Update: European Parliament and Council approve the Corporate Sustainability Due Diligence Directive (CSDDD)

At its last plenary session for the term in late April, the European Parliament approved the CSDDD with 374 votes against 235 and 19 abstentions. Following that, on 24 May, the European Council approved the Corporate Sustainability Due Diligence Directive (CSDDD), marking the final step in the adoption of legislation setting mandatory obligations for large companies to address their negative impacts on human rights and the environment across their value chains.

The directive had run into challenges from certain member states earlier, causing several revisions to scale back the number of companies covered by the law, as reported by ASEANcham-EU previously (link).

What is the CSDDD and what has changed?

The CSDDD 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. 

Following some significant compromises on the legislation, the Council finally approved a revised CSDDD in March. 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 €50 million, but the revised scope narrows the coverage to companies with 1,000 or more employees and with an annual turnover of €450 million or more. The new thresholds cut back the number of companies in the scope of the CSDDD by roughly two thirds. Lower thresholds that had been in place for high-risk sectors were also removed, with the possibility to be reconsidered later. Additionally, the text promises multi-year delays should the Directive’s scope be expanded, giving smaller firms time to prepare – beginning with companies with over 5,000 employees and revenue greater than €1.5 billion in 2027, followed by companies with more than 3,000 employees and €900 million revenues in 2028, and for all other companies in the scope of the law in 2029. The revised CSDDD also removed the requirement for companies to promote the implementation of climate transition plans through financial incentives. A CSDDD mechanism through which trade unions could sue non-compliant firms has also been removed.

The CSDDD will now formally enter into force shortly after being published in the EU’s official journal, which expected to take place in the coming weeks.