European Union Council and Parliament Reach an Agreement on the Corporate Sustainability Due Diligence Directive

A provisional agreement has been reached by the Council of the European Union and the European Parliament on the Corporate Sustainability Due Diligence Directive (CSDDD). The directive is designed to bolster environmental and human rights protection both within the European Union (EU) and globally. The next step will be the endorsement and formal adoption by both institutions, as reported in a press release by the Council of the European Union. 

The CSDDD will enforce responsibilities on large companies regarding both actual and potential negative impacts on human rights and the environment. The directive will cover the operations of companies, their subsidiaries, and their business partners. It will apply to companies with more than 500 employees and a net worldwide turnover of more than $162 million. Additionally, non-EU companies will also have to follow the directive if they generate over $162 million in net turnover within the EU. The financial sector is temporarily excluded, pending a review for potential inclusion based on impact assessment.

Some key aspects of the CSDDD are rules on penalties and civil liability for non-compliance. The agreement also strengthens provisions for a transitional climate change mitigation plan for large companies. Affected parties have five years to bring claims, with restrictions on evidence disclosure, injunctive measures, and cost limitations.

Companies identifying adverse impacts on the environment or human rights by their business partners are required to terminate such relationships if prevention or resolution of the impacts is not feasible. Penalties for non-compliance include injunction measures and monetary penalties based on a percentage of the company’s net turnover up to 5%.

The agreement sets out clear obligations and references international conventions that have been ratified by all member states. It also introduces new provisions for human rights, including those that apply to vulnerable groups and allows for the inclusion of Core International Labour Organization Conventions. This directive reinforces the EU’s commitment to corporate sustainability and responsible business practices, bringing it in line with global environmental and human rights standards.