The EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which seeks to ensure that companies take responsibility for their impact on human rights and environment, moves closer to being implemented, but not before being watered down at the European Council by some member states. The Directive will now have to be voted by the European Parliament before entering into force. 

What is the CSDDD and what has changed?

The CSDDD[1], obligates certain companies to consider and account for their impact on human rights and the environment throughout their supply chain, and report these actions. Fines and sanctions are also foreseen for companies who fail to meet their obligations. 

The CSDD was hailed as a milestone achievement in the EU’s commitment to sustainability and was provisionally agreed among the three institutions in December 2023. The Directive, which had been scheduled for voting by the European Parliament on 15 February 2024, met with some resistance from EU Member States, when a group of countries, led by Germany, requested to revise the text further, following backlash from the business community on the additional burden of complying with CSDDD. 

The revisions to the text reduces the scope of companies covered under the directive –  the initial scope covered all businesses (including non-EU companies) with a headcount of 250 or more staff and annual turnover of more than €50m, but the revised scope narrows the coverage to companies with 1,000 or more employees and with an annual turnover of €450m or more. Additionally, the text promises multi-year delays should the Directive’s scope be expanded, giving smaller firms time to prepare. A CSDDD mechanism through which trade unions could sue non-compliant firms has also been removed. 

These revisions would be a relief to ASEAN companies who may had been initially caught in the wider scope. Nevertheless, ASEAN companies who are still bound by the CSDDD are advised to take note of the required reporting obligations closely, and to monitor the timeline for when the CSSD will enter into force and be implemented.  

What happens next?

Since the European Parliament’s vote on the CSDDD did not take place on 15 February, the Belgian Council Presidency has been working on finalising the revised text that would garner enough support to be approved at the last plenary session of the European Parliament (before the June 2024 European elections).

[1] COM/2022/71, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52022PC0071