The Corporate Sustainability Due Diligence Directive (CSDDD) is a pivotal legislative proposal. It was put forth by the European Commission to foster sustainable and responsible corporate behaviour. This groundbreaking directive aims to mandate large companies to carry out due diligence in their own activities and their suppliers. The intent is to identify, prevent, or mitigate any potential adverse impacts of their activities on human rights and the environment.
The European Commission initially proposed the CSDDD on 23 February 2022. Following this, the Council of the European Union expressed its position on the proposed directive on 1 December 2022. The European Parliament’s committee on legal affairs, commonly known as JURI, later adopted a draft report entailing a suite of amendments to the proposed CSDDD. This JURI report potentially gives an indication of the position of the European Parliament, which was officially adopted on 1 June 2023.
Path to Implementation
With the European Parliament’s position now established, interinstitutional negotiations on the CSDDD among the European Parliament, the European Council, and the European Commission can commence. Once formal adoption occurs, which is not anticipated before 2024, Member States will have a two-year window to implement the CSDDD into national legislation.
Revised Scope and Threshold Criteria
One of the significant amendments proposed by the European Parliament pertains to the threshold criteria for falling within the purview of the CSDDD. The Parliament’s position is to determine the scope of the CSDDD based on several factors, including the number of employees, annual turnover, and balance sheet total. Non-EU companies falling within specific thresholds will also be subject to the directive.
Enhanced Supervision and Accountability
The CSDDD introduces a system of public law supervision and enforcement, and it allows for private enforcement. This directive provides another civil law instrument to hold companies accountable and liable for environmental degradation and human rights abuses, both within the European Union and outside. This could pave the way for further class action litigation against companies on responsibility for human rights violations in the supply chain.
Transforming the Regulatory Landscape
The CSDDD represents a significant shift in the regulatory landscape for companies operating within the European Union. The directive’s focus on sustainability and responsible corporate behaviour is indicative of the growing emphasis on ESG considerations in business operations. By holding companies accountable for the impacts of their activities on human rights and the environment, the CSDDD sets a new standard for corporate responsibility. However, the directive’s journey is far from over, with several negotiation points yet to be resolved and its potential impact still to be fully realised.
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