EU Member States have today given their final approval to the Corporate Sustainability Due Diligence Directive (CSDDD), a key legislative proposal that forces companies to scrutinise their supply chains for environmental and human rights abuses. This follows weeks of knife-edge negotiations, with eleventh-hour opposition from a cohort of Member States led by Germany resulting in a watered-down text from the original proposal tabled by the European Commission in 2022.
Under the new agreement, the threshold for companies to be included within the scope of the legislation is 1,000 employees and annual turnover of EUR 450 million, up from 500 employees, and turnover of EUR 300 million in December’s trilogue-agreed text. These companies must undertake various reporting and disclosure requirements for their upstream and downstream chain of activities. For upstream, this applies to business partners whose activities are related to the company’s provision of services or production of goods, while for downstream, this applies to business partners’ activities when they are related to the distribution, transport, and storage of the company’s products and services. Companies in the financial sector are only subject to requirements regarding their upstream business partners.
The newly-agreed text also requires companies to draft a climate plan in line with the Paris Climate Agreement, while provisions on financial incentives for business managers to enhance the company’s green transition were ultimately deleted from the text.
The next step is European Parliament approval in its plenary session in April, where it is not expected to encounter opposition. Following this, the legislation is expected to enter into force sometime in Q2 2024, after which Member States are tasked with introducing legislation to transpose the Directive into national law, whereupon they may choose to increase the scope or strengthen requirements on companies.
Larger companies (5,000+ employees and EUR 1.5+ billion turnover) will be subject to the rules from a period of three years after the legislation enters into force. For companies with 3,000+ employees and EUR 900+ million turnover, the period is four years, while for the remaining companies in scope (1,000 to 3,000 employees and EUR 450 million to EUR 900 million in turnover), the period is five years. In cases of non-compliance, EU Member States issue fines of at least 5% of a company’s annual turnover.
If you would like to learn what impact the CSDDD could have for your business, or how you can prepare for it, please contact Mark Smitham [email protected], Rory Gilliland at [email protected], or Öykü Özfırat at [email protected].
