March 15th marked a pivotal moment in the European Union's commitment to sustainability and corporate responsibility. After a series of negotiations and compromises, EU member states reached a consensus on the Corporate Sustainability Due Diligence Directive (CSDDD), moving closer to setting a new standard for corporate conduct within the bloc. This groundbreaking agreement is poised to introduce a framework obliging companies to incorporate sustainable practices and due diligence processes into their operations and value chains.
Heidi Hautala, Vice President of the European Parliament and Chair of the Responsible Business Conduct Working Group commented: “The price of the agreement was a significant dilution of the level of ambition of the #CSDDD.” However, she reinforced just how crucial a step forward it is: “Beneficiaries of CSDDD will be the millions of people in modern slavery and other victims of corporate negligence and abuse. Responsible companies will also benefit from a level playing field and businesses will finally get more engaged in the fight against climate change.”
The updated scope and implementation of the directive are as follows:
Updated scope:
- The directive applies to both EU and non-EU companies with at least 1,000 employees (previously 500 employees).
- EU companies must have a net worldwide turnover of at least €450 million (previously €150 million)
- Non-EU companies must have at least €450 million in net turnover generated within the Union.
- The high-risk sector approach has been excluded.
Updated implementation timelines:
- Companies with over 5,000 employees and a turnover of €1.5 billion will have three years to comply.
- Companies with over 3,000 employees and a turnover of €900 million will have four years.
- Companies with over 1,000 employees and a turnover of €450 million will have five years.
The updated CSDDD will now affect approximately 5,500 large EU companies, a significant reduction from the 16,000 originally covered. Although the scope for non-EU companies has also been reduced, thousands will still be affected and must start preparing now. Furthermore, the directive will indirectly impact many more companies throughout the region and global value chains (particularly in North America and Asia-Pacific) as large in-scope companies cascade requirements to their partners and suppliers.
Despite the reduction in scope and ambition, the directive is still expected to help “level the playing field” for companies based or doing business in the EU by creating a harmonized due diligence framework. It will compel in-scope companies to take tangible steps to reduce and eventually eliminate the negative social and environmental impacts of their operations and value chain. This will not only positively impact people and the planet but enable companies to better mitigate risks inherent to a globalized value chain, such as supply disruptions, cost volatility and reputational incidents. In the long term, this risk mitigation and due diligence framework can be enriched to help companies build low-carbon readiness and drive the transition to more sustainable business models.
CSDDD will now be put to a vote in the EU Parliament, which is expected to occur around mid-April.
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