EU Council and Parliament reach agreement on CSDDD
15 Dec 2023
Yesterday, on 14 December 2023, the European Union's Council and Parliament announced that they have forged an agreement on corporate sustainability due diligence directive. This legislative milestone seeks to compel companies operating within the EU to uphold stringent standards in their supply chains, focusing on sustainable practices and ethical considerations.
What obligations?
The due diligence directive establishes rules outlining the responsibilities of large companies concerning both present and potential negative effects on the environment and human rights within their supply chain. This encompasses the assessment of upstream business partners and, to some extent, downstream activities like distribution or recycling.
Additionally, the directive sets out guidelines concerning penalties and legal responsibility for failing to meet these obligations. It mandates companies to devise a plan that aligns their business model and strategies with the objectives outlined in the Paris agreement on climate change.
Scope
The agreement defines the scope of the directive, targeting large companies with over 500 employees and a net global turnover of €150 million. Non-EU companies will be subject to these rules if they generate a net turnover of €300 million within the EU within three years following the directive's implementation. The Commission is tasked with publishing a list of non-EU companies falling within the directive's scope.
The directive will initially exclude the financial sector, with a possibility for periodic reviews to assess its future inclusion. This evaluation will be contingent upon conducting a comprehensive impact assessment to determine the sector's potential implications.
Civil liability
Today's agreement strengthens the requirements for large companies to implement a transition plan aimed at mitigating climate change impacts, emphasizing a commitment to effective measures.
Regarding civil liability, the agreement enhances the accessibility to justice for affected individuals. It introduces a five-year window for affected parties (including trade unions or civil society organizations) to bring forward claims related to adverse impacts. Additionally, it sets limitations on evidence disclosure, injunctions, and cost burdens in legal proceedings for claimants.
As a final resort, companies identifying adverse environmental or human rights impacts stemming from certain business partners will be obligated to terminate those relationships when prevention or resolution of these impacts proves impossible.
Penalties
In cases where companies neglect to settle fines imposed for violating the directive, the agreement incorporates various injunction measures. These measures factor in the company's turnover to determine monetary penalties, setting a minimum threshold of up to 5% of the company’s net turnover. Furthermore, the agreement obliges companies to engage in substantive involvement, which involves dialogue and consultation with affected stakeholders, as an integral component of the due diligence process.
The agreement established that compliance with the directive could be a criterion for the award of public contracts and concessions.
What’s next?
The provisional agreement achieved with the European Parliament must now undergo endorsement and formal adoption by both institutions involved.
For more information on the specific obligations, we refer to our newsflash on the corporate sustainability due diligence directive.
Curious about whether your company falls under this new due diligence obligation? What it means for the duties and liabilities of the directors? Don’t hesitate to reach out to PwC Legal. We're here to provide assistance and support whenever needed.
PwC Legal’s Sustainability team:
Pierre Queritet - Quinten Smits (Corporate&Governance)
Pascale Moreau - Jessica De Bels (Social)
Els Empereur - Olivier Drooghmans (Environmental)
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