EU Member States reach compromise on Corporate Sustainability Due Diligence Directive

In a significant development for corporate sustainability and accountability, EU member states have reached a compromise on the Corporate Sustainability Due Diligence Directive ("CSDDD"), signaling progress towards improving environmental and labor practices in supply chains.

After extensive negotiations, a provisional agreement on the CSDDD was reached in December, marking an important milestone in promoting responsible business conduct and transparency. Despite initial uncertainty from some member states, recent votes have shown a positive shift towards consensus. Italy's approval of a streamlined version of the legislation at a meeting in Brussels is a notable step towards finalizing the legislation.

Key Changes

The final agreement, endorsed by the European Council on March 15, makes significant changes to the original proposal. Some of the key changes are as follows:

1. Adjusted thresholds: Initially aimed at companies with 500 employees and a turnover of €150 million, the scope of the CSDDD has now been extended to companies with 1,000 employees and a turnover of €450 million.
2. Abolition of the sectoral approach: The compromise also includes the elimination of the high-risk sectoral approach, which sought to include companies in industries prone to human rights or environmental conflicts, regardless of size. This adjustment reduces the number of companies affected to 30% of the original scope, or about 0.05% of all companies operating in the EU.
3. Climate transition plans: Climate transition plans are still mandatory and extended to the financial sector, although significant companies are no longer required to actively promote these plans, e.g. through financial incentives.
4. Transition period: The CSDDD will be phased in to give companies time to adapt. Companies with 5,000 employees and €1,500 million turnover will be affected in 3 years, companies with 3,000 employees and €900 million turnover in 4 years and companies with 1,000 employees and €450 million turnover in 5 years.

The compromise reached on the CSDDD highlights the complexity of balancing regulatory requirements with industry realities. While the changes reflect a more tailored approach, concerns remain about the reduction in scope and the potential impact on overall sustainability goals.

Looking ahead

The CSDDD's path to formal adoption and implementation is ongoing, with scrutiny and approval by the European Parliament still to come. Stakeholders, including businesses, are urged to prepare for the evolving regulatory landscape and align themselves with sustainability best practices.

This development underlines the EU’s commitment to promoting sustainable business models and ensuring responsible corporate behaviour, and sets a precedent for global sustainability initiatives.

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