On the 28th February 2024, the European Council failed to reach an agreement on the final draft of the EU’s proposed Corporate Sustainability Due Diligence Directive (also known as the “CSDDD” or “CS3D”), a stumbling block in the European Union’s efforts to legislate for increased corporate accountability for environmental and social harm brought about by business activities. The aim is for the CS3D, if adopted, to sit alongside other EU directives, such as the Non-Financial Reporting Directive (Directive 2014/95/EU), the Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464) and the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) as part of the EU’s European Green Deal.
In brief, the proposed CS3D lays down harmonised due diligence rules which must be satisfied by the large companies falling within its scope, regarding actual and potential human rights and environmental adverse impacts, with respect to their own operations, those of their subsidiaries and the value chain operations carried out by established business relationships. In essence, EU based corporations as well as non-EU based entities which generate a minimum turnover within the European Union may face liability for certain actions of their suppliers. The CS3D also introduces duties for the directors of the companies falling within scope, which duties include setting up and overseeing the implementation of the due diligence processes and integrating due diligence into the corporate strategy, all the while taking into consideration the human rights, climate change and environmental consequences of their decisions.
The final draft text was published on the 30th January 2024 and was faced with significant opposition and pushback, particularly from certain key Member States. The vote at the European Council on the 28th February 2024 failed to garner enough support to receive the Council’s endorsement. If the proposed text is to become law prior to the European elections in summer 2024, a vote on the text must be taken by the European Parliament within the next fortnight by 15th March 2024. Before then, and following yesterday’s failed vote, the text is to be renegotiated and put forward afresh to the European Council. Should the CS3D be adopted, Member States will have a two year timeframe within which to transpose the Directive into national law.
