You could be forgiven for losing track of where things are with the CS3D legislation that has been slowly moving through the EU approval process over the last year or so. Here we provide a helpful update of what’s happened so far and what is expected to happen next.
Following the agreement of the provisional text of the Corporate Sustainability Due Diligence Directive (CSDDD) in December 2023, the first few months of 2024 have been what some might call a bit chaotic for the groundbreaking piece of supply chain due diligence legislation.
Want to know more? Download our more in-depth white paper here.
Earlier this year, several EU Member State officials voiced their concerns over the excessive burden the legislation would place on businesses already feeling the strain. In response to these concerns and the prospect of the legislation not being approved, EU Member States have worked hard to agree on a compromise position which it is believed will now pass a final vote before European Parliament elections this summer.
To the relief of many, the compromise agreement passed European Council scrutiny on the 15 March 2024 and was accepted by the European Parliament’s Committee on Legal Affairs (JURI) a few days later.
This blog covers the key changes to the Directive:
Scope of Application
Under the originally agreed text, businesses with at least 500 employees and a turnover of €150 million or more would be subject to the CSDDD.
The latest amendment means only those businesses employing 1,000 employees with a turnover of €450 million will be directly affected. The directive will be phased in, three years after it enters into force with the largest companies (those with more than 5000 employees and an annual net worldwide turnover of more than €1.500 million) impacted initially.
“High-Impact” Sectors
Several industries had been identified within the previously agreed text as presenting a high risk of human rights or environmental impact. Sectors including textiles, agriculture and mineral extraction had been identified as needing to comply with the directive under significantly lower thresholds.
Following the review, references to high-impact sectors have been initially removed.
Supply Chain
The definition of the supply chain in the context of CSDDD has also been subject to compromise.
Under the revision, the downstream element of the definition applies only to business partners who carry out activities for, or on behalf of the company. This change has led to the removal of references to the disposal of the product which were previously contained within the text.
Climate Action
The original text linked corporate financial incentives with the implementation and promotion of a transition plan.
Whilst in-scope companies will continue to be required to adopt a transition plan in alignment with the Paris Agreement, a change to the previously agreed text has been to remove linking corporate financial incentives with the implementation and promotion of a plan.
To reduce excessive duplication, businesses required to report under the Corporate Sustainability Reporting Directive (CSRD) will be exempt from having to produce a plan.
Adverse Impacts
Previously, in-scope companies were required to terminate business relationships where adverse impacts had been identified and could not be prevented.
Under the revised text, termination will be a last resort. Affected companies will be required to agree a corrective action plan with a business partner including any appropriate timeframes.
Civil Liability
New text: Latest amendments to CSDDD now provide greater flexibility to individual member states with regard to civil liability. Previously, such third parties may have been able to bring actions under their ‘own capacity’. Under the revision, Member States will be responsible for providing “reasonable conditions” under which injured parties may authorise third parties such as non-government organisations to bring actions to enforce their rights.
What’s next?
All eyes will now turn to the European Parliament plenary sitting planned for later April where the current version of the text will be voted on.
If your business is impacted directly or indirectly by the Corporate Sustainability Due Diligence Directive and you’d like to learn more about how Achilles can support you, contact us here to speak to one of our supply chain due diligence experts.
