The Council of the EU gave its final approval to the Corporate Sustainability Due Diligence Directive (CSDDD) last Friday.  The CSDDD will enter force 20 days following its publication in the EU Official Journal.  Member States will be required to transpose the CSDDD into national law within two years.

Mandatory Obligations

The CSDDD introduces for in-scope companies:

• obligations regarding adverse human rights and environmental impacts of the company’s own operations, those of its subsidiaries and of business partners in their upstream and downstream “chain of activities”;
• liability for violation of these obligations; and
• the obligation to adopt and put into effect a climate transition plan in line with the Paris Agreement.

Scope

The CSDDD will apply to large EU companies and non-EU companies operating in the EU:

• EU companies with more than 1,000 employees on average and net worldwide turnover of more than EUR 450 million in the last financial year.
• Non-EU companies with a net turnover of more than EUR 450 million in the EU in the year preceding the last financial year.  There is no employee threshold for non-EU companies.
• Companies with franchising or licensing agreements where royalties amount to at least EUR 22.5 million in the last financial year, with a net worldwide turnover of EUR 80 million in the last financial year. Thresholds are within the EU and by reference to the year preceding the last financial year for non-EU companies.

Ultimate parent companies of a group that reach the thresholds on a consolidated basis are also in scope.

SMEs are not within scope of the CSDDD, but similar to the CSRD, may be indirectly affected where they form part of the chain of activities of in-scope companies.

Timeframe

The CSDDD will apply on a phased basis from its entry into force:

• 3 years (from 2027) – EU companies with more than 5,000 employees and EUR 1,500 million net worldwide turnover and non-EU companies with more than EUR 1,500 million net turnover generated within the EU.
• 4 years (from 2028) – EU companies with more than 3,000 employees and EUR 900 million net worldwide turnover and non-EU companies with more than EUR 900 million net turnover generated within the EU.
• 5 years (from 2029) – EU companies with more than 1,000 employees and EUR 450 million net worldwide turnover and non-EU companies with more than EUR 450 million net turnover generated within the EU.

We will publish further briefings with more detailed analysis on key aspects of the CSDDD.