Changes from plenary report to adopted text

Recital 1: (1) The Union is founded on the respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights as enshrined in the EU Charter of Fundamental Rights and in Article 2 of the Treaty on the European Union. Those core values that have inspired the Union’s own creation, as well as the universality and indivisibility of human and environmental rights, and respect for the principles of the United Nations Charter and international law, should guide the Union’s action on the international scene. Such action includes fostering the sustainable economic, social and environmental development of developing countries.

Recital 2: (2) A high level of protection and improvement of the quality of the environment and promoting European core values are among the priorities of the Union, as set out in the Commission’s Communication on A European Green Deal74 . These objectives require the involvement not only of the public authorities but also of private actors, in particular companies. Article 191 of the Treaty on the Functioning of the European Union (TFEU) states that Union policy on the environment shall contribute to preserving, protecting and improving the quality of the environment, protecting human health, prudent and rational utilisation of natural resources and promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change.

Recital 3: (3) In its Communication on a Strong Social Europe for Just Transition75 , the Commission committed to upgrading Europe’s social market economy to achieve a just transition to sustainability, ensuring that no-one is left behind. This Directive will also contribute to the European Pillar of Social Rights, which promotes rights ensuring fair working conditions. It will also create greater visibility for, and ownership of, the Pillar among companies, whose involvement is essential for its effective implementation. It forms part of the EU policies and strategies relating to the promotion of fair and decent work worldwide, including in global value chains, as referred to in the Commission Communication on decent work worldwide76 .

Recital 4: (4) The behaviour of companies across all sectors of the economy is key to success in the Union’s sustainability objectives as many Union companies rely on global value chains. It is also in the interest of companies to protect human rights and the environment, in particular given the rising concern of consumers and investors regarding these topics. Several initiatives fostering enterprises which support value-oriented transformation already exist on Union77, as well as national78 level, including binding legislation in several Member States such as France and Germany, which gives rise to the need for a level playing field for companies in order to avoid fragmentation and to provide legal certainty for businesses operating in the single market. It is moreover essential to establish a European framework for a responsible and sustainable approach to global value chains, given the importance of companies as a pillar in the construction of a sustainable society and economy.

Recital 5: (5) Well-established existing international standards on responsible business conduct such as the United Nations Guiding Principles on Business and Human Rights79 and the OECD Guidelines for Multinational Enterprises79a clarified in the OECD Due Diligence Guidance for Responsible Business Conduct79b specify that companies should protect human rights and set out how they should respect and address the protection of the environment across their operations and value chains. The United Nations Guiding Principles on Business and Human Rights recognise the responsibility of companies to exercise human rights due diligence by identifying, preventing and mitigating the adverse impacts of their operations on human rights and by accounting for how they address those impacts. Those Guiding Principles state that businesses should avoid infringing human rights and should address adverse human rights impacts that they have caused, contributed to or are linked with in their own operations, subsidiaries and through their direct and indirect business relationships. / 79a OECD Guidelines for Multinational Enterprises, 2011 updated edition, available at http://mneguidelines.oecd.org/guidelines/.https://mneguidelines.oecd.org/mneguidelines/ / 79b OECD Guidance on Responsible Business Conduct, 2018, and sector-specific guidance, available at https://www.oecd.org/investment/due-diligence-guidance-for-responsible-business-conduct.htm.

Recital 6: (6) The concept of human rights due diligence was specified and further developed in the OECD Guidelines for Multinational Enterprises which extended the application of due diligence to environmental and governance topics. The OECD Guidance on Responsible Business Conduct and sectoral guidance are internationally recognised frameworks setting out practical due diligence steps to help companies identify, prevent, mitigate and account for how they address actual and potential impacts in their operations, value chains and other business relationships. National Contact Points (NCPs) created by adherents to the OECD Guidelines for Multinational Enterprises play an important role in promoting due diligence by companies through their roles in promoting the Guidelines and acting as non-judicial grievance mechanisms. The concept of due diligence is also embedded in the recommendations of the International Labour Organisation (ILO) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.82 / (deleted) / (deleted)

Recital 6 a (new): (6a) All companies should respect human rights, as enshrined in the international conventions and instruments listed in the Annex, Part I, Section 2, and those under the scope of this Directive should be required to conduct due diligence and should take appropriate measures to identify and address adverse human rights impacts along their value chain. The extent and nature of due diligence can vary according to the size, sector, operating context, and risk profile of the company.

