Due Diligence: Why Is Disclosure a Strategic Issue?

The EU “Due Diligence” Directive requires certain companies to disclose information annually regarding risks of human rights violations and environmental damage. If the companies concerned are subject to the EU “Sustainability Reporting” Directive, they may disclose this information in their sustainability reports. For the others, a specific statement must be prepared. Beyond litigation related to a failure to exercise due diligence, this transparency requirement will also have implications for defamation lawsuits that a company might file.

The revised EU Corporate Sustainability Due Diligence Directive (“CS3D”) entered into force on 18 March 2026 (1). A two-year period has now begun during which Member States must transpose the Directive’s provisions into their national laws.

The drafting of this legislation sparked a bitter battle within the European institutions. After an initial Directive was adopted on 13 June 2024 following several twists and turns, the results of the European elections and the subsequent election of Donald Trump led the European Commission to propose a revised version as part of a so-called “Omnibus” Directive proposal. Following the amendments resulting from the European legislative process, this revised Directive was adopted last February.

This “Omnibus” Directive not only amends the initial “Due Diligence” Directive of 13 June  2024; it also amends the Directive on corporate sustainability reporting, also known as the “CSRD” (Corporate Sustainability Reporting Directive (2)).

With regard to the disclosure of information on risks of human rights violations and environmental damage, these two directives complement each other.

•    First, under the CS3D, companies falling within its scope will be required to publish an annual statement on their website addressing the matters covered by the Directive (3).

This annual statement must be published within a reasonable period of time, but no later than 12 months after the balance sheet date of the financial year or, for companies voluntarily reporting in accordance with the CSRD, by the date of publication of the annual financial statements.

•    However, companies that are subject to sustainability reporting requirements under the CSRD are not subject to the annual reporting requirement of the CS3D, as they are already required to publish such information.

For the record, the criteria and thresholds for the application of the CS3D and the CSRD are not the same. Thus, certain companies that do not fall within the scope of the CS3D may fall within the scope of the CSRD, and vice versa.

To assist companies subject to the CSRD, the European Commission has established European sustainability reporting standards (ESRS). The ESRS are divided into several categories: (i) cross-cutting standards, (ii) topical standards (environmental, social, and governance standards), and (iii) sector-specific standards. Companies must prepare their sustainability reports in accordance with these categories.

The first reports under the CSRD are expected in 2028, while the annual statements under the CS3D are scheduled for 2030.

In France, however, there is already a requirement to publish a due diligence plan (“plan de vigilance”) under a 2017 law (4). This law applies, however, only to French companies that, at the end of two consecutive financial years, have (i) at least 5,000 employees within the company and its direct or indirect subsidiaries whose registered office is located in France, or (ii) at least 10,000 employees within the company and its direct or indirect subsidiaries whose registered office is located in France or abroad.

This due diligence plan – the content of which is set forth in Article L. 225-102-4 of the French Commercial Code (5) – must be made public and attached to the management report of the company concerned.  

Although the CS3D Directive is inspired by the French due diligence law, the latter will need to be amended in certain respects to comply with the European legal framework.

In terms of disclosure, the required transparency has several legal implications:

•    First, the information disclosed by companies will be used to assess whether or not they have complied with their due diligence obligation as provided for by French law and the CS3D. The collection and processing of relevant information, as well as its objective and transparent presentation, will play a key role in the company’s relations with stakeholders. 

In the event of human rights violations or environmental damage within the companies concerned, their subsidiaries, or their value chain, stakeholders (including employees, unions, NGOs, and environmental advocates) will use the disclosed information as a benchmark for evaluating the measures taken by the companies concerned, particularly to prevent and put an end to such infringements.   
It is therefore essential, from a legal standpoint, for the companies concerned to disclose the necessary and sufficient information to demonstrate their compliance with their due diligence obligation.

•    Second, the information made public by companies will also be useful in assessing whether statements made by stakeholders, competitors, or third parties regarding the company concerned are defamatory under press law.

The relevance of the information collected will thus be the best defense for the companies concerned, should they face allegations that damage their reputation.

Indeed, if a company files a defamation suit over allegations that damage its reputation, the author of the disputed statements may avoid an adverse ruling either by proving the truth of the allegations or by demonstrating good faith.

According to the case law of the European Court of Human Rights (ECHR), good faith may be established if the disputed statements relate to a debate of general interest and if they are based on sufficient factual grounds. French courts apply similar criteria when assessing the seriousness of the investigation, the legitimacy of the purpose pursued, the absence of personal animosity, and the use of prudent language.

Thus, the higher the level of transparency and objectivity of the information, the more difficult it will be to meet the criteria for the good faith defense in cases involving statements that damage the company’s honor or reputation.

Our team of media and communication law attorneys is available to analyze the information collected, its processing, and its presentation in light of the requirements set forth by the CS3D and CSRD Directives and by press law regulations.    

For further information:
Mathilde Defarges, Anne-Marie Pecoraro, Rodolphe Boissau, "European Union Regulatory Update: The Long Arm of EU Law Makes Engagement with Brussels Essential," May 2024, https://bluestarstrategies.com/european-union-regulatory-update-eu-laws-long-arm-makes-engagement-with-brussels-essential/

(1)  Directive (EU) 2024/1760 of 13 June 2024 on corporate sustainability due diligence, as amended by Directive (EU) 2026/470 of 24 February 2026
(2) Directive (EU) 2022/2464 of 14 December 2022 as regards corporate sustainability reporting, as amended by Directive (EU) 2026/470 of 24 February 2026
(3) The criteria and thresholds applicable to companies are defined in Article 2 of the CS3D Directive
(4) French Law No. 2017-399 of 27 March 2017 on the due diligence obligation (“devoir de vigilance”) of parent companies and contracting entities. See, in particular, Article L. 225-102-4 of the French Commercial Code, introduced by said law
(5) “The plan is intended to be developed in collaboration with the company’s stakeholders, where appropriate as part of multi-stakeholder initiatives within industry sectors or at the regional level. It shall include the following measures:
1° A risk assessment designed to identify, analyze, and prioritize risks;
2° Procedures for regularly assessing the situation of subsidiaries, subcontractors, or suppliers with whom the company maintains an established business relationship, in light of the risk assessment;
3° Appropriate actions to mitigate risks or prevent serious harm;
4° An alert mechanism to collect reports on the existence or occurrence of risks, established in consultation with the representative labor unions within the company;
5° A system for monitoring the measures implemented and evaluating their effectiveness.”