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The European Parliament has approved the Corporate Sustainability Due Diligence Directive (CSDDD, aka “CS3D”). CSDDD aims to ensure corporations are accountable for performing due diligence to mitigate adverse impacts relating to the environment and human rights along their global supply chains. These requirements apply to the direct actions of companies, but also to subsidiaries and suppliers both inside and outside the EU.
At the press conference after the approval on 24 April 2024, Lara Wolters, a Dutch Member of the European Parliament, celebrated the result. “I am so proud that the EU can stand tall in the world and say that we are doing our bit to make sure there’s no more products on the market that come at the cost of human lives and environmental destruction,” said Wolters. “We are leading on this. We’re the first bloc to do this, but I certainly hope we won’t be the last.”
Wolters further pointed out that the approval comes on the 11th anniversary of the Rana Plaza disaster in Bangladesh, in which an unsafe industrial complex occupied by workers making clothes for the Western market collapsed, killing 1,134 workers and injuring thousands more. One of the goals of CSDDD is to ensure that Western companies have an obligation to perform due diligence on their supply chains to uncover such abuses and mitigate them before disaster occurs.
“The core elements of this duty are identifying, bringing to an end, preventing, mitigating, and accounting for negative human rights and environmental impacts in the company’s own operations, their subsidiaries, and their value chains,” says the European Commission. “In addition, certain large companies need to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.”
CSDDD also outlines duties for company directors who oversee the due diligence process and implement it into the corporate strategy, taking account of anything that could impact human rights, climate change, and the natural environment.
Approval Required Long Negotiations
Getting to this point was a difficult journey, and CSDDD has gone through considerable revision. While many EU members expected an easy approval of the initial draft on 30 January 2024, support quickly eroded over concerns about the impact on small-medium enterprise and the total scope of businesses to whom the Directive would apply.
After considerable negotiation, the final text is a much-reduced version of the original proposal. The first draft would have applied to organizations with a minimum threshold of 500 employees and turnover of 150M euros. The approved version raises that threshold to organizations with 1,000 employees and a turnover of 450M euros, which removes many organizations from the Directive’s scope.
The approved version also extends the timetable for implementation. It will apply to large organizations with 5,000 employees in three years, organizations with 3,000 employees in four years, and organizations with 1,000 employees in five years.
According to Wolters, the result is not the victory many were hoping for, but is a victory, nevertheless. “There wouldn’t be such a fight to get here if this law wasn’t going to make a difference,” said Wolters. “Upping the thresholds was not part of the deal we struck in December. We spent 16 hours in a room together to get to an agreement and this was not part of it. And yet, of course, before you today, you see someone that is happy in the end, because at the end of the day, it’s the results that matter.”
Lasting Impact Requires Enforcement
While CSDDD has passed the critical approval stage, its impact will come down to enforcement. Each member state is responsible for supervising its implementation of the Directive, which will require resources, training, and processes that do not currently exist. It will also be important to ensure that larger organizations do not push their regulatory burden onto smaller suppliers who have fewer resources to fulfill those obligations. Transparent, data-based communication along the supply chain will be critically important for CSDDD’s success.
Overall, sustainability experts are optimistic that CSDDD is a pivotal first step in ensuring accountability along the global supply chain. “The Corporate Sustainability Due Diligence Directive (CSDDD) is poised to shape global corporate practices and regulatory strategies in sustainability,” says Cassidy Spencer, Sustainability Regulatory Research Analyst at 3E. “It could jumpstart the establishment of global benchmarks for sustainability due diligence, impact the inclusion of due diligence in corporate governance and reporting structures, and contribute to advancing the United Nations Sustainable Development Goals (SDGs), further reinforcing their alignment.”
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About the author: Graham Freeman is a 3E reporter based in Toronto, where he covers ESG and sustainability news. Graham has been a content and technical writer in the technology industry for more than a decade. He has also worked as a professor and lecturer at Queen’s University, the University of Toronto, and George Brown College.
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