Corporate Sustainability Due Diligence Directive (CSDDD)

Due diligence obligation of companies 

The European Commission published its proposal for a Corporate Sustainability Due Diligence Directive (CSDD Directive) on 23 February 2022. The Directive aims to promote sustainable and responsible business conduct in global value chains and to make the protection of human rights and the environment an integral part of business operations and governance. 

Companies play a key role in building a sustainable society and economy. 

The due diligence obligation promotes the protection of human rights and the environment and increases consumers’ trust in companies.The Directive ensures companies a level playing field throughout the EU. It also enables companies to identify and manage risks effectively. 
Because the value chains of European companies extend beyond the internal market, the Directive also benefits developing countries. It protects workers against human rights violations in these countries, improves their living conditions in general and enables new sustainable investments.

Companies under the regulation

The Directive applies to the following companies: 

• EU companies and parent companies with over1000 employees and a worldwide turnover exceeding EUR 450 million euro
• EU companies with franchising agreements with worldwide turnover higher than 80 million euro if at least 22.5 million euro was generated by royalties
• Non-EU companies operating in the EU that exceed the above-mentioned thresholds for turnover in the EU area

Small and medium-sized enterprises (SMEs) are not covered by the regulation, but the Directive provides support to SMEs that may be indirectly affected by the regulation. 

Key obligations

Under the proposed due diligence regulation, companies would be required to identify, prevent, end or mitigate adverse impacts of their activities on human rights and the environment. The obligations would also apply to companies’ value chains and subsidiaries. In addition, certain large companies would be required to draw up a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement. The proposal also introduces duties for company directors. 

Under the due diligence obligation, companies must:

• integrate due diligence into their policies 
• identify actual or potential adverse human rights and environmental impacts
• prevent or mitigate potential impacts
• eliminate or minimise actual impacts
• establish and maintain a complaints procedure
• monitor the effectiveness of the due diligence measures
• publicly communicate on due diligence. 

Progress of the Directive

The Commission’s proposal for a directive published on 23 February 2022 has been discussed during the French, Czech, Swedish and Spanish Presidencies. The Council’s general approach was adopted by the Competitiveness Council on 1 December 2022. Trilogue negotiations between Parliament, the Council and the Commission began on 8 June 2023 and a political agreement was reached on 13 December 2023. Belgium, together with the European Parliament, has made technical amendments to the legal text on the basis of the political agreement.

The Council adopted the outcome of the negotiations at Coreper I in March 2024. The European Parliament formally approved the text 24th of April 2024. The directive still needs to be formally endorsed by the Council, signed and published in the EU Official Journal. Member States will have tow years to transpose the new legislation into their national laws. 

The directive will apply gradually apply to the largest companies:

• From 2027 to companies with over 5000 employees and worldwide turnover higher than 1500 million euro;
• From 2028 to firms with over 3000 employees and a 900 million euro worldwide turnover;
• From 2029 to all the remaining companies within the scope of the directive (including those over 1000 employees and worldwide turnover higher than 450 million euro).

 

Read more:

• EU Corporate Sustainability Due Diligence Directive receives qualified majority of votes in Coreper
• European Commission press release, 23 March 2022: Just and sustainable economy: Commission lays down rules for companies to respect human rights and environment in global value chains 
• Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937
• Government communication to Parliament on the Commission’s proposal (in finnish)
• News item, 5 May 2022:Government supports Commission’s proposed legislation on corporate social responsibility 
• Information on parliamentary proceedings (in finnish)

Inquiries: 

Sami Teräväinen, sami.teravainen(at)gov.fi and Laura Pätsi, laira.patsi(at)gov.fi