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2 Feb 2023

Jacques Buhart & Michinari Matsumoto, McDermott Will & Emery, on Mondaq

Navigating the New Landscape: Implementing Sustainability Due Diligence in the EU in the Post-2022 Era

"European Union: Sustainability Due Diligence In The EU: From Soft Law To Hard Law", 30 Jan 2023

Compliance with laws and regulations has been one of the most complex issues for large multinational companies for the following reasons: the cost of training and monitoring employees in all subsidiaries and affiliates and the number and complexity of laws and regulations to comply with. For instance, to comply with competition rules, it is essential to train salespeople in subsidiaries or local offices. In addition, multinational companies are required to comply with the competition rules of various jurisdictions, such as the US anti-trust laws, the EU competition law and other local anti-trust laws and regulations of the jurisdictions in which the companies are active.

In 2022, the European Commission ('EC') published two proposals concerning sustainability due diligence rules: a proposal for the Directive on Corporate Sustainability Due Diligence1 (the 'CSDD Directive') and a proposal for the Regulation on prohibiting products made with forced labour on the Union market2 (the 'Forced Labour Ban Regulation'). Both of these proposals will require companies to conduct due diligence regarding human rights and environmental issues. If enacted, the companies operating commercial activities worldwide will have to comply with burdensome obligations. First, companies that fall into the scope of these texts would have to monitor, in addition to their subsidiaries and affiliates, their supply chains. In other words, it would be necessary for these companies to assess the risks of human rights and environmental law violations by their suppliers. Moreover, the laws and regulations that the company should comply with are diverse, they encompass all major international agreements and conventions, EU regulations and national laws protecting human rights and the environment. Therefore, multinational companies will have to take into account all these rules when assessing the risk of violations.

This article aims to describe the outline of these two proposals, which are in the ordinary legislative procedure, that is, presented to the European Parliament and Council, and will enter into effect around 2025 at the earliest. Separately, certain EU Member States, including France, have already adopted rules on sustainability due diligence. We will briefly explain French national legislation on sustainability due diligence, which has already entered into force and has been discussed in an ongoing case, to analyse the possible consequences of this proposed EU legislation in practice.