The European Parliament has adopted the CSDD

On April 24, 2024. The European Parliament has adopted in a plenary vote a compromise draft EUCorporate Sustainability Due Diligence Directive (CSDD), which imposes certain obligations on certain groups of companies to counter the negative human rights and environmental impacts of doing business. The European Parliament’s resolution on the CSDD was adopted by 374 votes, with 235 against and 19 abstentions. The final announcement of the contents of the document as approved by the European Parliament is planned in the coming weeks.

CSDD directive – lengthy negotiations

It took more than four years to work out the final draft of the CSDD. The process was kicked off with the announcement of the development of corporate due diligence rules by the Commissioner of Internal Affairs. Justice in April 2020. The first draft was presented by the European Commission on February 23, 2022. Subsequently, the work was carried out at the EU Council Working Group on the EU. Company Law and ended with the adoption on December 1, 2022. by the Council of the EU of a general (compromise) approach.

The European Parliament’s different position on certain provisions of the draft CSDD, adopted on June 1, 2023, became the subject of a political trilogue between the European Parliament, the European Council and the European Commission. On December 15, 2023, the political compromise reached by these three EU institutions was announced, as we wrote about in a previous article: CSDD agreement – due diligence rules for large European companies . Further comments from member states were reflected in the subsequent final compromise text, which was voted on March 15, 2024. at the COREPER meeting, which we also wrote about in a previous article: CSDD further processed , and was subsequently adopted by the EP on April 24, 2024.

What changes does the CSDD make?

Following the introduction of the CSDD:

• A due diligence obligation with respect to human rights and environmental issues will be implemented for certain groups of companies;
• Due diligence will become mandatory in order to limit the negative effects of the companies’ own activities, the activities of subsidiaries and the so-called “business as usual. chain of activities (chain of activities – a concept that is a compromise between value chain and supply chain);
• there will be increased responsibility and accountability of companies for the negative consequences of their activities;
• access to legal remedies for individuals and entities adversely affected by companies will be improved;
• companies will be held civilly liable for the negative consequences of their activities under certain conditions, and will also be subject to monetary penalties for violating due diligence obligations.

Who will be affected by the CSDD?

The CSDD will apply to companies from EU countries, but also to companies outside the EU. According to Art. 2 CSDD entities established under the laws of an EU member state and that will be regulated can be divided into the following groups:

• Companies with an average of more than 1,000 employees in the most recent fiscal year for which annual financial statements were or should have been prepared, and with global net sales revenues of more than 450 million euros;
• companies that did not themselves meet the thresholds indicated above, but were the ultimate parent company in a group that met the thresholds;
• Companies that have entered into franchise or licensing agreements in the EU with independent third-party companies themselves or are the highest parent company of a group that has entered into franchise or licensing agreements in the EU in exchange for royalties of more than 22.5 million euros (if the agreements ensure a common identity, a common business concept and the use of uniform business methods).

For non-EU companies, the criterion for being subject to the directive is not based on the number of employees, but is related to net turnover generated in the EU, and similarly applies to parent companies, franchise and licensing agreements.

When will the CSDD become effective?

The European Parliament has adopted the CSDD. The next step is approval by the European Council. It will then be published in the Official Journal of the EU and enter into force twenty days later. Member states will have two years to incorporate its provisions into national law.

The new regulations will be applied gradually:

• as of 2027. to companies with more than 5,000 employees and a turnover of more than €1.5 billion;
• as of 2028. to companies with more than 3,000 employees and a turnover of €900 million;
• as of 2029. to all other companies covered by the directive (with more than 1,000 employees and a turnover of more than 450 million euros).

Small and medium-sized enterprises will not be directly affected by the directive’s provisions, but the entry into force of the CSDD will also affect them.