If EU Sales Exceed Approximately 661.1 Billion KRW, 'Ultimate Parent Company' Must Undergo Due Diligence
The European Union (EU)'s 'Supply Chain Due Diligence Directive' has passed the European Parliament. This directive imposes human rights and environmental protection obligations on companies, and a significant number of Korean companies are expected to be subject to it.
On the 24th (local time), the plenary session held at the European Parliament in Strasbourg, France. [Image source=Yonhap News]
On the afternoon of the 24th (local time), at the plenary session of the European Parliament held in Strasbourg, France, the 'Corporate Sustainable Supply Chain Due Diligence Directive' (CSDDD) was approved with 374 votes in favor, 235 against, and 19 abstentions. The CSDDD is a law designed to prevent human rights and environmental damages such as forced labor or deforestation that may occur throughout the supply chains of companies both inside and outside the EU.
According to the directive, non-EU companies, including those from Korea, whose EU sales exceed 450 million euros (approximately 661.1 billion KRW), will have the 'ultimate parent company' bear the due diligence obligations. A significant number of Korean companies are expected to fall under this scope. For EU companies, those with more than 1,000 employees and global sales exceeding 450 million euros are subject to the directive.
Subject companies must establish due diligence plans across their entire management. They must conduct self-assessments of actual and potential adverse human rights and environmental impacts within their supply chains and implement preventive, mitigative, or remedial measures in order of risk severity. They are also required to establish grievance mechanisms through which labor unions or related organizations can raise complaints, and from 2029, disclosure of due diligence activities will be mandatory.
Violations of the regulations will incur fines. The CSDDD requires each member state to set the maximum fine at no less than 5% of the company's global annual turnover when enacting domestic laws. Some member states may set higher maximum fines.
The directive is expected to come into effect after final approval by the Council of Ministers representing the 27 EU countries next month, followed by publication in the official journal. Since provisional approval was agreed upon at the ambassadors' meeting of the 27 countries last month, barring any unexpected developments, the subsequent procedures are expected to be completed smoothly.
Upon enforcement, the 27 countries must enact domestic laws based on the CSDDD as a legal guideline within two years, and implementation will be phased in from 2027 to 2029 according to company size.
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