The Directive entered into force last Thursday. On the same day, the European Commission published a 17 page set of FAQs. The FAQs are broken out into 9 topical areas:
- General Overview
- Objectives
- Entry Into Force/Application
- Personal Scope
- Material Scope
- Content of Obligations
- Enforcement
- Burden Limitation and Safeguards
- Impacts of the Directive
The FAQs largely stay within the four corners of the Directive, which has been described in hundreds of thought leadership pieces (including ours, available here). However, we are recommending the FAQs to companies as a resource, since they are a good bite-sized, plain language summary of the Directive and are in some respects clearer, which many compliance professionals will find useful.
Because most of the FAQs merely repeat or summarize what is in the Directive, we have not included a detailed discussion of the FAQs in this post. But, there also are a few additional nuggets in the FAQs that many companies will find of interest:
- The European Commission estimates there are approximately 6,900 covered companies, 6,000 that are EU-based and 900 non-EU based. Although these statistics are not cited in the Directive, they are consistent with what has been published elsewhere. (FAQ 4.1)
- The FAQs provide context for the human rights prohibition of causing measurable environmental degradation, which we know some companies have struggled to understand (point 15 in Part I of the Annex). This prohibition encompasses harmful soil change, water or air pollution, harmful emissions, excessive water consumption, degradation of land and any other impact on natural resources that impairs human rights or substantially affects ecosystem services that contribute to human wellbeing. The FAQ notes that these environmental impacts are significant because they can lead to direct or indirect harm to human health, safety and livelihoods. For example, polluted drinking water can cause health issues and land degradation can affect food security by impairing the natural bases for food production. The FAQ notes that ecosystem services are the various benefits that humans derive from healthy ecosystems, such as for example provision of food and genetic resources, natural pollination of crops, clean air and water, decomposition of wastes or flood and climate control. (FAQ 5.2)
- The FAQs include examples of upstream and downstream business
activities. (FAQ 5.3)
- Upstream: For a clothing manufacturer, the example of an upstream business partner cited is a textile factory that produces fabric used in the manufacturing of clothes. For a car manufacturer, a direct upstream business partner might be a tire producer. An indirect upstream business partner might be a producer of rubber that is used in the production of the tires.
- Downstream: Using the same clothing manufacturer, the downstream business partner example cited is a retail store that sells the finished clothing products to consumers.
The Directive requires the European Commission to adopt additional guidelines and guidance, which is separate from the FAQs. The European Commission is required to develop due diligence guidelines in consultation with Member States and stakeholders, the European Union Agency for Fundamental Rights, the European Environment Agency, the European Labour Authority and, where appropriate, with international organizations and other bodies having expertise in due diligence. The guidelines will be required to include both general guidelines and sector-specific guidelines or guidelines for specific adverse impacts. Among other things, the guidelines will be required to include guidance and best practices on conducting due diligence and on the climate transition plan requirement. Guidelines will be required to be made available by either January 26, 2027 or July 26, 2027, depending on the topic to be addressed.
The European Commission also is required to adopt guidance pertaining to voluntary model contractual clauses to facilitate compliance with relevant due diligence requirements. This guidance is to be developed in consultation with the Member States and stakeholders. The guidance is required to be adopted by January 26, 2027.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.