EU approves long-awaited directive on sustainability due diligence

The EU’s long-awaited Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) finally achieved approval from the European Council on 15 March and will now be put to the European Parliament for final approval.

If approved, the CSDDD will require companies to “conduct risk-based human rights and environmental due diligence” in order to identify, assess, prevent, mitigate and disclose the “actual or potential adverse impacts” of their activities and those of their subsidiaries and value chain. The inclusion of value chains means that CSDDD will not just be relevant to companies to whom the directive is directly applicable, but will capture a significantly wider range of entities. This includes smaller organisations with the company’s value chain ecosystem, even if they operate beyond the EU’s borders.

While some EU member states, including France and Germany, already have similar reporting requirements, this would be the first example of an EU-wide standard being enshrined in law.

Who will the CSDDD apply to?

The CSDDD will initially apply to companies with 5,000 employees and €1,500 million turnover. It will then be phased in to apply to companies with 3,000 employees and €900 million turnover, and finally to companies with 1,000 employees and a turnover of €450 million over a five year period. This is a significantly increased threshold form the initial proposals for the CSDDD, which would have seen it apply to companies with 250 employees and a turnover of €50 million, but was altered due to a number of EU member states opposing the additional reporting burdens it would create.