- Directive (EU) 2024/1760, in force since 25 July, requires companies to identify and remedy harm to human rights and the environment across their chain of activities.
- It will apply in stages between 2027 and 2029, starting with the largest groups.
- Small and medium-sized firms are outside its scope, but as suppliers they will face demands from their obligated customers.
On 25 July 2024 Directive (EU) 2024/1760 on corporate sustainability due diligence entered into force, having been published in the Official Journal of the European Union on 5 July. It requires the companies within its scope to identify, prevent, mitigate and remedy the adverse effects of their activity, of their subsidiaries and of their business partners on human rights and the environment.
Member States must transpose it into national law by 26 July 2026. The rules will not apply to every company at once, but in tiers by size up to 2029. For Spain this will mean a new law and, for many companies not directly covered, a different way of dealing with their customers and suppliers. The underlying reason is that global supply chains concentrate much of the labour and environmental risk, which until now was managed mostly through voluntary codes of conduct.
Who is covered and when
The directive applies to EU companies with more than 1,000 employees on average and net worldwide turnover above €450 million, and to non-EU companies with more than €450 million of turnover in the Union. Application is staged: from 26 July 2027 for those with more than 5,000 employees and €1,500 million; from 2028 for those with more than 3,000 and €900 million; and from 26 July 2029 for the rest.
It also reaches certain franchising or licensing models, where royalties exceed €22.5 million and net worldwide turnover exceeds €80 million. The thresholds must be met in two consecutive financial years. These figures leave out small and most medium-sized companies, but not those that buy from or sell to the covered ones.
What companies must do
The central duty is to build due diligence into policies and risk management: map the chain of activities, detect adverse impacts, prevent or mitigate them, remedy them where the company has caused them, and provide complaint mechanisms. Covered companies must also adopt a climate transition plan and keep for at least five years the documentation showing compliance. In essence it is a continuous, documented process, not a one-off audit.
The penalty regime provides for fines whose maximum limit may not be lower than 5% of the company’s net worldwide turnover. In addition, the directive recognises the right of anyone harmed by a breach to obtain full compensation, which opens the door to claims before national courts.
Impact on SMEs and suppliers
Even if a small or medium-sized company is outside the scope, if it sells to a large covered company it is likely to receive questionnaires, contract clauses and requests for information on working conditions, the origin of raw materials or environmental footprint. The directive expects covered companies to support their smaller partners and not to pass the cost of compliance on to them unfairly.
It is a good time to get ahead: know where your products come from, what is required of your own suppliers and what documentation a large customer might ask you for. If you belong to a group or have subsidiaries outside the EU, it is also worth reviewing headcount and turnover by country to know which tier you might fall into and from when. A good practice is to prepare in advance a supplier profile with the data that is usually requested, so as not to answer every questionnaire from scratch.
Sustainability stops being a statement of intent and becomes a duty that has to be documented.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