Recital 7: (7) The United Nations’ Sustainable Development Goals83 , adopted by all United Nations Member States in 2015, include the objectives to promote sustained, inclusive and sustainable economic growth. The Union has set itself the objective to deliver on the UN Sustainable Development Goals. The private sector contributes to those aims. In the current geopolitical situation arising from Russian aggression in Ukraine, the energy crisis, the continuing fallout from COVID-19 and attempts to maintain and strengthen the security of the agri-food chain, the private sector could help promote sustained, inclusive and sustainable economic growth, while avoiding the creation of imbalances on the internal market.

Recital 8: (8) International agreements under the United Nations Framework Convention on Climate Change, to which the Union and the Member States are parties, such as the Paris Agreement84 and the recent Glasgow Climate Pact85 , set out precise avenues to address climate change and keep global warming within 1.5 C degrees. Besides specific actions being expected from all signatory Parties, the role of the private sector, in particular its investment strategies is also considered central to achieve these objectives. While just 100 companies have been the source of more than 70% of the world’s greenhouse gas emissions since 1988, there is a fundamental mismatch between corporate climate commitments and their actual investments to fight against climate change. This Directive is therefore an important legislative tool to avoid any misleading climate neutrality claims and to stop greenwashing and fossil fuels expansion worldwide in order to achieve international and European climate objectives, also recommended by the latest scientific reports85a. / 85a CDP Carbon Majors Report, 2017 Influence Map Report, Big Oil's Real Agenda on Climate Change 2022, September 2022, https://influencemap.org/report/Big-Oil-s-Agenda-on-Climate-Change-2022-19585 IEA, Net Zero by 2050, A Roadmap for the Global Energy Sector, p. 51.

Recital 9: (9) In the European Climate Law86 , the Union also legally committed to becoming climate-neutral by 2050 and to reducing emissions by at least 55% by 2030. Both these commitments require changing the way in which companies produce and procure. The Commission’s 2030 Climate Target Plan87 models various degrees of emission reductions required from different economic sectors, though all need to see considerable reductions under all scenarios for the Union to meet its climate objectives. The Plan also underlines that “changes in corporate governance rules and practices, including on sustainable finance, will make company owners and managers prioritise sustainability objectives in their actions and strategies.” The General Union Environmental Action Programme to 2030 87a (‘8th EAP’), the framework for Union action in the field of the environment and climate, aims to accelerate the green transition to a climate-neutral, sustainable, non-toxic, resource-efficient, renewable energy-based, resilient and competitive circular economy in a just, equitable and inclusive way, and to protect, restore and improve the state of the environment by, inter alia, halting and reversing biodiversity loss. The 2019 Communication on the European Green Deal88 sets out that all Union actions and policies should pull together to help the Union achieve a successful and just transition towards a sustainable future in which no one is left behind. It also sets out that sustainability should be further embedd…

Recital 11: (11) The Action Plan on a Circular Economy91 , the Biodiversity strategy92 , the Farm to Fork strategy93 and the Chemicals strategy94, the Pharmaceutical Strategy, the 2021 EU Action Plan Towards Zero Pollution for Air, Water and Soil and Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery95, Industry 5.096 and the European Pillar of Social Rights Action Plan97 and the 2021 Trade Policy Review98 list an initiative on sustainable corporate governance among their elements. Due diligence requirements under this Directive should therefore contribute to preserving and restoring biodiversity and by improving the state of the environment, in particular air, water and soil. They should also contribute towards accelerating the transition to a non-toxic circular economy. Due diligence requirements under this Directive should also contribute to the objectives of the Zero Pollution Action Plan of creating a toxic-free environment and protecting the health and well-being of people, animals and ecosystems from environment-related risks and negative impacts.

Recital 12: (12) This Directive is in coherence with the EU Action Plan on Human Rights and Democracy 2020-202499. This Action Plan defines as a priority to strengthen the Union’s engagement to actively promote the global implementation of the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises as clarified in the OECD Due Diligence Guidance for Responsible Business Conduct as the relevant guidelines, including by advancing relevant due diligence standards.

