On March 15, the European Union (EU) reached a significant milestone in its commitment to sustainability and corporate responsibility. Following weeks of negotiations and compromises, the European Council approved the Corporate Sustainability Due Diligence Directive (CSDDD), edging closer to establishing legal liability for companies concerning environmental and human rights violations within their supply chain.

CSDDD is poised to introduce a framework obliging companies operating in the EU to incorporate sustainable practices and due diligence processes into their operations and value chains. Here are the key updates to the directive:

Updated scope:
🔹The directive applies to both EU and non-EU companies with at least 1,000 employees.
🔹EU companies must have a net worldwide turnover of at least EUR 450 million.
🔹Non-EU companies must have at least EUR 450 million in net turnover generated within the Union.
🔹A “high-risk” sector approach has been excluded. However, the adjusted CSDDD does include a review clause, offering the possibility to address this approach at a later stage.

Updated implementation timelines:
🔹Companies with over 5,000 employees and a turnover of EUR 1.5 billion will have three years to comply.
🔹Companies with over 3,000 employees and a turnover of EUR 900 million will have four years.
🔹Companies with over 1,000 employees and a turnover of EUR 450 million will have five years.

With these updates, approximately 5,400 large EU companies will be affected by the CSDDD, reducing the initially targeted scope by 70 percent to only about 0.05 percent of all businesses in the EU. However, its indirect impact will still be felt by numerous companies across the region and global value chains, particularly in North America and the Asia-Pacific region, as large in-scope companies pass requirements down to their partners and suppliers.

The directive is expected to undergo a vote in the plenary of the European Parliament in mid-April. However, given the volatile nature of the political process thus far, nothing is certain until the final vote is cast.

You can access the text of the proposed directive here: https://data.consilium.europa.eu/doc/document/ST-6145-2024-INIT/en/pdf

For further discussion on the proposed directive and its potential implications for your business, please don’t hesitate to reach out.