Council gives its final approval to the Corporate Sustainability Due Diligence Directive
On May 24th 2024, the Council formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). This marks the last step in a decision-making process that started in 2022 and was remarkable in itself. This blog-post is an update to our existing posts about the CSDDD and intents to provide a quick overview of what the CS3D is about and what the next steps are.
The CSDDD — a brief overview
Large companies are at the forefront when it comes to sustainability, since they are the ones that have the resources needed to effectively contribute to a positive change. Sustainability is not limited to environmental topics. This is why the CS3D is focused on adverse impacts on human rights and environmental protection.
What is new compared to other legislation like the German Lieferkettensorgfaltspflichtgesetzt is the fact that the obligations under the CSDDD extend beyond the companies’ operations and includes the activities of subsidiaries and also the activities of business partners in the companies’ chain of activities (or value chain) beyond tier 1 suppliers.
The Corporate Sustainability Due Diligence Directive will apply to (EU and non-EU) companies of more than 1000 employees that generate a turnover of more than €450 million. In-scope companies will have to implement a system to identify, assess, prevent and remedy adverse impacts on human rights or the environment. As mentioned above, companies are required to ensure that human rights and environmental obligations are respected beyond their tier 1 suppliers. So the entire chain of activities is relevant to complying with the CSDDD.
If companies identify adverse impacts on human rights or the environment, the directive requires that appropriate measures are taken to mitigate, bring to an end or minimise the adverse impacts. This is not limited to their operations, but also extends to those of their subsidiaries and business partners in the chain of activities.
Another requirement is that companies that fall under the CS3D will need to adopt and put into effect a climate transition plan that is in line with the Paris Agreement on climate change.
In-scope companies
| EU companies (Category 1) | Non-EU companies (Category 2) |
Group 1 – “Very large” companies that had in their last financial year:
|
Group 1a – “Very large” companies that generated a net turnover of more than EUR 450 million in the EU in the financial year preceding the last financial year. |
| Group 2 – Ultimate parents of “very large” groups, i.e., companies, not falling in Group 1, that are the ultimate parent of a group reaching the thresholds outlined above for Group 1 on a consolidated basis in the last financial year. | Group 2a – Ultimate parents of “very large” groups, i.e., companies, not falling in Group 1a, that are the ultimate parent of a group reaching the financial threshold outlined above for Group 1a on a consolidated basis in the last financial year. |
Group 3 – Companies with a franchising or licensing business model, i.e., companies that entered into – or are the ultimate parent company of a group that entered into – franchising/ licensing agreements (ensuring a common identity and business concept) in the EU, and provided that, in the last financial year:
|
Group 3a – Companies with a franchising or licensing business model, i.e., companies that entered into – or are the ultimate parent company of a group that entered into – franchising/licensing agreements (ensuring a common identity and business concept) in the EU, and provided that, in the financial year preceding the last financial year:
|
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Timeline
| Year | 2027 (3 years) |
2028 (4 years) |
2029 (5 years) |
| EU companies
(Category 1) |
> 5’000 employees and Net worldwide turnover > EUR 1.5 bi |
> 3’000 employees and Net worldwide turnover > EUR 900 mio |
> 1’000 employees and Net worldwide turnover > EUR 450 mio |
| Non-EU companies
(Category 2) |
net EU turnover > EUR 1.5 bi |
net EU turnover > EUR 900 m |
net EU turnover > EUR 450 m |
What is next for the CSDDD?
The formal approval by the Council marks the formal end of the legislative act for the Corporate Sustainability Due Diligence Directive. After the directive is published in the Official Journal of the European Union, it will enter into force on the twentieth day following its publication.
Thereafter, a two-year period starts in which EU member states have to implement the directive into national law and implement the required administrative procedures.
The CS3D will come with a phased in approach depending on the size of the companies. The directive will apply to the first set of companies 3 years from the entry into force that meet the following criteria: More than 5000 employees and €1500 million turnover.
One year later, the next group of companies with more than 3000 employees and €900 million turnover will fall under the CS3D.
Finally, five years after entry into force, the directive will apply to companies with more than 1000 employees and €450 million turnover.
Sources and further reading
European Council – Competitiveness Council (Internal market and industry), 24 May 2024: https://www.consilium.europa.eu/en/meetings/compet/2024/05/24/
Press release by the European Council: https://www.consilium.europa.eu/en/press/press-releases/2024/05/24/corporate-sustainability-due-diligence-council-gives-its-final-approval/
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