Recital 13: (13) The European Parliament, in its resolution of 10 March 2021 calls upon the Commission to propose Union rules for comprehensive corporate due diligence obligations, with consequences including civil liability for those companies that cause or contribute to harm by failing to carry out due diligence 100 . The Council Conclusions on Human Rights and Decent Work in Global Supply Chains of 1 December 2020 called upon the Commission to table a proposal for a Union legal framework on sustainable corporate governance, including cross-sector corporate due diligence obligations along global supply chains.101 The European Parliament also calls for clarifying directors` duties in its own initiative report adopted on 2 December 2020 on sustainable corporate governance. In their Joint Declaration on EU Legislative Priorities for 2022102 , the European Parliament, the Council of the European Union and the Commission have committed, to deliver on an economy that works for people, and to improve the regulatory framework on sustainable corporate governance.

Recital 14: (14) This Directive aims to ensure that companies active in the internal market contribute to sustainable development and the sustainability transition of economies and societies by respecting human rights and the environment, through the identification, prevention and mitigation, bringing to an end remediation and minimisation, and where necessary, prioritisation, of potential or actual adverse human rights and environmental impacts connected with companies’ own operations, subsidiaries and value chains, and ensuring that those affected by a failure to respect this duty have access to justice and legal remedies. This Directive should be without prejudice to the responsibility of Member States to respect and the duty to protect human rights and the environment under international law.

Recital 15: (15) Companies should take appropriate steps within their means to set up and carry out due diligence measures, with respect to their own operations, those of their subsidiaries, as well as their direct and indirect business relationships in their value chains in accordance with the provisions of this Directive. This Directive should not require companies to guarantee, in all circumstances, that adverse impacts will never occur or that they will be stopped. For example with respect to business relationships where the adverse impact results from State intervention, the company might not be in a position to arrive at such results. Therefore, the main obligations in this Directive should be ‘obligations of means’. The company should take the appropriate measures which can reasonably be expected to result in prevention or minimisation of the adverse impact under the circumstances of the specific case, proportionate and commensurate to the degree of severity and the likelihood of the adverse impact and the size, resources, and capacities of the company. Account should be taken of the specificities of the company’s value chain, sector or geographical area in which its value chain partners operate, the company’s power to influence its business relationships, and whether the company could increase its power of influence.

Recital 16: (16) The due diligence process set out in this Directive should cover the six steps defined by the OECD Due Diligence Guidance for Responsible Business Conduct, which include due diligence measures for companies to identify and address adverse human rights and environmental impacts. This encompasses the following steps: (1) integrating due diligence into policies and management systems, (2) identifying and assessing adverse human rights and environmental impacts, (3) preventing, ceasing or minimising actual and potential adverse human rights and environmental impacts, (4) verifying, monitoring and assessing the effectiveness of measures, (5) communicating, (6) providing remediation.

Recital 17: (17) Adverse human rights, and environmental impacts occur in companies’ own operations, subsidiaries, products, services, and in their value chains, in particular at the level of raw material sourcing, manufacturing, or at the level of product or waste disposal. In order for the due diligence to have a meaningful impact, it should cover human rights, and environmental adverse impacts generated throughout the life-cycle of production and sale and waste management of product or provision of services, at the level of own operations, subsidiaries and in value chains.

Recital 17 a (new): (17a) Global value chains in particular critical raw materials value chains, are impacted by detrimental effects of natural or man-made hazards. The risks in critical value chains have been made apparent by the COVID-19 crisis while the frequency and impact of those shocks are likely to increase in the future, constituting a driver for inflation and leading to a subsequent increase of macroeconomic volatility as well as market and trade uncertainty. To address this, the EU should initiate an annual Union-wide assessment of the resilience of companies to adverse scenarios related to their value chains, that would map, assess and provide potential responses to their value chain risks, including externalities as well as social, environmental and political risks.

Recital 18: (18) The value chain should cover activities related to the production, distribution and sale of a good or provision of services by a company, including the development of the product or the service and waste management of the product as well as the related activities of business relationships of the company. It should encompass the activities of a company’s business relationships related to the design, extraction, manufacture, transport, storage and supply of raw material, products, parts of products, as well as the sale or distribution of goods or the provision or development of services, including waste management, transport and storage, excluding the waste management of the product by individual consumers.

