EU firms face new climate due diligence rules

The European Parliament today adopted a law that will oblige larger companies to mitigate their impact on human rights and the environment.

The directive lays down obligations for EU and non-EU firms and parent companies with over 1,000 employees and with a turnover of more than €450mn ($489mn). It will also apply to franchises with a turnover of more than €80mn if at least €22.5mn was generated by royalties.

Companies will also have to draw up a transition plan "making their business model compatible with the global warming limit of 1.5°C under the Paris Agreement".

The directive, which needs to be transposed into EU states' national laws, sets out an obligation to "adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, compatibility of the business model and strategy of the company with the transition to a sustainable economy and with the limiting of global warming to 1.5°C".

The new requirements will apply to the companies' "own operations, the operations of their subsidiaries, and the operations carried out by their business partners in companies' chains of activities".

Transition plans must take into account the goal of achieving the EU's 2050 climate neutrality targets, as well as the bloc's intermediate climate goals.

They should tackle, "where relevant", firms' exposure to coal-, oil- and gas-related activities. But the directive defines the goal as an "obligation of means" — taking account of progress firms make — but also the "complexity and evolving nature of climate transitioning". Firms only need to "strive" to achieve their greenhouse gas (GHG) emission reduction targets, even if such plans should include "time-bound targets" for 2030 and in five-year steps up to 2050.

EU foreign ministers this week set out the bloc's approach to "green diplomacy" for 2024. Foreign ministers yesterday confirmed a non-legislative call for additional, new and "innovative" sources of climate finance from a wide variety of sources, including from the fossil fuel sector and other high-emission sectors. This comes as a new finance goal — moving on from the $100bn/yr target that developed countries agreed to deliver to developing countries over 2020-25 — must be decided at the UN Cop 29 climate conference in Baku, Azerbaijan, in November. Ministers also pointed to the work of a taskforce on international taxation that is to be presented at Cop 29.

By Dafydd ab Iago