The European Parliament recently approved the Corporate Sustainability Due Diligence Directive (CSDDD), taking a significant step towards its formal adoption by the European Union. The CSDDD establishes a legal liability for companies in relation to environmental and human rights violations within their supply chain. However, the final version of the directive was considerably weakened from the original proposal after 45 days of closed-door negotiations and political pressure.
The CSDDD, also known as the CS3D, sets a corporate due diligence standard on sustainability issues for businesses operating in the EU. This primarily includes environmental concerns, climate change, and human rights. The new due diligence requirements extend not only to the actions of the company itself but also to its subsidiaries and supply chain. This means that EU-based companies, as well as non-EU companies conducting a set level of business in the EU, could be held accountable for the actions of their suppliers.
Originally, the CSDDD applied to companies with 500 employees and a turnover of €150 million. However, these thresholds were raised to 1,000 employees and a turnover of €450 million in the final draft. The directive will be phased in over a period of five years, with larger companies with 5,000 employees and a turnover of €1,500 million being impacted first in 2027, followed by smaller companies in subsequent years.
Following the approval by the European Parliament, the CSDDD is expected to proceed to the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (COREPER) for a vote on May 15. A final vote will then be held by the Competitiveness Council (COMPET) on May 23. Once formally adopted by the EU, member states will have two years to implement the directive at the national level, ensuring compliance with the new regulations on corporate sustainability due diligence.