Recital 18 a (new): (18a) In some situations once products are sold or distributed by a business relationship, companies may have diminished ability to monitor impacts in order to take reasonable steps to prevent or mitigate them. In such situations, identifying actual and potential impacts and taking preventive or mitigating actions will be important prior to and at the point of initial sale or distribution, and in follow up or ongoing interactions with those business relationships when such impacts are reasonably foreseeable or when notified of significant impacts through the notification procedure.

Recital 18 b (new): (18b) When a company sources products containing recycled material, it may be difficult to verify the origins of the secondary raw materials. In such situations the company should take appropriate measures to trace secondary raw materials to the relevant supplier and evaluate whether there is adequate information to demonstrate that the material is recycled.

Recital 19: (19) As regards regulated financial undertakings providing financial services, linked to the conclusion of a contract within a value chain, the provision of such services should include the activities of the clients directly receiving them, and the subsidiaries thereof whose activities are linked to the contract in question. In order to avoid an overlap of due diligence exercises of regulated financial undertaking, activities of companies or other legal entities that are part of the value chain of that client are excluded from the scope of this Directive if due diligence obligations are set elsewhere under EU law. Clients that are households and natural persons not acting in a professional or business capacity, as well as small and medium sized undertakings, should not be considered to be part of the value chain of regulated financial undertakings.

Recital 19 a (new): (19a) Regulated financial undertakings as well as other companies should use information beyond the information derived from credit rating agencies, sustainability rating agencies or benchmark administrators.

Recital 20: deleted

Recital 21: (21) Under this Directive, EU companies with more than 250 employees on average and a worldwide net turnover exceeding EUR 40 million in the financial year preceding the last financial year or companies which are the ultimate parent company of a group that had 500 employees and a net worldwide turnover of more than 150 million in the last financial year for which annual financial statements have been prepared should be required to comply with due diligence. The calculation of the thresholds should include the number of employees and turnover of a company’s branches, which are places of business other than the head office that are legally dependent on it, and therefore considered as part of the company, in accordance with EU and national legislation. Temporary agency workers and other workers in non-standard forms of employment, including those posted under Article 1(3), point (c), of Directive 96/71/EC, as amended by Directive (EU) 2018/957 of the European Parliament and of the Council103 , should be included in the calculation of the number of employees in the user company. Posted workers under Article 1(3), points (a) and (b), of Directive 96/71/EC, as amended by Directive 2018/957/EU, should only be included in the calculation of the number of employees of the sending company.

Recital 22: (22) In order to reflect the priority areas of international action aimed at tackling human rights and environmental issues, the Commission should develop sector-specific guidelines, including for the following sectors, based on existing sectoral OECD due diligence guidance: the manufacture of textiles, wearing apparel, leather and related products (including footwear), and the wholesale trade and retail of textiles, clothing and footwear; agriculture, forestry, fisheries (including aquaculture), the manufacture of food products, marketing and advertising of food and beverages, and the wholesale trade of agricultural raw materials, live animals, animal products, wood, food, and beverages; energy, the extraction, transport and handling of mineral resources regardless of where they are extracted from (including crude petroleum, natural gas, coal, lignite, metals and metal ores, as well as all other, non-metallic minerals and quarry products), the manufacture of basic metal products, other non-metallic mineral products and fabricated metal products (except machinery and equipment), and the wholesale trade of mineral resources, basic and intermediate mineral products (including metals and metal ores, construction materials, fuels, chemicals and other intermediate products), construction and related activities, the provision of financial services,, investment services and activities and other financial services; and the production, provision and distribution of information and com…

Recital 23: (23) In order to achieve fully the objectives of this Directive addressing human rights and environmental adverse impacts with respect to companies’ operations, and those of its subsidiaries and value chains, third-country companies with significant operations in the EU should also be covered. More specifically, the Directive should apply to third-country companies which generated a net turnover of at least EUR 40 million in the Union in the financial year preceding the last financial year or companies which are the ultimate parent company of a group that had 500 employees and a net worldwide turnover of more than 150 million and at least 40 million was generated in the Union in the last financial year for which annual financial statements have been prepared. The calculation of net turnover should include turnover generated by third party companies with whom the company and/or its subsidiaries has entered into a vertical agreement in the Union in return for royalties.

