On March 19, 2024. The European Parliament’s Legal Affairs Committee has approved the revised Corporate Sustainability Due Diligence Directive (CSDD), allowing it to move forward and adopt new legislation requiring companies to address their negative impacts on human rights and the environment at the company level and throughout the supply chain. The adoption of due diligence legislation is a necessary element for the EU to achieve climate neutrality and develop a green economy in line with the European Green Deal.

CSDD – scope

To date, voluntary corporate due diligence efforts and regulations on reporting non-financial information have not led to improvements in respect for human rights and implementation of environmental regulations across sectors. The draft CSDD implies the introduction of mandatory sustainability due diligence for a certain group of companies to counteract the negative effects of their activities.

The draft assumes that the directive will establish a horizontal framework to promote the contribution of companies operating in the single market to respect for human rights and the environment (both in their direct operations and in their supply chains) through:

  • Identification of negative impacts of corporate activities, prevention, possible mitigation of these impacts and accountability for counteracting them;
  • as well as having appropriate management procedures and management systems in place and implementing them.

The companies covered are both EU and non-EU companies. In the case of companies from Union countries, the directive applies to those that meet certain thresholds of employment and net sales turnover on a global scale. For non-EU companies, the key is to achieve a certain net turnover within the Union.

According to the draft, member states will implement a series of measures to support the directive: dedicated websites, platforms or portals to provide information to companies and their supply chain partners. They will also assist in their efforts to meet their obligations under this Directive.

Changes regarding the draft CSDD

The draft CSDD was originally presented by the European Commission in February 2022, but was eventually amended as a result of lengthy negotiations. On March 15, 2024, the Committee of Permanent Representatives of the Governments of the Member States to the European Union (COREPER) approved the current draft of the CSDD, while the European Parliament’s Legal Affairs Committee also took a position on March 19, 2024.

One of the most significant changes is the limitation of the number of companies subject to the new rules by raising the number of their employees to 1,000 (previously 500) and to those with annual revenues exceeding €450 million (previously – €150 million). The new thresholds would reduce the number of companies covered by CSDD by about two-thirds. The directive will be introduced gradually, starting with the largest companies. Small and medium-sized ones will not be directly affected by the regulations, but they will also be affected by the introduction of the directive. The new legislation, once adopted by the European Parliament’s legal committee, will be put to a full vote in the institution’s plenary session.

CSDD directive – obligations for enterprises

CSDD:

  1. is to help improve corporate governance practices so that risk management processes for respecting human rights and environmental impacts are better integrated into corporate strategies;
  2. will avoid fragmentation of due diligence requirements in the single market and provide companies and stakeholders with legal certainty regarding expectations for their behavior and the extent of their liability (responsibility);
  3. will increase the accountability of companies for the negative effects of their activities;
  4. will improve access to legal remedies for those adversely affected by companies.

The concept of due diligence

The issue of due diligence in the operations of companies with regard to human rights was defined in the 2011 adopted. UN Guiding Principles on Business and Human Rights. That same year, the definition of due diligence, understood as a risk-based process incorporated into the principles of responsible business conduct (RBC), was introduced by the OECD in a revision of its Guidelines for Multinational Enterprises.

According to the approach proposed by the UN and the OECD, due diligence is a process that companies should carry out to identify actual and potential negative impacts of their activities, and to mitigate and prevent them as a result of their activities (both in the core and supply chain, as well as in other business relationships).

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