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After numerous negotiations and changes to the text, the Commission and the Council reached agreement and the EU Parliament voted in plenary for the final Corporate Sustainability Due Diligence Directive (CSDDD) text on Wednesday 24 April 2024. After that, EU member states will have 2 years to transpose it into national law. This directive covers companies’ responsibilities regarding adverse impacts on the environment and human rights that result or could result from their own operations, their subsidiaries, and their value chains.
The agreement reached includes substantial changes compared to the original proposal. This has led to a 70% reduction of companies falling under the CSDDD’s scope, a limited civil liability and the complete removal of references to directors’ remuneration.
Which companies are in scope?
The proposal is aimed at (very) large EU and non-EU companies operating in the single market:
- EU companies with more than 1000 employees and a net worldwide turnover exceeding €450 million,
- EU companies that entered into or are the ultimate parent company of a group that entered into franchising or licensing agreements with at least €22,5 million generated by royalties, provided that the ultimate parent company of that ‘group’ had a worldwide turnover of at least €80 million, and,
- Non-EU companies active in the EU with more than 1000 employees and a net worldwide turnover exceeding €450 million.
What are companies expected to do?
Companies targeted by the CSDDD and, indirectly, the companies in their value chain, will be required to take the following steps:
- Develop, implement and communicate a corporate policy on human rights and environmental due diligence;
- Integrate human rights and environmental due diligence into their policies and risk management systems;
- Identify the most significant negative environmental and human rights impacts within their operations, their subsidiaries and their value chains;
- Take necessary steps to bring to an end and, if not possible, prevent and mitigate those impacts.
What next?
Companies should start planning and preparing their due diligence process to be ready and compliant on time. The application obligations will progressively enter into force in 2027, 2028 and 2029 for companies exceeding the aforementioned thresholds.
SMEs will also be impacted when they have an established business relationship with a company subject to the directive, for example as a supplier or subcontractor in the value chain. Those companies will likely be required to provide information and comply with certain standards for the large company in scope to be able to comply with their upstream due diligence obligations.
Don’t hesitate to contact our Sustainability Team to plan ahead and prepare yourself best for this new directive.