Recital 25: (25) In order to achieve a meaningful contribution to the sustainability transition, due diligence under this Directive should be carried out with respect to adverse human rights impact on protected persons resulting from any action which removes or reduces the ability of an individual or group to enjoy the rights or to be protected by prohibitions enshrined in the international conventions and instruments listed in the Annex to this Directive, and subsequent case law and the work of treaty bodies related to these conventions, which include trade union, workers’ and social rights. In order to ensure a comprehensive coverage of human rights, a negative impact on the enjoyment of a right not specifically listed in that Annex which directly impairs a legal interest protected in those conventions and instruments should also form part of the adverse human rights impact covered by this Directive, provided that the company concerned could have reasonably established the risk of such impairment and any appropriate measures to be taken in order to comply with the due diligence obligations under this Directive, taking into account all relevant circumstances of their operations, such as the sector and operational context. Due diligence should further encompass adverse environmental impacts resulting from the violation of one of the prohibitions and obligations listed in the Annex to this Directive.

Recital 25 a (new): (25a) This Directive should provide for specific measures in case of adverse systemic state-sponsored impacts resulting from actions, policies, regulations or institutionalised practices decided, implemented and enforced by, or carried out with the active support of States’ national or local authorities.

Recital 25 b (new): (25b) Companies should also be responsible for using their influence to contribute to an adequate standard of living in value chains. This is understood as a living wage for employees and a living income for self-employed workers and smallholders, which they earn from their work and production and must meet their needs and those of their family.

Recital 25 c (new): (25c) This Directive acknowledges the 'One Health' approach as recognised by the World Health Organization, an integrated and unifying approach that aims to sustainably balance and optimise the health of people, animals and ecosystems. The 'One Health' approach recognises that the health of humans, domestic and wild animals, plants, and the wider environment, including ecosystems, are closely interlinked and interdependent. It is therefore appropriate to lay down that environmental due diligence should encompass avoiding environmental degradation that results in adverse health effects such as epidemics, and to respect the right to a clean, healthy and sustainable environment. In respect to the G7 commitment to acknowledge the rapid rise in antimicrobial resistance (AMR) at the global scale, it is necessary to promote the prudent and responsible use of antibiotics in human and veterinary medicines.

Recital 25 d (new): (25d) Adverse human rights and environmental impacts can be intertwined or underpinned by factors such as corruption and bribery, hence their inclusion in the OECD Guidelines for Multinational Enterprises. It therefore may be necessary for companies to take into account these factors when carrying out human rights and environmental due diligence.

Recital 26: (26) Companies should have guidance at their disposal that illustrates how their activities may impact human rights and which corporate behaviour is prohibited in accordance with internationally recognised human rights. Such guidance is included for instance in The United Nations Guiding Principles Reporting Framework104 and the United Nations Guiding Principles Interpretative Guide105 and should be made easily accessible to companies. Therefore, using relevant international guidelines and standards as a reference, the Commission should be able to issue additional guidance that will serve as a practical tool for companies.

Recital 27: (27) In order to conduct appropriate human rights and environmental due diligence with respect to their operations, their subsidiaries, and their value chains, companies covered by this Directive should integrate due diligence into corporate policies, identify, where necessary, prioritise, prevent, mitigate, remediate as well as bring to an end and minimise the extent of potential and actual adverse human rights and environmental impacts, establish or participate in a notification and non-judicial grievance mechanism, monitor and verify the effectiveness of their actions taken in accordance with the requirements that are set up in this Directive, communicate publicly on their due diligence, and engage with affected stakeholders throughout this entire process. In order to ensure clarity for companies, in particular the steps of preventing and mitigating potential adverse impacts and of bringing to an end, or when this is not possible, minimising the extent of actual adverse impacts should be clearly distinguished in this Directive.

