After 18 hours of negotiations, the European Parliament, Council of the EU and European Commission reached a political agreement this morning on the Corporate Sustainability Due Diligence Directive (CSDDD). The decision was preceded by a four-year long legislative process at European level and builds on national laws in France and Germany.
"We commend the co-legislators for responding to the constructive voices from trade unions, civil society and businesses. this agreement is a valuable outcome towards establishing an EU-wide framework for responsible business conduct. We call on negotiators to finalise technical details in time for adoption before the end of this Parliament's mandate," says Julia Otten, Frank Bold Senior Policy Officer.
The three institutions reached an agreement on key open points of the directive. Regarding environment and climate, negotiators unfortunately only incorporated a limited definition of environmental impacts, which does not encompass climate liability. However, companies will be required to adopt and put into effect transition plans, including emission reduction targets based on the Corporate Sustainability Reporting Directive and in line with the objectives of the Paris Agreement.
As regards the financial sector, negotiators agreed to a partial inclusion of financial institutions. Banks, insurers and investors will need to adopt and put into effect climate transition plans in line with the decarbonisation goals of the Paris Agreement. However, failing to require financial institutions to exercise due diligence in line with existing guidance and best practice is a missed opportunity to foster accountability for human rights violations in connection to the financial sector. The co-legislators agreed to revisit the inclusion of the finance sector during the first review of the legislation.
Lowering barriers in access to remedy for victims of corporate abuse was one of the key objectives of the Directive. While the final agreement misses the opportunity to adopt a fair distribution of the burden of proof, it includes improvements on access to justice, for instance with regard to the disclosure of evidence and limitation periods.
Regrettably, the agreement does not include the provisions proposed by the European Commission on the duties of directors to oversee due diligence and take into account sustainability when acting in the interests of the company. We consider this deletion a short-sighted step that will deprive companies across the EU and their stakeholders of legal clarity and predictability regarding the role and responsibilities of governance bodies in fostering more sustainable business practice.
The rules will apply - at the earliest starting in 2027 - to EU companies that have more than 500 employees and a net worldwide turnover of more than 150 million Euro. They will also apply to companies with more than 250 employees and 40 million euro in turnover, if over 50% of such turnover was generated in a high-risk sector. Non-EU companies will also be subject to the Directive if they exceed certain turnover thresholds in the single market.
Now, negotiators will continue to work together to finalise the technical details of the text, before its formal adoption by the European Parliament and Council of the EU.
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By the end of July, the European Commission is expected to adopt its first set of sustainability reporting standards (ESRS). The standards will impact 50,000 European companies and thousands international corporate groups. As part of the EU Corporate Sustainability Directive (CSRD) ecosystem, they will require large companies to report information on their sustainability impacts on people and planet as well as their sustainability-related risks and opportunities.
Last Friday, the European Commission published for public consultation a draft Delegated Act on the first set of European Sustainability Reporting Standards. NGOs, civil society groups and investors associations are very concerned with the significant reduction of the ambition compared to EFRAG’s technical advice and urge the Commission to introduce a robust, mandatory and consistent reporting framework and to not allow greenwashing.
