Overview of the Corporate Sustainability Due Diligence Directive
A textile business with strong roots in Spain operates globally, selling in Spain, paying taxes there, and coordinating its worldwide activities from its base. The company does not manufacture within Spain and relies on subcontractors in India to assemble garments. When a factory in the subcontracting network suffered a fire, reports surfaced about harsh working conditions: no formal contracts, extended shifts, minimal ventilation, poor lighting, and uneasy child labor concerns. These revelations prompted questions about responsibility across the supply chain.
In response, the Spanish firm faced scrutiny over its accountability, challenging the view that responsibility lay solely with third parties. The dialogue shifted toward a broader obligation: the European Union is preparing a directive that would require companies to uphold human rights and environmental standards not only within their own operations but also along the entire value chain—from the initial store to the workshop where products are created, through design centers, and even the freight routes that move goods globally. The idea extends to other industries as well, such as a winery in Catalonia that bottles wine while purchasing wood from the Amazon for barrels, or a technology manufacturer importing plastics from high-pollution sources in Southeast Asia.
The proposed Corporate Sustainability Due Diligence Directive is under discussion in the European Parliament, with expectations that it could reach approval before late 2023. If adopted, the directive will set in motion a multi-year process for member states to transpose its requirements into national laws. This step sits alongside other significant EU measures, including digital rights directives and minimum wage legislation, which underscore a broader push for ethical and sustainable governance across markets.
As regional governments in Spain compete by lowering taxes, Europe seeks to curb practices by firms that have a European parent but operate wholly through foreign subsidiaries, especially when those practices impact human rights or contribute to climate harm. According to international data, millions worldwide face forced labor, with a notable portion being children, underscoring the urgency of robust due diligence across supply chains.
Which companies will be affected?
The scope of impact remains under refinement by policymakers. A key explanation from parliamentarian Adrián Vázquez notes that the directive would apply to any European company with annual turnover above certain thresholds and a minimum employee count. For general sectors, thresholds may be higher, but for high-risk industries such as textiles, agriculture, or forestry, the bar could be lower. Even firms with a foreign parent but a European subsidiary may be held accountable based on turnover rather than workforce size in specific scenarios.
Post-enactment obligations will require annual reporting that details the concrete measures taken to prevent violations across the entire production chain. Previously, such reporting was optional in most European countries, with only a few nations having binding clauses. Drafters of the directive emphasize that voluntary action has not yielded meaningful improvements, and thus a binding approach is seen as necessary to curb negative externalities in production and consumption both inside and outside the European Union.
How the directive will be enforced remains a central debate. One proposal is cascading provisions, where parent companies embed minimum rights into contracts with subcontractors and employ sanctions or contract terminations for non-compliance. Critics worry that these provisions may lack real oversight if they stay merely on paper. An alternative approach suggests compelling parent companies to oversee end-to-end processes, a move that could challenge the leadership structure of smaller firms while aiming for stronger accountability across all levels of the supply chain.
The European Union, despite not maintaining a formal military or single diplomatic apparatus, seeks to regulate its commercial relations as a major economic bloc. It relies on its market strength, large consumer base, and a network of companies to drive change. The overarching message is clear: any business operating in Europe must ensure that human rights and climate initiatives extend beyond its borders to protect people and ecosystems worldwide.