Recital 28: (28) In order to ensure that due diligence forms part of companies’ corporate policies, and in line with the relevant international framework, companies should integrate due diligence into their relevant corporate policies and at all levels of operation and have in place a due diligence policy with short-, medium- and long-term measures and targets. The due diligence policy should contain a description of the company’s approach to due diligence, a code of conduct defining the rules, principles and measures to be followed and implemented where relevant throughout the company and its subsidiaries across all corporate operations; a description of the processes put in place and appropriate measures taken to implement due diligence in line with Articles 7 and 8 in the value chain, including the relevant measures taken to incorporate due diligence into its own business model, employment and purchasing practices with entities with which the company has a business relationship and measures taken to monitor and verify due diligence activities, and adequate policies to avoid passing on the costs of the due diligence process to business partners in a weaker position. The code of conduct should apply in all relevant corporate functions and operations, including pricing practices and purchasing decisions, for instance on trading and procurement. Companies should also update their due diligence policy when significant changes occur.

Recital 28 a (new): (28a) Parent companies should be able to perform actions which can contribute to the due diligence of their subsidiaries, where the subsidiary provides all the relevant and necessary information to and cooperates with its parent company, abides by its parent company's due diligence policy, the parent accordingly adapts its due diligence policy to ensure that the obligations laid down in Article 5(1) are fulfilled with respect to the subsidiary, the subsidiary integrates due diligence into all its policies and risk management systems in accordance with Article 5, where necessary, the subsidiary continues to take appropriate measures in accordance with Articles 7 and 8, as well as continues to perform its obligations under Articles 8a, 8b and 8d, where the parent company performs specific actions on behalf of the subsidiary, both the parent company and subsidiary clearly and transparently communicate so towards relevant stakeholders and the public domain, and the subsidiary integrates climate in its policies and risk management systems in accordance with Article 15. In order to hold subsidiaries accountable, the liability provided for in Article 22 of this Directive should remain at entity level without prejudice to Members States’ legislation on joint and several liability.

Recital 28 b (new): (28b) In conflict-affected and high-risk areas, companies run an increased risk to be involved in severe human rights’ abuses. In these areas, companies should therefore undertake heightened, conflict-sensitive due diligence, in order to address these heightened risks and to ensure that they do not facilitate, finance, exacerbate or otherwise negatively impact the conflict or contribute to violations of international human rights law or international humanitarian law in conflict-affected or high-risk areas. Heightened due diligence includes complementing the standard due diligence with a thorough conflict analysis, based on meaningful and conflict-sensitive stakeholder engagement and aimed at ensuring an understanding of the root causes, triggers and parties driving the conflict and the impact of the company’s business activities on the conflict. In situations of armed conflict and/or military occupation, companies should respect the obligations and standards identified in International Humanitarian Law (IHL) and International Criminal Law (ICL) standards. Companies should follow guidance provided by relevant international bodies, including the International Committee of the Red Cross and the UNDP.

Recital 28 c (new): (28c) The way a company can be involved in an adverse impact varies. A company can cause an adverse impact where its activities on their own are sufficient to result in an adverse impact. A company can contribute to an adverse impact where its own activities, in combination with the activities of other entities, cause an impact, or that the activities of the company cause, facilitate or incentivise another entity to cause an adverse impact. The contribution must be substantial, meaning that it does not include minor or trivial contributions. Assessing the substantial nature of the contribution and understanding when the actions of the company may have caused, facilitated or incentivised another entity to cause an adverse impact can involve the consideration of multiple factors. Several factors can be taken into account, including the extent to which a company may encourage or motivate an adverse impact by another entity, i.e. the degree to which the activity increased the risk of the impact occurring, the extent to which a company could or should have known about the adverse impact or potential for adverse impact, i.e. the degree of foreseeability, and the degree to which any of the company's activities actually mitigated the adverse impact or decreased the risk of the impact occurring. The mere existence of a business relationship or activities which create the general conditions in which it is possible for adverse impacts to occur should not in itself constitute a relations…

Recital 29: (29) To comply with due diligence obligations, companies need to take appropriate measures with respect to identification, prevention and bringing to an end adverse impacts that they caused, contributed or are directly linked to. ‘Appropriate measures’ should mean measures that are capable of achieving the objectives of due diligence and effectively addressing the adverse impact identified pursuant to Article 6 in a manner proportionate and commensurate to the degree of severity and the likelihood of the adverse impact and proportionate and commensurate to the size, resources and capacities of the company, taking into account the circumstances of the specific case, including the nature of the adverse impact, characteristics of the economic sector, the nature of the company’s specific activities, products, services, the specific business relationship. For the purposes of Articles 7 and 8, in cases where a company has caused or may have caused an impact, appropriate measures should be understood as measures which aim to prevent or mitigate an impact, and remediate any damage caused by an impact. For the purposes of Articles 7 and 8, in cases where a company has contributed to or may have contributed to an impact, appropriate measures should be understood as measures which aim to prevent or mitigate the contribution to the impact, using or increasing the company’s leverage with other responsible parties to prevent or mitigate the impact, and contributing to remediating any damag…

