EU governments have given the final go-ahead to a directive that will introduce obligations for large companies to monitor the impact of their activities on human rights and environmental protection.

The Corporate Sustainability Due Diligence Directive (CSDDD) will eventually affect companies with more than 1,000 employees and a turnover of more than €450 million a year.

It complements a previous directive on corporate-sustainability reporting that came into force earlier this year.

Risk-based system

Companies affected by the new legislation will have to implement a risk-based system to monitor, prevent, or remedy human-rights or environmental damages identified by the directive.

Potential penalties for breaching the rules include fines of up to 5% of companies’ net worldwide turnover.

Following the EU Council’s approval on Friday (24 May) of the European Parliament’s position, the legislative act has been adopted.

It will be published in the Official Journal of the European Union and will then enter into force on the 20th day after its publication.

Member states will have two years to implement the regulations and administrative procedures to comply with the legal text.

The measure will initially – three years after coming into force – apply only to companies with more than 5,000 employees and €1.5 billion turnover a year.