Breaking News: EU Votes to Adopt Corporate Sustainability Due Diligence Directive

After a long and difficult journey, the Council of the EU approved the Corporate Sustainability Due Diligence Directive (CSDDD, aka CS3D) on 24 May 2024. With the EU Parliament having approved CS3D on 24 April 2024, this step represents the final hurdle before it enters into force by September 2024. Member states have until September 2026 to integrate it into national law.

The purpose of CS3D is to ensure that organizations in scope take reasonable measures to prevent potential human rights violations and environmental impacts within their own organizations and along their entire supply chain. It requires that organizations identify risks, work to prevent adverse impacts, integrate due diligence into policies and management systems, and monitor the effectiveness of all measures they put in place.

Organizations must also have a detailed plan for climate change mitigation that demonstrates their contribution towards the Paris Agreement goal of limiting global warming to 1.5°C.

EU member states will be responsible for monitoring compliance and for imposing pecuniary penalties with a maximum of not less than 5% of net worldwide turnover.

The regulation will enter into force 20 days after its publication in the EU Official Journal.

A Long and Difficult Journey to Approval

Since its initial development in 2019, CS3D has gone through multiple parliamentary committees and thousands of amendments. By early 2024, just as the EU seemed set to approve the final text, member nations began to pull support over concerns about the impact it would have on small-to-medium-sized enterprises and the total scope of organizations to which it would apply.

The final text is a long way from the ambitions of the original draft, with far fewer companies falling within its scope. Instead of applying to organizations with a minimum of 500 employees and a turnover of €150 million, it now applies to organizations with a minimum of 1,000 employees and a turnover of €450 million.

A Significant Victory for Sustainability and Ethical Supply Chain

Despite the revisions, CS3D remains a powerful tool for holding organizations accountable. “The Corporate Sustainability Due Diligence Directive will give us the possibility to sanction those actors that violate their obligations,” said Pierre-Yves Dermagne, Belgian Deputy Prime Minister and Minister of the Economy and Employment. “It is a concrete and significant step towards a better place to live for everyone.”

Environmental experts agree that CS3D marks a monumental milestone in the journey towards sustainability and ethical supply chains. “And almost two years later, we are finally here!!” said Cassidy Spencer, Sustainability Regulatory Research Analyst at 3E. “The approval of the Corporate Sustainability Due Diligence Directive is a major leap forward, not just for the EU, but globally. This directive pushes companies to address human rights and environmental issues throughout their supply chains, impacting operations worldwide. It’s about creating a sustainable future while holding businesses accountable to ethical standards.”

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