European Union: Corporate Sustainability Due Diligence Directive (CSDDD) approved

On 24 May 2024, the Council of the European Union (EU) finalised the adoption of the Directive on corporate sustainability due diligence, which the European Commission initially proposed on 23 February 2022.
The Directive mandates that companies identify and mitigate adverse human rights and environmental impacts within their operations and global value chains.
It applies to EU and non-EU companies, including parent companies with a turnover exceeding EUR 450 million.

Under the Directive, companies must identify and address potential and actual adverse human rights and environmental impacts within their operations, subsidiaries, and value chains. They also must adopt a climate change transition plan aligned with the Paris Agreement's 1.5°C global warming limit. Additionally, companies must seek to prevent child labour and other violations in their supply chains.

Member States must designate an authority to supervise and enforce compliance through injunctive orders and fines of up to 5 per cent of a company's net worldwide turnover. The Commission will establish the European Network of Supervisory Authorities to support cooperation and best practice exchange. Companies will be liable for damages caused by breaching their due diligence obligations..

The Directive will enter into force On 25 July 2024. Member States will have two years to transpose the Directive into national law. Companies must comply with the rules one year after national transposition, with phased implementation over 3 to 5 years, depending on company size and turnover thresholds.

Specific timelines include:

From 2027: Companies with over 5,000 employees and a worldwide turnover higher than EUR 1,500 million.
From 2028: Firms with over 3,000 employees and a EUR 900 million worldwide turnover.
From 2029: All remaining companies within the Directive's scope, including those with over 1,000 employees and a turnover higher than EUR 450 million.

BusinessEurope Director General, Markus J. Beyrer, stressed the need for harmonised transposition and clear company guidance.

In the press release, he stated: "The new due diligence rules will be the biggest corporate law reform in the EU's history, setting extensive obligations, liabilities, and sanctions on European companies." He highlighted the necessity of delivering a single rulebook rather than 27 national versions to ensure clarity and uniformity.

He also underlined that support and guidance from the Commission and national authorities are vital for companies of all sizes to be prepared and equipped to meet the legislation’s goals.