On 1 June 2023, the European Parliament (the “EP“) plenary session adopted its proposed amendments to the draft EU Corporate Sustainability Due Diligence Directive (“CSDDD“).
The adopted text largely mirrors the version voted on by the EP’s Legal Affairs Committee in April 2023 (which we discussed in our earlier blog post), in that it confirms that:
- asset managers and institutional investors will be in-scope;
- the due diligence requirements will apply to: (i) EU companies with over 250 employees and a global turnover of over €40 million; (ii) parent companies with over 500 employees and a global turnover of over €150 million; and (iii) non-EU companies with a global turnover of over €150 million if at least €40 million of this was generated in the EU; and
- directors of companies with more than 1,000 employees will be responsible for ensuring the company implements a transition plan that is compatible with the goals of the Paris Agreement.
The adopted text also confirms that non-compliant companies may be liable for damages and could be sanctioned by the national supervisory authorities of EU member states. Sanctions include taking a company’s goods off the market and/or the imposition of fines of at least 5% of a company’s net global turnover. Non-EU companies that fail to comply may also be banned from public procurement in the EU.
The EP’s proposed amendments constitute the EP’s position in the “trilogue” negotiations with the Council of the EU (the “Council“) and the European Commission (the “Commission“) that are scheduled to start on 8 June 2023. Based on the Council’s “General Approach” adopted in December 2022 (see our earlier blog post), the following contentious issues will have to be resolved in the course of the trilogue:
- coverage of the CSDDD, in particular in respect of the relevant threshold values and the inclusion of the financial services sector;
- adoption of a “value chain” or a “chain of activities” approach, with the Council aiming for the latter, more restrictive approach;
- director’s duties, including duty of care and responsibility for directors to oversee their company’s due diligence actions, with the Council proposing to exclude the relevant provisions from the CSDDD; and
- civil liability, with the Council limiting the civil liability regime in respect of violations of the CSDDD as proposed by the Commission and supported by the EP.
The aim is to reach a final agreement on the CSDDD by the end of 2023, but given that there are a number of contentious issues, agreement may not be reached until early 2024.