Scaled Back But Passed: The EU Council Approves The Corporate Sustainability Due Diligence Directive

Scaled Back But Passed: The EU Council Approves The Corporate Sustainability Due Diligence Directive

On March 15th, the Belgian Presidency of the Council of the European Union announced an agreement regarding the scope and application of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), a set of rules and obligations for firms regarding actual and potential human rights violations and adverse environmental impacts across their value chains. 

The agreement comes after weeks of uncertainty following Germany and Italy’s abstention from the CSDDD, arguing the imposed burden on businesses poses excessive bureaucracy. With regulators pressured to pass the proposal ahead of the upcoming elections to the European Parliament, member states have finally agreed on the obligations on firms to address worker conditions, human rights violations and environmental impacts across their supply chains. This will include the operations of subsidiaries and entities with whom a firm has an established business relationship.

To reach an agreement, regulators had to scale back the original number of firms under the scope, increasing the general thresholds from 500 to 1,000 employees and from €150 million turnover to €450 million ($163 million to $490 million). The proposal also removes a lower employee and turnover threshold for firms in high-risk sectors, such as manufacturing and agriculture, cutting back the number of subject organizations by roughly two-thirds. Additionally, the agreement eliminates liabilities over indirect relationships, limiting obligation to business partners who carry out activities for or on behalf of the organization.

Despite the scaled-back due diligence rules, the CSDDD is a step forward in expanding firms’ responsibility over their upstream operations. The due diligence rules also push organizations to implement transition plans for climate change mitigation aligned with the CSRD, meaning that firms complying with the CSRD will be exempted from adopting a climate transition plan under the CSDDD.

With the CSDDD and CSRD setting firms’ obligations to become sustainable enterprises, organizations must enhance visibility across their supply chains. Businesses must collaborate with suppliers to drive transparent sustainability performance and disclosure (see Verdantix Strategic Focus: Building Resilience Through Supply Chain Sustainability). In this context, software tools with defined solutions for supply chain sustainability can help firms map their supply chains and access relevant insights to build sustainable business resilience.

To learn more about the CSDDD and other supply chain sustainability regulations, see Verdantix Best Practices: Improving ESG Performance In The Supply Chain, and to read more about innovative software tools that help firms improve supply chain ESG performance and disclosure, see Verdantix Smart Innovators: Supply Chain Sustainability Software.