The proposal for a Corporate Sustainability Due Diligence Directive (CSDDD) was published by the European Commission in 2022.  In December 2023, the Council of the EU and the European Parliament reached provisional agreement however, following concerns raised by Member States, significant amendments have been made to the draft text.  Last week, the Council endorsed a compromise text.

The proposed CSDDD will:

• impose due diligence obligations on large companies regarding actual and potential adverse impacts on human rights and the environment with respect to their own operations, those of their subsidiaries and business partners; and
• require large companies to adopt and put into effect a transition plan for climate change mitigation (Climate Transition Plan).

Key Changes

Companies in scope:

Thresholds have been increased, reducing the number of companies that will fall within scope:

• EU companies with a minimum of 1,000 employees (previously 500 employees) and a net worldwide turnover of a minimum of EUR450 million (previously EUR150 million).
• Non-EU companies with a turnover in the EU of a minimum of EUR450 million (previously EUR150 million).
• Ultimate parent companies (EU or non-EU) of a group where the group reaches the above thresholds even where the ultimate parent companies do not themselves meet them.
• Companies (EU or non-EU) that enter into (or are the ultimate parent companies of a group that enters into) franchising or licensing agreements in the EU in return for royalties with independent third-party companies where these agreements meet certain criteria and where the royalties amount to more than EUR22.5 million and the companies have (or are the ultimate parent companies of a group that has) a net worldwide turnover (EU companies) or EU turnover (non-EU companies) of more than EUR80 million.

Companies must meet the relevant criteria in two consecutive financial years.

It had been proposed that the CSDDD would apply to companies generating significant turnover in a “high-risk sector” however, this approach has now been deleted but may be revisited in the future.

Climate Transition Plans:

Provisions linking the Climate Transition Plan to directors’ variable remuneration have been removed.

Financial sector:

Regulated financial undertakings will be in-scope with regard to their own operations, those of their subsidiaries and their upstream operations in addition to the obligations regarding Climate Transition Plans.  The Commission must submit a report within two years on whether those undertakings should be subject to additional requirements.

Civil liability:

Provisions on civil liability now give more flexibility to Member States.

Phased Application

The CSDDD will have a phased application as follows:

Application period from entry into force of the CSDDD	EU Company Criteria	Non-EU Company Criteria
3 years	Employees: 5,000 Net worldwide turnover: EUR1,500 million	Net EU turnover: EUR1,500 million
4 years	Employees: 3,000 Net worldwide turnover: EUR900 million	Net EU turnover: EUR900 million
5 years	All other in-scope companies

Next Steps

The text of the CSDDD needs to be formally adopted by both the Parliament and Council.  It is expected that Parliament will vote on the text on 24 April 2024.  If approved by the Council, the CSDDD will be published in the Official Journal of the EU and will enter into force 20 days after its publication.  Member States will have two years to transpose the CSDDD into national law.

For further information, please see our in-depth briefing here.