The Council of the European Union recently approved the EU Directive on Corporate Sustainability Due Diligence (CSDDD). This legislation introduces significant obligations for both EU and non-EU corporations, requiring compliance on matters related to human rights and environmental impact. This follows an initial blockage of the proposal back in February.
With 374 supporting votes in the European Parliament, the CSDDD plans to implement a risk-based approach to corporate responsibility. In addition to a number of other legislative acts it complements, such as the deforestation regulation, the conflict minerals regulation and the regulation against products made with forced labour. Notably, the Directive gained significant support from various rights groups and trade unions, particularly following corporate human rights violations such as the Rana Plaza incident.
According to the terms of the Directive, businesses with more than 1000 employees and an annual turnover greater than 450 million Euro will fall within its scope five years after it takes effect. The same applies after four years for companies with more than 3000 employees and a 900 million Euro turnover, and three years for businesses with over 5000 employees and a 1500 million Euro turnover.
The goal of the CSDDD is to ensure that both companies and their subsidiaries comply with responsible and sustainable business practices, while also mitigating potential risks to human rights and the environment, within and beyond the European borders. This will apply to large EU limited liability companies and partnerships, as well as large non-EU companies. These intentions align with the outlined goal of the directive to protect citizens, companies, and developing countries.
Enforcement of the CSDDD will be administered through a mixture of administrative supervision and civil liability, as outlined by the European Commission. Member states will designate an authority to supervise and enforce the rules, while the Commission will establish a European Network of Supervisory Authorities. Any negligent or intentional failure to execute due diligence will result in compensatory damages for victims.
Approval of the CSDDD has been met with acclaim from numerous human rights organizations such as Human Rights Watch (HRW) and Amnesty International. Executives from each organization have expressed and reiterated their support, respectively highlighting the landmark shift from voluntary to mandatory corporate responsibility, and the establishment of a binding global standard for responsible business practices.
The CSDDD will enter into force 20 days following its publication in the Official Journal of the European Union.