Corporate Sustainability Due Diligence Directive adopted by the European Parliament
27 May 2024
Introduction
On 24 May 2024, the European Council formally adopted the Corporate Sustainability Due Diligence Directive (‘CSDDD’ or ‘CS3D’). This was the last step in the decision-making procedure: following the approval of the European Parliament which voted in favour of the CS3D on 24 April 2024 and the agreement that was reached on 15 March 2024 between the EU member states on the final text of the directive.
Companies in scope of the CS3D will have to integrate comprehensive due diligence measures into their operations, encompassing their supply chains and business practices. This involves proactively identifying, preventing, mitigating and ceasing adverse impacts on human rights and the environment.
Scope
The CS3D will apply to both EU and non-EU companies that meet the following thresholds:
over 1,000 employees (EU and non-EU companies); and
over 450 million EUR worldwide turnover (EU companies);
over 450 million EUR turnover generated in the EU (non-EU companies).
The scope also encompasses companies with franchising or licensing agreements in the EU. This ensures that there is a consistent corporate identity for companies with a worldwide turnover which exceeds EUR 80 million, provided that at least EUR 22.5 million were generated by royalties. Non-EU companies that meet these turnover thresholds in the EU are also covered.
Timeline for implementation
The obligations of the CSDDD will be implemented gradually impacting the largest companies first:
2027: Companies with over 5,000 employees and a worldwide turnover of more than EUR 1,500 million;
2028: Companies with over 3,000 employees and a worldwide turnover of EUR 900 million; and
2029: All remaining companies within the directive’s scope.
Next steps
Following the Council’s approval today of the European Parliament’s position, the legislative act has been adopted. After being signed by the President of the European Parliament and the President of the Council, the directive will be published in the Official Journal of the European Union and will enter into force on the twentieth day following its publication. Member States will have two years after entry into force to transpose the new rules into their national laws.
It remains to be seen if the Belgian legislative proposal on the ‘duty of care for companies across their value chain’, which dates from 2 April 2021 and which was put on hold pending the final text of this directive, will be used as a basis for the implementation. Furthermore, as certain EU countries and the UK already had similar national legislation in place, it is to be expected that such laws will need updating.
While it may still seem some way off, and only impacts larger companies, we expect the CS3D to also impact entities that are not directly in scope, but that are commercial partners to companies in scope. Such entities will encounter requests from the latter in terms of contractual safeguards etc. Sufficient relevant working actions ahead for the legal counsels.
If you have any questions regarding the implications of this directive for your business or would like legal advice on compliance measures, please do not hesitate to contact us.
Pierre Queritet and Quinten Smits
Corporate M&A and Sustainability team
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