The CSDDD has finally been approved by EU lawmakers
After much back and forth, the Corporate Sustainability Due Diligence Directive (CSDDD) has been approved by the European Council. The new law will impose sustainability and human rights due diligence standards on firms operating within the EU. Requirements apply not only to the direct actions of the company, but also to their subsidiaries and supply chain. Subsequently, EU based companies, as well as non-EU companies that conduct a set level of business within the bloc, could become liable for the actions of their suppliers.
Who will be impacted by this new legislation?
Originally, the CSDDD was set to impact companies with 500+ employees and a turnover of €150 million ($163.3 million) or more. However, the now much-changed legislation will only impact companies with 1,000 or more employees, and turnover in excess of €450 million ($489.9 million)[i]. The revised deal also removes a sector approach which would have seen companies in ‘high-risk’ industries or segments included within the legislation, even if they didn’t fall within the employee or income parameters. The changes mean that the number of impacted companies will be roughly 30% of those set to be impacted the original scope- this translates to circa 5,500 companies[ii].
Alterations to the CSDDD also included a phased approach to its roll out which will now see it imposed over a longer period. Forbes report[iii] that companies with 5,000 employees and €1,500 million turnover ($1,633 million) will be impacted in 3 years. Companies with 3,000 employees and €900 million turnover ($979.8 million) will be impacted in 4 years. Companies with 1,000 employees and €450 million turnover will be impacted in 5 years.
What happens next?
The legislation will now go to a vote in the European Parliament, where it is expected to pass. Should this happen within the next couple of weeks the CSDDD could be enshrined into law before the end of April. According to Linklaters[iv], once approved by the Parliament, the final text will also have to be formally adopted by the European Council before being published in the Official Journal and entering into force 20 days later. This will trigger the transposition period of 2 years for the Member States as well as transition periods, it means the law could impact larger businesses as early as 2027.
References
[i] After Delays, EU Approves Corporate Sustainability Due Diligence Law (forbes.com)
[iii] After Delays, EU Approves Corporate Sustainability Due Diligence Law (forbes.com)
[iv] Ibid
