligation to adequately address the adverse impacts it identified.
Note: This is the final text of the Corporate Sustainability Due Diligence Directive (CSDDD), published in the Official Journal of the European Union in July 2024.