New EU Rules on Corporate Sustainability Due Diligence Will Impact U.S. Companies
May 3, 2024
Last week, the European Parliament voted to adopt the Corporate Sustainability Due Diligence Directive (CSDDD), which introduces comprehensive mandatory human rights and environmental due diligence obligations. The CSDDD will apply to both EU and non-EU companies with activities in the EU and includes significant financial penalties and civil liability for non-compliance.
Key points to consider:
The new directive is closely interrelated and complementary to the Corporate Sustainability Reporting Directive (CSRD), which was passed in 2022 and is effective in 2024. However, the CSDDD requires companies to take environmental and social responsibility, while the CSRD merely ensures European companies and companies doing business in Europe are transparent about it.
The directive's scope has significantly narrowed from the original proposal:
Covers businesses with 1,000 employees and global revenue of at least €450m, a change from the original 500 employees and €150m turnover. The European Coalition for Corporate Justice projects that the current directive will cover fewer than 5,500 companies, significantly fewer than the original draft's 16,000.
Removes the ability to file civil court claims by a person impacted by a company's value chain. This change gives individual member states more control over potential actions in such instances.
Adopts a staged implementation approach. Companies with 5,000 employees and a €1500m annual turnover have a three-year application process, those with 3,000 employees and a €900m turnover have four years, and those with 1,000 employees and a €450m turnover have five years.
Narrows the definition of supply chains. By removing “indirect,” businesses now only need to carry out due diligence with direct contractors.
Removes the mandate to offer financial incentives to company directors to implement climate transition plans.
Companies are advised to prepare to meet the new due diligence obligations and adopt climate transition plans. They should also stay updated on national implementation of the CSDDD and anticipate potential changes to scoping thresholds and remediation measures. HR Policy Global’s Europe Summer Summit will examine this challenging issue.
