Corporate_Sustainability_Due_Diligence_Directive

Corporate Sustainability Due Diligence Directive

Corporate Sustainability Due Diligence Directive

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The Corporate Sustainability Due Diligence Directive (CSDDD/CS3D – together with the CSRD, the Directives) is a proposed Directive in European Union law to require require due diligence for companies to prevent adverse human rights and environmental impacts in the company’s own operations and across their value chains.[1]

History

The CSDDD/CS3D was first published by the European Commission on February 23, 2022. On December 1, 2022 the European Council adopted its own approach to the written proposal. On June 1, 2023, the European Parliament adopted the CSDDD as a draft that would be negotiated for the rest of the year.[2]

Initially, the legal implementation of the directive failed in a vote among the member states on February 28, 2024, as the required majority of at least 15 EU member states, which together represent at least 65% of the EU population, was not achieved.[3] The Belgian Council Presidency then announced that it would examine whether the concerns of the Member States could be allayed in consultation with the European Parliament.[4]

After further negotiations, the EU member states agreed on a weakened version of the European Supply Chain Directive on March 15, 2024, which now received a qualified majority. Germany abstained due to its internal blocking stance of the small party in the governing coalition, the economic liberal FDP. However, Italy was convinced by the changes, resulting in a majority without approval of the German coalition government.[5][6][7]

The Directive is expected to be officially adopted in 2024 and then be incorporated into domestic laws within two years by all of the European Union member states.[2]

Contents

Summary

The current proposals for CSDDD establishes a framework of due diligence for companies to identify actual or potential risks and harm to human rights and the environment as well as establishing processes and standards to diminish these risks. The Directive will apply to a company’s “chain of activities", as well as operations across the company’s subsidiaries both insides and outside of Europe. The purpose of the Directive is to improve the regulatory framework on human rights and sustainability due diligence, which will aid in the EU’s transition to a climate-neutral and green economy. Additionally, CSDDD will establish consistency across different Directives in the European Union.[8]

Companies involved

  • Large EU limited liability companies:
    • Group 1: +/- 9,400 companies - 500+ employees and net EUR 150 million+ turnover worldwide.
    • Group 2: +/- 3,400 companies in high-impact sectors. - 250+ employees and net EUR 40+ million turnover worldwide, and operating in defined high impact sectors, e.g. textiles, agriculture, extraction of minerals. For this group, the rules start to apply two years later than for group 1.
  • Non–EU companies: +/- 2,600 companies in Group 1 and +/- 1,400 in Group 2
  • Third country companies active in the EU with turnover threshold aligned with Group 1 and 2, generated in the EU.
  • Small and medium-sized enterprise (SMEs)
  • Micro-enterprises and SMEs are not concerned by the proposed rules. However, the proposal provides supporting measures for SMEs, which could be indirectly affected.[9]

Enforcement

The rules of directors' duties are enforced through existing Member States' laws. The rules on corporate sustainability due diligence will be enforced through administrative supervision. European Union Member States will designate an authority to supervise and enforce the Directive, including fines and compliance orders. The European Union will set up a European Network of Supervisory Authorities that will bring together representatives of the Member States to ensure a coordinated approach. Member States will ensure that victims get compensation for damages resulting from the failure to comply. [10]

References

  1. [1]
    "EU's Proposed Directive on Corporate Sustainability Due Diligence: What US companies need to know | DLA Piper". www.dlapiper.com. Retrieved 2024-01-13.
  2. [2]
    "EU's Proposed Directive on Corporate Sustainability Due Diligence: What US companies need to know | DLA Piper". www.dlapiper.com. Retrieved 2024-01-13.
  3. [3]
    "EU-Lieferkettengesetz fällt politischer Kehrtwende zum Opfer". Retrieved 23 March 2024.
  4. [4]
    "Lieferkettengesetz verfehlt Mehrheit unter EU-Ländern". Der Spiegel (in German). 28 February 2024. Retrieved 23 March 2024.
  5. [5]
    Spickhofen, Thomas. "Kommentar zum EU-Lieferkettengesetz: Es geht auch ohne Deutschland". tagesschau.de (in German). Retrieved 23 March 2024.
  6. [6]
    Tschirner, Ulrike (15 March 2024). "Lieferkettenrichtlinie: EU-Staaten einigen sich auf Lieferkettengesetz". Die Zeit (in German). Retrieved 23 March 2024.
  7. [7]
    Niranjan, Ajit (15 March 2024). "EU approves watered-down human rights and supply chain law". The Guardian. Retrieved 23 March 2024.
  8. [8]
    "EU's Proposed Directive on Corporate Sustainability Due Diligence: What US companies need to know | DLA Piper". www.dlapiper.com. Retrieved 2024-01-13.
  9. [9]
    "Corporate sustainability due diligence - European Commission". commission.europa.eu. 2022-02-23. Retrieved 2024-01-13.
  10. [10]
    "Corporate sustainability due diligence - European Commission". commission.europa.eu. 2022-02-23. Retrieved 2024-01-13.
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