EU Parliament's Due Diligence Directive Vote: No Time for Champagne Yet

In the plenary vote on 1st June, the European Parliament took a progressive stance toward corporate sustainability due diligence, integrating human rights and environmental impact into companies’ governance - view text adopted.

One of the notable changes introduced by the Corporate Sustainability Due Diligence Directive (CSDDD) is the minimization of director duties in setting up and overseeing due diligence processes. While corporate boards and directors still play a role, the emphasis is shifted towards a collective responsibility approach, engaging companies with over 1,000 employees to undertake due diligence checks.

Part of the directors' remuneration will be linked to the company's climate transition plans, in a positive move towards incentivising climate action. This linkage aligns corporate decision-making with sustainability objectives and encourages a proactive approach to addressing climate-related risks.

Expanded Scope and Sector Coverage

Under the CSDDD, the scope of companies subject to due diligence requirements has significantly widened. It now includes:

• EU companies with more than 500 employees and a global turnover of €150 million AND with more than 250 employees on average and a worldwide net turnover exceeding EUR 40 million in the financial year preceding the last financial year
• Non-EU companies that generated a turnover of + €150 million in the EU market AND greater than €40 million in the EU market, with 50% generated in a high-risk sector

The calculation of thresholds now encompasses not only the company's head office but also its legally dependent branches. This inclusive approach ensures a comprehensive assessment of a company's global operations and fosters accountability across its entire network.

Additionally, the revised directive has expanded the list of high-risk sectors to include oil and gas, as well as construction and logistics. This move acknowledges the environmental and social impacts associated with these industries, urging companies to exercise heightened due diligence in their operations.

Accompanying measures are foreseen for companies & stakeholders

1. Toolbox to help in due diligence practices
2. Digital portal for support based on size, sector and risk
3. Financial and other support to SMEs
4. Training on how to perform due diligence
5. Advisors for due diligence under the scope of the Enterprise Europe Network, also in view of joint stakeholder initiatives
6. National helpdesks on corporate sustainability due diligence
7. Support for sector-wide risk identification
8. Guidance and a methodology for assessing the scope, and alignment with the Directive
9. Single Help-Desk
10. Information and support for stakeholders also facilitate their access to justice
11. Set up and operate dedicated websites, platforms or portals
12. Financial support to stakeholders to raise awareness and facilitate access to the rights
13. Cooperation and trade instruments in support the development of an enabling environment in third countries
14. Development and strengthening of cooperation and partnership mechanisms
15. Establishment of a centralised and public digital platform for independent third-party assessments on multi-stakeholder initiatives
16. Development of appropriate industry or multi-stakeholder initiatives to support companies in particular sectors or on particular issues  

It’s not time to pop champagne yet

While the widened accompanying measures represent a positive step forward, it is important to emphasize that supply chain sustainability issues necessitate a collective effort from all stakeholders. It is crucial to recognize that these challenges cannot be effectively resolved solely through individual company due diligence requirements.

Collaboration among all involved parties is essential to drive meaningful change and achieve sustainable supply chains.

This is why CSR Europe’s Materials Leadership Hub is fostering collaboration among leading companies – including ArcelorMittal, BASF, Enel, Toyota, Coca-Cola, and Solvay- and key stakeholders on the dynamic interplay between due diligence expectations, corporate purchasing approaches, and local economic systems. By delving into the intricate connections among these three components, the Hub seeks to enhance the concept of the Just Transition - a vital aspect of sustainable development.

The Hub will present key reflections at the upcoming CSR Europe Conference: A Caucus to Forge Alliances for Just Transition, taking place on 20th June in Brussels.

Want to better understand the CSDD?

CSR Europe members can register for the upcoming EU Policy Update webinar, taking place online next Tuesday, 6th June.

What happens next?

The official negotiations between the European Parliament, the Council of the European Union and the European Commission, can now start. The first Trilogue is scheduled for 8 June.

The parties are hoping to be able to reach a final agreement on the CSDDD by the end of this year (although the timeline could possibly slip until early 2024). 

We are expecting more heated debates, in particular on key issues such as the inclusion of financial services and civil liability.

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