Today, the European Parliament has adopted its negotiating position on the proposal for a Corporate Sustainability Due Diligence Directive (CSDDD). A majority of 366 Members of the Parliament voted in favour of almost all the amendments endorsed by the Committee on Legal Affairs in April, with 225 votes against and 38 abstentions.
The vote reflects cross-party support for an enhanced contribution by businesses to sustainability and a clear mandate for the rapporteur to negotiate with the Commission and the Council.
The Parliament’s proposed amendments reinforce the risk-based approach to due diligence compared to the Commission’s proposal and the Council General Approach, in line with international standards on business and human rights. They also strengthen the provisions on stakeholder consultation and due diligence duties.
The text adopted by the Parliament is a step forward regarding the contribution by the financial sector to more sustainable value chains. Investors will have to work with their investees in order to tackle adverse impacts on human rights and the environment.
Regarding the duty of companies to contribute to climate action, the plenary strengthened the Commission’s proposal to require that companies adopt and implement transition plans. The adopted amendments detail the content of transition plans to ensure that companies contribute to global climate goals. Moreover, Parliament incorporates the proposal by its Committee on the Environment to link variable remuneration to climate transition plans.
On the downside, the final outcome falls short of ensuring a coherent, company-wide implementation of due diligence by requiring oversight by directors. This is crucial in order to prevent compliance departments from operating in a silo. Not requiring the involvement of directors is a key shortcoming of the plenary outcome, including relative to the Commission proposal, which was already only a first step towards clarifying directors’ duties.
By adopting a negotiating position for the European Parliament, the vote in Plenary today concludes the first stage of the legislative process, where the Parliament and the Council adopt their position relative to the initial proposal by the Commission. Now, the three institutions will enter into trilogues to agree on the final shape of the directive. Frank Bold calls on all institutions to prioritise the negotiations for the CSDDD in order to reach agreement on it before the end of the mandate.
The experience with the implementation of the Non-Financial Reporting Directive (NFRD) and the analysis of the current status of companies’ sustainability reporting indicates that without clearer legal requirements, no guidance, no matter how good, will have substantial effect on the quality of companies reporting.
Over 20 leading NGOs working on corporate transparency have published a statement calling on EU policy-makers to define companies’ disclosure obligations on sustainability issues on the occasion of tomorrow’s high-level conference on the future of corporate reporting hosted by the European Commission in Brussels.
Under the Alliance for Corporate Transparency project Frank Bold and its partners have analysed how European companies disclose information necessary for understanding their impact on society and the environment, as required by the EU Non-financial Reporting Directive*.
