Update on the Corporate Sustainability Due Diligence Directive
09/05/23
On 25 April 2023, the Parliament’s Committee on Legal Affairs voted in favor of the amendments proposed by the European Council to the CSDDD proposal. The amendments, which were published by the Council in December 2022, included quite a few significant deviations from the original text. This approval is seen as a strong indicator of the Parliament’s position on the proposal.
The Council’s amendments aimed to align the proposal more closely with the OECD Guidelines as well as the UN Guiding Principles which were lacking from the original proposal.
One of the most important changes relates to directors’ liability. Under the original proposal, certain provisions could trigger a specific liability for directors of companies in terms of human rights and environmental impacts. Member States would have to oblige directors to adjust the corporate strategy to take into account any adverse impacts identified as well as their due diligence measures. The connection between director pay and sustainability goals has not made it through though.
Due to a large number of complaints from the Member States, the Council opted to remove these provisions completely. Many Member States found that the original proposal conflicted with their national provisions on directors’ duty of care and limited directors’ ability to act in the best interests of the company. It remains to be seen what the Parliament’s final position on these provisions will be. Some expect that the provisions will be reincluded.
The Parliament will likely publish its stance on the proposal at the end of May 2023. Only after the entire Parliament agrees on its official position, can the negotiations with the Commission and the Council begin. It is unlikely that an agreement on the final text will be reached before 2024. Once adopted, Member States will have two years to transpose the Directive into local legislation.
Based on these assumptions, the Directive will likely enter into force between 2025 and 2027. Therefore, it is in companies’ best interests to start preparing as soon as possible.
As risk management is a crucial duty of the inhouse counsel and the board of directors, it will be up to them to co-develop and follow-up on the internal due diligence processes of their company.
Here are some of the questions we believe inhouse counsels should reflect upon:
1. Has your legal department identified which standards/requirements may apply in a combined manner under the CS3D/CSRD/Taxonomy/etc…)?
2. Do you know where the responsibility for CS3D would primarily sit in your company, and is your office engaged in supporting this function?
3. Does your company have an infrastructure and processes in place to support the centralised intake of CS3D reporting from various departments?
4. Are you considering additional training for directors on their legal duty of care/duty to report/duty to act under the ESG legislation?
If you have any questions on the CSDDD or other ESG related legislation, feel free to get in touch with any of our specialists. As we’ve said before, ‘there’s an “L”(egal) in ESG’.
Quinten Smits
