On February 23, 2022, after multiple long discussions, the European Commission published its directive on “Corporate Sustainability Due Diligence” (the “Directive”), which will have a significant impact on the business activities of European companies, foreign companies operating in Europe, and global companies dealing with such companies.

The purpose of the Directive is to ensure that companies, their subsidiaries, and their value chains take actions to identify, prevent, and mitigate the adverse impacts their respective business activities may have on human rights and the environment.
 

1.   Companies Covered by the Directive
 

2.   Duties of Companies
 

• Prepare specific due diligence policies to conduct human rights and environmental due diligence

• Identify actual and potential adverse impacts on both human rights and the environment arising from business activities of the company, its subsidiaries, and its value chain

• Prepare and implement action plans to prevent, mitigate, and improve the identified adverse impacts

• Establish a procedure that enables complaints to be submitted by stakeholders of the company

• Inspect the effectiveness and appropriateness of due diligence policies at least once every year

• Publish due diligence policies and measures taken by the company to improve adverse impacts on human rights and the environment on the company’s website

Companies that violate the above obligations may be subject to various forms of sanctions.  If actual damage occurs due to a company’s failure to comply with the obligation to prevent and mitigate adverse impacts on human rights and the environment, such company will be subject to civil liability.

If the Directive becomes effective after approval by the European Parliament and the EU Council, Korean companies which are subject to the Directive will be required to establish detailed due diligence policies for human rights and environmental due diligence and conduct substantive due diligence on the company itself as well as its subsidiaries and its overall supply chain.  In addition, if Korean companies that are not subject to the Directive are part of the supply chain of other Korean and foreign companies that are covered by the Directive, such Korean companies will be under strong pressure from those companies to improve their ESG management.  Therefore, Korean companies that are expected to be directly or indirectly affected by the Directive will need to establish a management system (G) to manage environmental (E) and human rights (S) risks.