3 min read

CSDDD: Disputed due diligence law approved in EU Parliament

Today's vote ends months of uncertainty about the future of supply chain due diligence in the EU.
Melodie Michel
CSDDD: Disputed due diligence law approved in EU Parliament
Photo by Paolo Margari on Unsplash

The European Parliament has just passed the Corporate Sustainability Due Diligence Directive (CSDDD), a disputed law that will see more than 5,000 of Europe’s largest companies become liable for environmental and human rights violations in their supply chains.

Members of the European Parliament (MEPs) voted to pass the law today (April 24), with 374 votes in favour and 235 against and 19 abstentions. The current plenary session, ending tomorrow, was the last opportunity for them to approve the text before June’s elections.

The legislative approval process for CSDDD was hindered by sudden political divisions in recent months, and many proponents of the bill worried it would be tabled until after the elections, which are expected to result in a shift to the right.

In this context, sustainability leaders welcomed today’s vote as “fantastic news”. “Today ends a process that included nine Parliamentary Committees, over 3,000 amendments, and closes almost five years of debate & negotiations on the EU Corporate Due Diligence Directive by MEPs,” said Richard Gardiner, Head of EU Public Policy at the World Benchmarking Alliance.

EU member states will now have to give a final sign-off to the directive in the EU Council, which is expected to happen on May 15 and 23. After that, they will have two years to transpose it into national law. With gradual implementation, companies covered by CSDDD will be expected to comply by 2027. 

An end to months of uncertainty around the future of CSDDD

The passing of the law in the European Parliament ends months of uncertainty on CSDDD: a deal was reached between the EU Council and Parliament on a draft bill in December last year, but several member states unexpectedly withdrew their support as the law was heading for a Council vote in February. The first draft was eventually rejected and negotiators went back to the drawing board to come up with a solution to these member states’ concerns – namely the added red tape the law could represent for smaller firms.

Observers became doubtful that the EU’s flagship supply chain due diligence legislation would make it past the finish line before EU Parliament elections this June, and many warned about the perils of not harmonising supply chain due diligence across the bloc.

But on March 15, an amended draft was approved in the EU Council, putting the law back on track. 

Final CSDDD: What does the text say?

To achieve this compromise, EU negotiators had to dramatically reduce the scope of the due diligence directive, which went from affecting about 16,000 companies to just 5,300. Concretely, firms with 1,000 employees or more, and at least €450 million of annual turnover, will have to eliminate environmental and human rights risks from their supply chains or face fines of up to 5% of turnover.

The law will also apply to "companies with franchising or licensing agreements in the EU ensuring a common corporate identity with worldwide turnover higher than €80 million if at least €22.5 million was generated by royalties", according to a statement by the European Parliament. Non-EU companies, parent companies and companies with franchising or licensing agreements in the EU reaching the same turnover thresholds in the EU will also be covered.

CSDDD also mandates the companies within its scope to adopt a 1.5ºC-aligned climate transition plan.

Application will be staged, with three years given to companies with more than 5,000 employees and €1.5 billion in turnover; four years for companies with more than 3,000 employees and €900 million in turnover; and five years for those with more than 1,000 employees and €450 million in turnover.

An initial provision to lower employee and turnover thresholds to increase the law’s reach in “high-risk sectors” such as textile, clothing and footwear, agriculture, fisheries and food manufacturing, mining and construction materials was removed in the updated draft.