By Kyriakos Christofidis
Associate Director, Complyport
The recently approved Corporate Sustainability Due Diligence Directive (CSDD3) is a significant step towards enhancing corporate accountability and sustainability. This directive aims to impose strict obligations on large companies to mitigate any adverse impacts on human rights and the environment, encompassing not only their operations but also those of their subsidiaries and business partners.
The directive’s journey began on 23 February 2022, when the European Commission (EC) submitted the proposal to the European Parliament and the Council. The Council adopted its general approach 10 months later, on 1 December 2022, followed by a provisional agreement with the European Parliament on 14 December 2023.
Notable Provisions and Scope
The directive targets companies with over 1,000 employees and a turnover exceeding €450 million globally. These companies will be required to implement a risk-based system to monitor, prevent, and rectify human rights and environmental damages. The directive’s scope, which is considered to be very broad, covers activities from the upstream production of goods and services to downstream distribution, transport, and storage.
Under this directive, companies must ensure compliance with human rights and environmental obligations throughout their supply chain globally. In cases of violation, they are required to take appropriate and proportionate measures to prevent, mitigate, or minimize adverse impacts. Furthermore, companies will be held liable for any damage caused and must provide full compensation, potentially opening up to litigation.
Pierre-Yves Dermagne, the Belgian Deputy Prime Minister and Minister of the Economy and Employment, emphasized this directive’s importance: “Large companies must take their responsibilities in the transition towards a greener economy and more social justice. 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.”
Company Obligations and Timelines
Following the Council’s approval, the directive will be signed by the Presidents of the European Parliament and the Council and subsequently published in the Official Journal of the European Union. Member states will then have up to two years to integrate the regulations and administrative procedures necessary at a national level to comply with this regulation.
By taking into consideration each company’s scale and complexity, the directive will apply based on the following timeline:
- Three (3) years from the directive’s entry into force for companies with more than 5,000 employees and €1,500 million turnover.
- Four (4) years for companies with over 3,000 employees and €900 million turnover.
- Five (5) years for companies with more than 1,000 employees and €450 million turnover.
Companies are expected to adjust their policies and procedures to comply with the directive’s due diligence requirements. This means enhanced due diligence on any counterparty, stricter contractual clauses regarding potential actions from suppliers that could lead to environmental damage or human rights degradation, and a risk-based approach to avoid any risks before they occur.
