Agreement on the Corporate Sustainability Due Diligence Directive (CSDDD)

updated on 19 January 2024 | reading time approx. 2 minutes

In a landmark development, the Council and the European Parliament have reached a provisional agreement on the Corporate Sustainability Due Diligence Directive (CSDDD). The aim of this directive is to strengthen the protection of the environment and human rights both in the EU and worldwide. The CSDDD sets out obligations for larger companies that relate to actual and potential adverse impacts on human rights and the environment with regard to their own activities, those of their subsidiaries and activities in the value chain.

Key points of the agreement

Obligations for companies:

The CSDDD sets out obligations for larger companies in relation to environmental impacts and human rights in their value chain, including responsibility for upstream value chain and partly downstream activities such as transportation, storage and disposal.

Scope of the directive:

The agreement defines the scope of the directive for larger companies with more than 500 employees and a worldwide net turnover of 150 million euros.

The obligations also apply to companies with more than 250 employees and a turnover of more than 40 million euros, provided that at least 20 million euros are generated in certain sectors, such as textile manufacturing, agriculture, mineral resources and construction.

Financial sector:

The financial sector will be temporarily excluded from the scope of the Directive, with a review clause for possible future inclusion.

Climate change:

The agreement strengthens the obligation of companies to draw up and implement transition plans to ensure that their business strategy is compatible with limiting global warming to 1.5 °C (Paris Agreement on Climate Change).

Companies obliged under CSDDD can benefit from synergies if they are also obliged to report on sustainability under CSRD, as the two directives have certain overlaps in terms of content. Members of the European Parliament (MEPs) have ensured that companies with more than 1,000 employees will receive financial benefits for implementing the plan.

Civil liability:

Access to justice for affected individuals is to be strengthened, which is why the CSDDD also provides for civil liability of obliged companies for damage caused intentionally or negligently by breaches of due diligence. Affected parties can now assert claims against companies at the end of the supply chain within five years. The disclosure of evidence, injunctions and legal costs will be limited for plaintiffs.

Penalties:

National regulators can initiate inspections and investigations and impose sanctions on non-compliant companies, including fines and a “naming and shaming” of non-compliant companies through public disclosure. The settlement provides for penalties, including fines of up to 5% of global net turnover for companies that fail to pay the fines in the event of a breach.

Public procurement:

Compliance with the CSDDD can be used as a criterion for awarding public contracts.

Accompanying measures:

The agreement includes accompanying measures that will support all directly affected com-panies, but also SMEs that may be indirectly affected. Measures include the development of individual or shared dedicated websites, platforms or portals, as well as potential financial support for SMEs. To support businesses, the Commission may adopt specific guidelines, including model contract clauses. The Commission may also complement the support provided by Member States with new measures, including assistance to businesses in third countries.

Next steps

The political agreement reached by the European Parliament and the Council is now subject to formal approval. Once published in the Official Journal, the Directive will enter into force 20 days after publication and Member States will have two years to transpose the provisions of the Directive into national law.