Corporate Sustainability Due Diligence Directive Approved with Compromise (Agreement)

In a significant development, the European Commission (EC) gave its approval to the Corporate Sustainability Due Diligence Directive (CSDDD) on March 15, 2024. This came after the EU Council and Parliament reached a provisional deal on the directive in December 2023.

The final, negotiated version applies the directive to companies with at least 1,000 employees and EUR 450 million turnover, down from the initially proposed thresholds. The idea of lower thresholds for companies in 'high risk' sectors was also scrapped. Additionally, the timetable for the phased roll-out of the regime has been extended, with full implementation now at least seven years away.

The directive establishes a corporate due diligence duty, requiring companies to identify, address, prevent, mitigate and account for negative human rights and environmental impacts in their own operations, subsidiaries, and value chains. Large companies must also have a plan to ensure their business strategy is compatible with limiting global warming.

The obligations will be enforced by regulatory bodies in EU member states, as well as through private lawsuits. Non-compliance can result in fines of up to 2% of global revenue. The directive also includes provisions for civil liability and limits on disclosure of evidence for claimants.

The provisional agreement reached between the EU Council and Parliament now needs to be formally adopted by both institutions. Member states will then have two years to transpose the directive into national law.