Today the European Council adopted the corporate sustainability due diligence directive (CSDDD), marking a significant step towards holding large companies accountable for their environmental and social impacts and, as the EU writes, the “last step in the decision-making procedure.”
The directive, which introduces obligations for companies regarding adverse effects on human rights and environmental protection, has been hailed as a crucial tool in the transition towards a more sustainable and just economy.
It applies to companies with over 1,000 employees and a turnover exceeding €450 million, encompassing their entire chain of activities — “from the upstream production of goods or the provision of services, to the downstream distribution, transport, or storage of products.” The directive mandates these companies to establish a risk-based system to monitor, prevent, or remedy human rights or environmental damages throughout their operations, subsidiaries, and business partnerships.
“Large companies must take their responsibilities in the transition towards a greener economy and more social justice,” said Belgian Deputy Prime Minister and Minister of the Economy and Employment, Pierre-Yves Dermagne. “The Corporate Sustainability Due Diligence directive will give us the possibility to sanction those actors that violate their obligations. It is a concrete and significant step towards a better place to live for everyone.”
Key provisions of the directive include:
- Liability for Violations: Companies found in violation of their obligations will be held liable for damages caused and required to provide full compensation. Companies will also “have to take the appropriate measures to prevent, mitigate, bring to an end or minimise the adverse impacts arising for their own operations, those of their subsidiaries and those of their business partners in their chain of activities,” explains the EU.
- Climate Transition Plan: Companies are obligated to adopt and implement a climate transition plan aligned with the Paris Agreement on climate change.
The directive’s passage follows a lengthy legislative process initiated by the European Commission in February 2022. The Council approved the European Parliament’s position on Dec. 1, 2022, with the two reaching a provisional agreement on Dec. 14, 2023. The directive will now be signed by the Presidents of the two institutions and published in the Official Journal of the European Union, becoming enforceable within two years.
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Implementation timelines vary based on company size, with larger corporations facing earlier compliance deadlines. This phased approach ensures that companies of all sizes have adequate time to adjust their practices and meet the directive’s requirements effectively. Here’s the timeline, shared today by the EU:
- 3 years from the entry into force of the directive for companies with more than 5,000 employees and €1 500 million turnover;
- 4 years from the entry into force for companies with more than 3,000 employees and €900 million turnover;
- 5 years from the entry into force of the directive for companies with more than 1,000 employees and €450 million turnover.
The adoption of the corporate sustainability due diligence directive reflects a growing recognition of the need for robust regulations to address corporate responsibility in environmental and social spheres. By holding companies accountable for their impacts and requiring proactive measures to mitigate harm, the directive signals a significant shift towards a more sustainable and equitable business landscape in Europe.
As the directive enters into force, all eyes will be on European companies to see how they adapt their practices to comply with these new standards. With corporate sustainability becoming increasingly central to global discussions, the European Union’s leadership in this area sets a precedent for other regions to follow suit in fostering a more sustainable future for all.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Cover Photo Credit: Rawpixel.
