European Commission adopts the Corporate Sustainability Due Diligence Directive

On Friday 24 May 2024, the European Council finally approved the long-awaited Corporate Sustainability Due Diligence Directive (the “CSDDD”). The European Council’s press release is available here. 

The CSDDD is a significant legislative development. While individual EU states such as France and Germany have already enshrined corporate sustainability due diligence requirements in national law, the CSDDD will establish a harmonised approach to corporate sustainability due diligence across all EU member states.

What is the impact of the CSDDD?

The CSDDD requires in-scope organisations to:

• identify and address any actual or potential impacts on the environment and human rights caused by the organisations, their subsidiaries and value chains; and
• use “best efforts” to implement a transition plan to mitigate the effects of climate change which aligns with the Paris Agreement’s net zero objectives. 

Which organisations will be subject to the CSDDD?

EU states will have two years to transpose the CSDDD into national law. It will initially apply to organisations with over 5,000 employees and revenue greater than €1.5 billion and will then be phased in so that by 2029 it will apply to:

• organisations based in the EU who have more than 1,000 employees and more than €450,000,000 (net) turnover worldwide; and
• organisations based outside of the EU with a turnover of €450,000,000 (net) within the EU. 

In scope organisations will need to collect information from those in their value chain to fulfil the reporting requirements under the CSDDD. Consequently, although small and medium-sized enterprises may not be directly captured by the new Directive, they could still be indirectly affected by the requirement to furnish larger organisations with comprehensive information regarding their environmental and human rights impact.

Enforcement

Each EU member state will be responsible for enforcing the CSDDD within their own state, including the right for victims to claim compensation for damages as a result of an organisation’s intentional or negligent failure to comply with the due diligence process.  The European Commission will also introduce a European Network of Supervisory Authorities to ensure that member states’ approach to CSDDD is aligned.

While the CSDDD will be phased in gradually over the next few years, organisations should start considering how it could affect them and the steps they can take to prepare themselves for when it does enter into force within each member state. As noted above, it is not just in-scope organisations who need to be aware of the CSDDD, its impact will be much wider than just in-scope organisations and EU member states.

If you would like to discuss whether the CSDDD could impact on your organisation or how it can prepare itself, our lawyers would be delighted to discuss this or any of the above with you.