Recital 30: (30) Under the due diligence obligations set out by this Directive, a company should identify and assess actual or potential adverse human rights and environmental impacts. In order to allow for a comprehensive identification and assessment of adverse impacts, such identification and assessment should be based on meaningful stakeholder engagement and quantitative and qualitative information. For instance, as regards adverse environmental impacts, the company should obtain information about baseline conditions at higher risk sites or facilities in value chains. Identification and assessment of adverse impacts should include assessing the human rights and environmental context in a dynamic way and continuously, including prior to a new activity or relationship, prior to major decisions or changes in the operation; in response to or anticipation of changes in the operating environment. Regulated financial undertakings providing financial services should identify the adverse impacts at the inception of the contract and before subsequent financial operations, and if notified of possible risks via the procedures in Art.9, during the provision of the service. When identifying and assessing adverse impacts, companies should also identify and assess the impact of a business relationship’s business model and strategies, including purchasing practices.

Recital 30 a (new): (30a) Where the company cannot prevent, bring to an end or mitigate all the identified and assessed adverse impacts simultaneously, it should be allowed to prioritise the order in which it takes appropriate measures based on the severity and likelihood of the adverse impact and taking into account risk factors, by developing, implementing and regularly reviewing a prioritisation strategy. In line with the relevant international framework, the severity of an adverse impact should be assessed based on the scale, scope and irremediable character of the adverse impact, taking into account the gravity of an adverse impact, including the number of individuals that are or will be affected, the extent to which the environment is or may be damaged or otherwise affected, its irreversibility and the limits on the ability to restore affected individuals or the environment to a situation equivalent to their situation prior to the impact. Once the most severe and adverse impacts are addressed, the company should address less severe and less likely adverse impacts.

Recital 30 b (new): (30b) Companies should prioritise impacts on the basis of severity and likelihood. The degree of leverage a company has over a business relationship is not relevant to its prioritisation decisions or processes. However, the degree of leverage can influence the appropriate measures that a company chooses to adopt in order to effectively mitigate and/or prevent impacts associated with business partners.

Recital 31: deleted

Recital 32: (32) In line with international standards, prevention and mitigation as well as bringing to an end and minimisation of adverse impacts should take into account the interests of those adversely impacted. In order to enable continuous engagement with the value chain business partner instead of termination of business relations (disengagement) and possibly exacerbating adverse impacts, this Directive should ensure that disengagement is a last-resort action, in line with the Union`s policy of zero-tolerance on child labour, the Union’s strategy on rights of the Child and the target date of 2025 proclaimed by the United Nations for the full elimination of child labour worldwide. Terminating a business relationship in which child labour was found could expose the child to even more severe adverse human rights impacts. In the same line, women in precarious labour conditions could face more severe adverse human rights impacts thus increasing their vulnerability. This should therefore be taken into account when deciding on the appropriate action to take, and disengagement should be avoided where the impact of disengagement would be greater than the adverse impact the company is seeking to prevent or mitigate. In situations of state-imposed forced labour, where the adverse impact is organised by political authorities, unhindered engagement with those adversely impacted and mitigation are not possible. This Directive should ensure that companies terminate a business relationship where s…

Recital 34: (34) So as to comply with the prevention and mitigation obligation under this Directive, companies should be required to take the following appropriate measures, where relevant. Where necessary due to the complexity of prevention measures, companies should develop and implement a prevention action plan. Companies should consider establishing through contractual provisions with a partner with whom they have a business relationship that it will ensure compliance with the code of conduct and, as necessary, a prevention action plan. Partners with whom the company has a business relationship could be asked to seek corresponding contractual provisions from its partners to the extent that their activities are part of the companies’ value chain.