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Companies in the EU take more responsibility for human rights and the environment

Companies in the EU are to assume more responsibility for upholding human rights and protecting the environment. The due diligence obligations extend to the entire value chain.

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The German insurance industry firmly supports the objectives of the Corporate Sustainability Due Diligence Directive (CSDDD). However, the implementation must take into account the specifics of the insurance business in order to avoid disproportionate due diligence requirements and incalculable civil liability risks.

Insurance and real economy should not be treated equally

According to the German Insurance Association (GDV), extending due diligence requirements for insurance companies to their customers would be problematic.

Insurers have comparatively little influence on the behaviour of their customers. Therefore, such obligations would not seem proportionate. Although there is a "link" between the business activities of the company and its insurer, this link is generally not the cause of (imminent) violations of human rights or environmental standards in the sphere of the customer, nor does the provision of insurance cover contribute to such violations. If insurers nevertheless feel compelled not to provide insurance cover or to terminate existing insurance cover in the event of persisting risks on the part of the customer, this would affect numerous stakeholders who are not even the focus of the CSDDD. Insurance protects not only companies themselves, but also employees and other third parties against risks, damages or losses. Accident and liability insurance, for example, is designed to compensate employees or residents for damage caused by companies.

EU Parliament calls for wider scope of directive

After difficult negotiations in the Legal Affairs Committee (JURI), the European Parliament (EP) recently found its own position on the Commission proposal.

The Council of Ministers had already defined its basis for negotiation at the end of 2022. Thus, companies with more than 500 employees and more than 150 million euros in annual sales are to be covered by the directive. If they are active in a high-risk sector, the criteria are reduced to 250 employees and 40 million euros in annual sales, half of which is generated directly in high-risk sectors.

In contrast, Parliament is calling for a much stricter approach. The directive should apply to companies with 250 employees and annual sales of 40 million euros. With regard to companies based in a third country and operating in the EU, the co-legislators agree on an annual turnover of 150 million euros, of which 40 million euros are generated in the EU.

Directive to be implemented in stages

The EP and the Council agree that the CSDDD should enter into force in small steps according to company size. For market participants with at least 1000 employees and 300 million euros in annual sales or non-European companies with at least 300 million euros in annual sales in the EU, there is to be a three-year transition period.

For companies with at least 500 employees and an annual turnover of 150 million euros or non-European companies with at least 150 million euros of annual turnover in the internal area, the implementation period will be four years.

Companies with 250 employees and an annual turnover of 40 million euros (20 million euros of which in the high-risk sector) or non-European companies with 40 million euros (20 million euros of which in the high-risk sector) of added value in the EU have five years according to the Council's proposal. According to the EP, on the other hand, the requirements of the directive for these companies (without reference to high-risk areas) should also take effect four years after entry into force, unless their annual turnover does not exceed 150 million euros. In this case, they can opt for first-time application five years after the directive enters into force.

Trilogue negotiations about to begin

The EP will adopt the draft JURI report in May 2023. The inter-institutional trilogue negotiations between EP and Council will start this summer.

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