We are currently facing an evolving regulatory landscape, where sustainability matters are more and more considered and where actors of the financial sector are required to face the negative externalities that their activities may have on environmental and social issues.
As an EU Member State, Luxembourg has already implemented the European sustainability-related disclosure regulations (such as SFDR, EU Taxonomy, NFRD and soon, the CSRD). However, unlike its neighbouring Member States, such as France[1] or Germany[2], Luxembourg has no domestic legal ground so far to make Luxembourg-domiciled companies accountable for the impact of their activities on human rights and environmental matters, including within their value chain.
In that context, a bill of law was submitted to the Luxembourg Parliament on 16 May 2023 to introduce a duty of diligence for companies in terms of sustainability (the Bill of Law)[3]. The Bill of Law provides for the introduction of a vigilance duty for (i) large Luxembourg companies (i.e. where at least two of the following criteria are met: 250 employees, an annual turnover of 50 million euros and a balance sheet 42 million euros) and (ii) small and medium enterprises which have an economic activity “at risk”, as such list of activities would be defined by way of Grand Ducal regulation.
The duty of vigilance would require any in-scope company to consider and address the impact of their activities, including within their value chain, on human rights and the environment. In-scope companies would namely be required to:
- examine their activities that may have a negative impact on human rights or the environment, as well as the activities of their subsidiaries and business partners;
- take the necessary measures to prevent or end such negative impacts;
- mitigate the impacts that may not be evitable; and
- cease the activities for which the impacts are deemed too great.
In addition, in-scope companies would have to set up a “vigilance plan” describing the mechanism put in place to comply with the diligence duty of the company.
Finally, the Bill of Law also provides for the creation of a dedicated authority which will be, inter alia, in charge of monitoring the compliance of the in-scope companies with their duty of vigilance, as well as handling direct complaints from stakeholders in that respect.
The Bill of Law aims at addressing the urgency to legislate on the impact of activities of businesses on human rights and the environment, while the proposal of a directive, addressing similar issues, is being discussed at the level of the European Union[4]. The timing of application of such directive remains uncertain and may take up to a few years.
The Bill of Law is currently being discussed by the Luxembourg Parliament before being voted on, and our dedicated ESG experts at CMS Luxembourg will keep monitoring the legislative process.
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