The Council of the European Union (EU) has approved the proposed Corporate Sustainability Due Diligence Directive (CSDDD), unchanged from the Parliament's version. In addition to establishing a comprehensive framework for companies to respect human rights and environmental standards throughout their operations and value chains, the CSDDD requires companies to adopt and implement a climate transition plan that is in line with the Paris Agreement.
Corporate Sustainability Due Diligence
Executive summary
The Council of the EU has approved the proposed CSDDD. This Directive establishes a framework to encourage companies operating in the single market to contribute to respecting human rights and the environment in their own operations and value chains.
Once published in the Official Journal of the European Union (OJEU), it will enter into force 20 days after its publication and its implementation will be phased in from 2027, with full application from 2029 for target companies, affecting their own operations, those of their subsidiaries and those of their value chain. Member States will have two years from the date of entry into force to publish the regulatory and administrative provisions necessary to comply with the provisions of the Directive.
Main content
- Integrating the Due Diligence policy into business policies. The due diligence policy should be developed in prior consultation with the company's employees and their representatives. It should contain a description of the company's approach, a code of conduct describing the rules and principles to be followed throughout the company and its subsidiaries and, where applicable, the company's direct or indirect business partners, and a description of the processes in place for integrating due diligence into the company's relevant policies and for implementing it. Financial institutions are not required to perform due diligence on downstream value chain activities.
- Integrating Due Diligence into risk management. Companies will identify actual and potential adverse impacts arising from their own operations, those of their subsidiaries or significant business relationships in order to prevent and minimise them.
- Company complaints procedures. Companies will establish complaints procedures to hear cases from potentially affected persons or their representatives. Also, companies will be liable for damages caused by any adverse impact that they may have not been able to prevent, mitigate or bring to an end.
- Communication and transparency. Companies will report on the aspects covered by the Directive. Companies subject to CSRD will include the information in their non-financial disclosure statement, while companies not subject to CSRD will publish an annual statement on their website.
- Transition Plan. Companies will have a plan to ensure that their business strategy is consistent with limiting global warming to 1.5 °C and the objective of achieving climate neutrality.
- These requirements will apply to EU companies that meet at least one of the following conditions: i) they have more than 1,000 employees and a worldwide net turnover exceeding EUR 450 million in the last financial year; ii) they are the ultimate parent company of a group that meets these conditions; or iii) they have entered into franchise or licensing agreements in the EU for more than EUR 22.5 million, and the parent or group company has generated more than EUR 80 million worldwide. In addition, third country companies are subject if they meet at least one of the following conditions; i) they have generated a net turnover in the EU of more than EUR 450 million in the financial year preceding the last financial year, provided that they have an authorized representative in the EU; ii) being the ultimate parent company of a group that has met these thresholds; or iii) having entered into franchise or licensing agreements in the EU for more than EUR 22.5 million, and the parent or group company has generated more than EUR 80 million worldwide, based on the figures for the financial year preceding the last financial year.
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