As sustainability takes center stage in global policy conversations, there has been an increasing change in how businesses approach their social, environmental, and governance responsibilities. With today’s vote in the Committee of Permanent Representatives of the Governments of Member States to the European Union (COREPER), the European Council has de facto given the green light to the Corporate Sustainability Due Diligence Directive (CSDDD). The act is now in line for a final vote in the EU Parliament before its formal adoption.
The text voted on today, however, has stripped down the first version of the draft agreed upon by the Council and the EU Parliament during the Trilogue Negotiations last December. Following the Council’s refusal to ratify the original agreement last February, with a last minute hesitation from Italy and Germany, the Belgian Presidency moved forward and proposed a new draft that, although significantly narrows the scope of the CSDDD,ensured its adoption by COREPER.
The nature of the CSDDD
The CSDDD requires corporations to identify, prevent, and mitigate the potential adverse impacts of their operations and business relationships on people and the environment. The Directive aims to ensure that businesses adhere to responsible and sustainable practices throughout their entire supply chain.
Corporations will be required to conduct due diligence processes to manage the potential and actual adverse impacts on human rights and the environment all along their value chain. Corporations will need to disclose these processes, offering a high level of transparency to stakeholders.
A reduced scope
While the draft agreed upon in December during the Trilogue Negotiations set a threshold of over 500 employees and a net worldwide turnover of more than EUR 150 million (1), the first leaks of the text voted on by COREPER today speak of a substantially reduced scope, including only companies with more than 1,000 employees and a turnover above EUR 450 million.
Although these figures still require confirmation, some commentators estimate that this would reduce by almost 70% the number of companies affected by the CSDDD compared to the original Trilogue agreement reached in December (2).
Regarding the specific requirements and additional regulations for companies, including the intensely debated issue of corporate and directors’ civil liability, it is premature to determine whether significant changes have been incorporated into the draft proposed by the Belgian Presidency and adopted today.
Timing
COREPER’s vote today may be considered to be equivalent to a favorable vote from the EU Council. Nevertheless, the text must now secure final endorsement by the European Parliament before its formal adoption and the subsequent publication in the EU Official Journal.
Once the Directive takes effect, Member States are anticipated to have a two-year period to implement the requisite regulations and administrative provisions to comply with the Directive’s stipulations.
Final remarks
As CSDDD redefines how businesses approach sustainability it can also impact transformation roadmaps. Corporations will need to be more proactive in addressing potential adverse impacts, from labor rights violations to environmental damage, throughout their supply chains.
CSDDD also presents an opportunity for businesses to contribute to a sustainable future actively. In embracing these new measures, corporations can build stronger, more resilient supply chains, enhance their reputation, and gain a competitive edge in an increasingly sustainability-focused market.
If you want to get more insights in this developing regulatory framework and how it will impact your business, please reach out to the authors or your regular PwC contact.
- https://www.consilium.europa.eu/en/press/press-releases/2023/12/14/corporate-sustainability-due-diligence-council-and-parliament-strike-deal-to-protect-environment-and-human-rights/
- https://www.euractiv.com/section/economic-governance/news/scope-of-eu-supply-chain-rules-cut-by-70-ahead-of-key-friday-vote/
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This article is made available by PwC for educational purposes only as well as to give you general information and a general understanding of these matters. Any content of this article should not be used as a substitute for competent professional advice.
