More

    Time to Zoom in on EU CSDDD

    Share post:

    Stockholm (NordSIP) – The European Parliament’s Committee on Economic and Monetary Affairs (ECON) voted on 24 January in favour of the report on Corporate Sustainable Due Diligence Directive (CSDDD), a critical piece of legislation providing a regulatory framework on corporate sustainability governance.

    The European Commission first published its proposal for the directive in February 2022. “Voluntary action does not appear to have resulted in large scale improvement across sectors and, as a consequence, negative externalities from EU production and consumption are being observed both inside and outside the Union,” stated the commission in the proposal. “Certain EU companies have been associated with adverse human rights and environmental impacts, including in their value chains.”

    - Partner Message -

    In November last year, after collecting input from many concerned parties, the directive’s rapporteur Lara Wolters published a report containing a number of amendments to the original proposal, the package that ECON voted on this week.

    Perhaps the most widely discussed of the amendments has been the introduction of Article 8(a), which specifies the measures that institutional investors and asset managers should take to ensure that the companies they invest in do not cause any adverse impact. Attempts by right-wing groups to exclude financial institutions from the scope of the directive have, apparently, failed to sway the committee. “The result is clear: no carveout for financial services and no time limitation for due diligence obligations,” comments MEP René Rapasi, the rapporteur of the ECON committee, after the vote.

    Another key provision, specified under Article 15 of the CSDDD, requires EU companies with more than 500 employees and over EUR 150 million in net turnover to have transition plans. These plans must align their strategy and business models with a global warming limit of 1.5°C. The amendments made to the original version of this paragraph are seen as a compromise by some experts. “We are disappointed by the removal of Article 15 paragraph 3, aimed at aligning a proportion of directors’ bonuses with the company’s climate targets and transition plans,” comments Eurosif. “Compensation is a powerful tool to drive corporate behaviours. A proportion of directors’ remuneration should be aligned with the corporate sustainability, and in particular climate targets and transition plans.”

    Other relevant committees will vote on the package in the next few months. A parliamentary mandate for the proposal is expected by May this year. It is, therefore, high time for EU companies and financial institutions to start thinking about how the CSDDD will impact them.

    Image courtesy of almathias via Pixabay
    - Partner Message -

    Nordsip Insights

    From the Author

    Related articles