A New Era of Corporate Responsibility: An Analysis of EU Directive 2024/1760 on Corporate Sustainability Due Diligence

Introduction:

On July 25, 2024, the European Union took a monumental step towards corporate responsibility with the enactment of Directive 2024/1760 on Corporate Sustainability Due Diligence. This legislative act represents a paradigm shift in how businesses operate in the 21st century, setting a new standard for sustainable and responsible corporate behavior across global value chains.

Key Provisions and Implications:

1. Scope of Application:
   The Directive applies to EU companies with over 1000 employees and a global turnover exceeding €450 million, as well as non-EU companies with similar turnover within the EU. Approximately 6000 EU companies and 900 non-EU companies will be directly affected. While SMEs are not directly targeted, they will experience indirect impacts as partners in value chains.
2. Corporate Obligations:

• Implementation of due diligence processes to identify, prevent, and mitigate adverse impacts on human rights and the environment.
• Adoption of a climate transition plan aligned with the Paris Agreement and the 2050 climate neutrality objective.
• Ensuring ethical and environmental standards compliance throughout the entire supply chain.

1. Enforcement Mechanisms:
   Member States are required to designate supervisory authorities and implement „effective, proportionate, and dissuasive” sanctions. A European Network of Supervisory Authorities will be established to ensure a coordinated approach at the EU level.
2. Civil Liability:
   The Directive provides for victims to seek compensation for damages resulting from intentional or negligent failure to comply with due diligence obligations.

Analysis of Implications:

1. Supply Chain Transformation:
   Companies will need to reevaluate their suppliers based not only on economic criteria but also on ethical and environmental standards. This will lead to a significant restructuring of global value chains, promoting sustainable practices worldwide.
2. Accelerated Innovation:
   The necessity to reduce environmental impact will drive innovation in green technologies. Companies investing in sustainable solutions will gain a significant competitive advantage in the new green economy.
3. New Business Opportunities:
   The Directive will catalyze the development of markets for sustainability consulting, ethical auditing, and supply chain monitoring technologies. This creates exciting opportunities for new ventures and job creation in the sustainability sector.
4. Redefining Corporate Success:
   Performance will no longer be measured solely in financial terms but will include social and environmental impact metrics. This holistic approach to corporate success aligns with growing stakeholder expectations and sustainable development goals.
5. EU-wide Harmonization and Competitiveness:
   By creating a harmonized legal framework across the EU, the Directive offers legal certainty and a level playing field. This will enhance the competitiveness of European companies on a global scale, setting a new international benchmark for corporate responsibility.
6. Benefits for Developing Countries:
   The implementation of this Directive will lead to improved protection of human rights and the environment in developing countries, as well as enhanced living conditions for people in these regions.

Costs and Implementation:

Companies will bear the costs of establishing and operating due diligence processes, as well as transition costs to adapt their operations and value chains. While these may seem burdensome initially, they will lead to greater resilience and competitiveness in the long term.

Member States have until July 26, 2026, to transpose the Directive into national legislation. Application will begin gradually, with the first group of companies subject to the new rules from July 26, 2027, and full application to be achieved by July 26, 2029.

Conclusion:

EU Directive 2024/1760 marks a turning point in European and global business history. It represents a legislative response to growing calls from civil society, citizens, and even the business community for mandatory due diligence rules. In fact, 70% of companies responding to the public consultation recognized the need for EU-level action in this area.

As a PhD candidate in Industrial Management, I see this Directive as a unique opportunity for positive transformation. It presents challenges, yes, but also immense potential for companies to become leaders in the new green economy. The long-term benefits – for companies, society, and the planet – are immeasurable.

Companies that swiftly embrace these changes will not only avoid sanctions but will gain consumer trust, attract talent and sustainability-oriented investors, and position themselves as leaders in the new sustainable economy.

This Directive is not just a legal obligation; it’s an invitation to innovation, responsibility, and authentic leadership. The future of our planet – and of business – depends on how we respond to this challenge. As researchers and future industry leaders, we have the exciting opportunity to shape this new era of sustainable and responsible business practices.