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    European Parliament Approves CSDDD

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    Stockholm (NordSIP) – In the latest developments of the Corporate Sustainable Due Diligence Directive (CSDDD), the European Parliament approved with 374 votes against 235 and 19 abstentions the new CSDDD, on April 24th.

    This directive on due diligence will require firms and their upstream and downstream partners, including supply, production and distribution to “prevent, end or mitigate” their adverse impact on human rights and the environment. Adverse impact includes slavery, child labour, labour exploitation, biodiversity loss, pollution or destruction of natural heritage.  With this vote, the agreed on with the Council

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    “Today’s vote is a milestone for responsible business conduct and a considerable step towards ending the exploitation of people and the planet by cowboy companies. This law is a hard-fought compromise and the result of many years of tough negotiations. I am proud of what we have achieved with our progressive allies. In Parliament’s next mandate, we will fight not only for its swift implementation, but also for making Europe’s economy even more sustainable,” Lara Wolters, a Dutch member of the European Parliament with the Social and Democrats group said following the plenary vote.

    The directive now also needs to be formally endorsed by the Council, signed and published in the EU Official Journal. It will enter into force twenty days later.

    Coverage in the EU and Abroad

    Throughout the negotiation of the CSDDD one of the sticking issues was how to strike a balance between ensuring that sustainability standards were upheld while not imposing undue burdens on companies. Scale matters not just for the reach and responsibilities of companies but for their capacity to comply with complex disclosures. By time the CSDDD comes into force, the presently agreed rules will apply to EU companies and parent companies with over 1000 employees and a worldwide turnover higher than €450 million. This is a result of the compromises reached in the Council, which watered down some of the originally more stringent demands.

    Another important concern throughout the development of the CSDDD was to ensure companies would be unable to dodge responsibility. It will also apply to companies with franchising or licensing agreements in the EU ensuring a common corporate identity with worldwide turnover higher than €80 million if at least €22.5 million was generated by royalties. Non-EU companies, parent companies and companies with franchising or licensing agreements in the EU reaching the same turnover thresholds in the EU will also be covered. These firms will have to integrate due diligence into their policies, make related investments, seek contractual assurances from their partners, improve their business plan or provide support to small and medium-sized business partners to ensure they comply with new obligations.

    Transition Plans and Transition Periods

    Companies will also have to adopt a transition plan to make their business model compatible with the Paris Agreement global warming limit of 1.5°C.

    Member states will have two years to transpose the new rules into their national laws.

    The new rules (except for the communication obligations) will apply gradually to EU companies (and non-EU companies reaching the same turnover thresholds in the EU). From 2027 to companies with over 5000 employees and worldwide turnover higher than €1.5 billion. From 2028 to firms with over 3000 employees and a €900 million worldwide turnover. From 2029 to all the remaining companies within the scope of the directive (including those over 1000 employees and worldwide turnover higher than €450 million).

    Fines and compensation of victims

    Member states will be required to provide companies with detailed online information on their due diligence obligations via practical portals containing the Commission’s guidance. They will also create or designate a supervisory authority to investigate and impose penalties on non-complying firms. These will include “naming and shaming” and fines of up to 5% of companies’ net worldwide turnover. The Commission will establish the European Network of Supervisory Authorities to support cooperation and enable exchange of best practices. Companies will be liable for damages caused by breaching their due diligence obligations and will have to fully compensate their victims.

    Image courtesy of Udo Pohlmann via Pixabay
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