Corporate sustainability due diligence (CSDDD)
On 1 June 2023, the proposal of the European Parliament's Committee on Legal Affairs for the Corporate Sustainability and Due Diligence Directive (CSDDD) was adopted by the majority of Members of Parliament. This directive sets forth more stringent obligations for companies operating within the EU in terms of due diligence. It mandates that companies ensure their supply chains are free from child labor, slavery, worker exploitation, environmental pollution, environmental degradation, and biodiversity loss.
Compared to the European Council's stance, the draft directive adopted by the European Parliament expands the scope of the rules, encompassing a larger number of companies. The requirements will apply to EU companies with over 250 employees and a global revenue exceeding 40 million euros. The original draft set these thresholds at 500 employees and 150 million euros. The transition periods will be staggered, with durations of up to five years depending on the size of the companies.
Additionally, the draft proposes penalties of up to 5 percent of global revenue for non-compliance. It also mandates that companies develop plans outlining their contributions to limiting global warming to 1.5 degrees Celsius.
Background:
The CSDDD is an upcoming EU directive designed to compel companies to identify, assess, and mitigate sustainability risks across their supply chains. The proposal draws inspiration from the French "loi de vigilance" and the German LkSG (Supply Chain Due Diligence Act).
In June 2023, the final position of the European Parliament was determined. Recently, the Members of the European Parliament (MEPs) in the Committee on Environment voted to tighten the Commission's proposal (in contrast to the Council's "General Approach" of December 1, 2022). Among other things, the personal scope of the directive is set to be expanded. Now, the trilogue negotiations will commence.
The primary objective of the directive is to ensure that companies adopt responsible business practices and adhere to human rights, social, and environmental standards. It places greater emphasis on companies being accountable to stakeholders such as investors, customers, and society at large. Furthermore, companies will be required to provide transparent reports on their procurement practices, working conditions, environmental impacts, and measures taken to prevent human rights violations.
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