Brussels (Brussels Morning) – “European Council approves diluted version of Corporate Sustainability Due Diligence Directive. Targets large firms, phases in requirements. Emphasizes human rights, environmental accountability, and Paris Agreement compliance. Potential legal ramifications for non-compliance.”
Following 45 days of discussions, the European Council approved a watered-down version of the Corporate Sustainability Due Diligence Directive. The EU CSDDD has had a tough journey, facing delays, modifications, and hurdles to overcome. Nonetheless, the direction of travel of European governments is obvious: companies need to do more to determine their exposure to unethical practices, human rights violations, and significant negative environmental issues, across their value chain.
Before the EU Council approved the directive, the original directive sought to impact companies of +500 employees with a net turnover of 150 million but after review, these numbers have been raised to +1,000 employees and a turnover of 450 million euros. With the recent modifications to the directive, the number of companies affected is about .05% of the total number of businesses operating within the EU.
When Will Companies Start Reporting Under CSDDD?
The CSDDD will be phased in over an ample time, starting in 2027 businesses with 5,000 employees and a 1.5 billion euros turnover will be required to report. By 2029, companies with 1,000 workers and 450 million euros turnover will be impacted.
The directive seeks to foster “sustainable and responsible corporate behaviour and to anchor human rights and environmental concerns in companies’ operations and corporate governance.” The core features of this duty are identifying, ending, controlling, mitigating, and accounting for negative human rights and environmental consequences in the company’s operations, subsidiaries, and value chains.
How Will Companies Verify Compliance with CSDDD?
The CSDDD is still awaiting definitive approval, but the core due diligence steps will require companies to determine potential, and actual adverse human rights and environmental impacts. Not limited to their functions but across subsidiaries and value chains. They will have to obey the six steps listed above which nearly resemble the OECD Due Diligence Guidance For Business Conduct.
In addition to containing and ending adverse impacts, companies will also be required to verify that their direct and indirect business partners concede the same steps and actions. This can be done by an autonomous third party or a selected industry intuitive to complete the verification. In the instance that a company does recognise potential or adverse impacts within its value chain, it is encouraged to contend with the value chain members instead of cutting relationships.
What Legal Ramifications Does CSDDD Enforce?
Under the proposed regulations companies will be liable for damages and impacts, if incapable of preventing them from happening or if an impact has already happened. People who were affected will be able to proclaim compensation and bring forward legal action.
One of the primary pieces of this regulation is that the CSDDD is the foremost EU law that will mandate companies to embrace a “Climate Transition Plan” by the Paris Agreement. This is surprising due to the EUs outspokenness on its commitment to the Paris Agreement set in 2015. The public sector can only pass so many rules to decarbonize sectors, eventually, the governments will apply coercion on companies to begin establishing concrete plans to decarbonize their operations as well.
