Corporate Sustainability Due Diligence Directive gets through vote from Council of the EU

The Council of the European Union has today reached a significant milestone by finally agreeing on the text of the Corporate Sustainability Due Diligence Directive (CSDDD), following a series of meetings since the provisional political agreement was reached between the Council and the European Parliament.

The road to agreement has not been without its challenges. Delays were experienced due to lobbying and blocking efforts from countries such as Germany, Italy and France. However, despite these obstacles (and nine meetings later), the Council has managed to forge ahead and find common ground, albeit with a watered down version of the legislation.

Compromises reached

To reach this agreement, certain compromises were made, resulting in the watering down of the directive's original text.

Thresholds

The most significant change is the increase in the scope of thresholds. Initially, the directive aimed to apply to EU companies with a minimum of 500 employees and a turnover of €150 million.

These thresholds have been adjusted to include EU companies with a minimum of 1000 employees and a net turnover of €450 million.

The directive will also apply to non-EU companies with a turnover in the EU of at least €450 million and the scope also includes companies that do not reach the turnover threshold but that are the ultimate parent company of a group.

This adjustment effectively reduces the number of companies that will be subject to the CSDDD's requirements.

High-risk sectors

Another significant alteration is the removal of the high-risk sectors approach. This means that the directive will no longer specifically target industries with a higher likelihood of adverse environmental or social impacts.

Supply chain

Furthermore, the definition of the supply chain has been narrowed down.

The downstream part of the definition has been limited by only applying to business partners which carry out activities for or on behalf of the company. 

Staged approach

The agreed text also introduces a staged approach:

• a three-year application period for companies with more than 5000 employees and €1500 million turnover;
• a four-year application period for companies with more than 3000 employees and €900 million turnover; and
• a five-year application period for companies with more than 1000 employees and €450 million turnover.

Osborne Clarke comment

Now the Council has voted on the text of the CSDDD, the last step before it becomes law is for the European Parliament to pass its vote on the legislation. This will happen during the plenary session which will run from 23 to 25 April, and is the last plenary before the elections in June. It will then need to be implemented in each Member State.

While the CSDDD may not have retained its original strength and breadth of scope, it still represents a step forward in promoting corporate sustainability within the EU.

Companies, both in the EU and outside, now face the task of reassessing whether they fall within its scope, understanding when the measures will take effect and what actions they will need to start taking to ensure compliance with the new rules.