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EU: Corporate Sustainability Reporting DirectiveEU: Directive on Corporate Sustainability Due DiligenceGermany: Supply Chain Due Diligence Act
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Applicable as of:· 1 January 2024 for companies already subject to the non-financial reporting directive;

· 1 January 2025 for companies that are not presently subject to the non-financial reporting directive;

· 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings.		In force as of 25 July 2024. Member States have to transpose the Directive into national law and communicate the relevant texts to the Commission by 26 July 2026. 1st of January 2024, for the financial year of 2023.
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Companies needing to react:EU-based companies that meet at least two out of three following criteria:
· more than 250 employees, and/or
· more than €40M net turnover, and/or
· more than €20M of total assets.

All publicly listed companies which have more than 10 employees or more than €20M net turnover are also subject to regulation.		Large EU limited liability companies & partnerships: more than 1000 employees and EUR 450 million turnover (net) worldwide.

Non–EU companies which generate the turnover of more than EUR 450 million (net) in EU.		Germany based companies, or international companies acting in Germany, which have:
· From 2023, more than 3,000 employees
· From 2024, more than 1,000 employees

Other than full-time employees, temporary staff which are engaged for over 6 months, as well as all employees of affiliated entities which are employed by the German company, posted abroad or not.
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Main obligations:Disclosure of relevant environmental, social and governance metrics under the “double materiality” principle - sustainability risks affecting the company, as well as impact of the company to society and environment.

Reports should be audited and provided in a machine-readable format, submitted to European Single Access Point. All reports should be prepared in accordance with European Sustainability Reporting Standards.		Companies are expected to:
· integrate due diligence into policies,
· identify adverse human rights and environmental impacts,
· prevent or mitigate potential impacts,
· bring to an end or minimize actual impacts,
· establish and maintain a complaints procedure,
· monitor the effectiveness of the due diligence policy and measures, and
· publicly communicate due diligence findings.

Additionally, large EU limited liability companies & partnerships need to ensure that their business strategy is compatible with limiting global warming in line with the Paris Agreement.		Similar to the EU draft, most prominent obligations relate to establishing a risk management system and performing regular supply chain analysis of its own performance as well as all the direct suppliers. In addition to this, companies are expected to have preventative policies in place, establish complaints procedures and prepare a list of preventative measures which should take place in case a breach occurs.

Each company should also prepare an annual report on fulfillment of its due diligence obligations and make it publicly available on the company's website.
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Penalties:The sanctions are yet to be set but are expected to be significant.

The nature and the amount of the fines’ is left to be decided by each Member States. Germany is implementing that through different existing frameworks: for example, amended German Commercial Code stipulates the penalty of either EUR 2 million or twice the unlawfully generated economic advantage (the profits gained or losses avoided because of the breach). In addition, fines may additionally comprise as much as 5% of the annual turnover and the monetary penalty may be increased by up to EUR 10 million. Reputational damage of the company is not to be neglected.		Sanctions, as well as implementation and supervision over the law, are left on national administrative authorities appointed by Member States. These authorities may also impose fines in case of non-compliance. In Germany, this role is currently taken by BAFA - Federal Office for Economic Affairs and Export Control.

Civil liability: victims need to get compensation for damages resulting from an intentional or negligent failure to carry out due diligence.

Additionally, EU published a Communication on Decent Work Worldwide, confirming that it is preparing a separate initiative to prohibit goods made with forced labour, including forced child labour, from the EU market.		Periodic fines per breach up to EUR 50,000 and up to a total of EUR 8 million or 2% of total worldwide annual turnover. Fines against natural persons for negligent acts may go as high as EUR 800,000.

Companies that have been substantially fined (determined by the amount of the fine) can also be banned from participation in public tenders for up to 3 years.
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Estimated costs of adhering to obligations:· Costs of establishing a data management system within the company.

· Costs of auditing and having data readily available for audit.

· Costs of timely submitting reports in the right format.		· Costs of establishing and operating the due diligence procedures.

· Transition costs, including investments to change operations and value chains to comply with the due diligence obligation, if applicable.		· Costs of establishing and operating the due diligence procedures.

· Transition costs, including investments to change operations and value chains to comply with the due diligence obligation, if applicable.
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Disclaimer:
Nothing in this article or table is nor should be taken as a legal opinion or advice. This article or table solely reflects the author's interpretation of existing information and pieces of legislation, and neither the author nor Codio Impact UG (haftungsbeschränkt) take responsibility for the application of the opinion laid out in this article.
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