The Council of the EU and the European Parliament today reached provisional agreement on the corporate sustainability due diligence directive (CSDDD).

The CSDDD will impose obligations on large companies regarding actual and potential adverse impacts on human rights and the environment, with respect to their own operations, those of their subsidiaries, and those carried out by their business partners.  It will also require large companies to adopt and put into effect a transition plan for climate change mitigation and, for companies with over 1000 employees, to link efforts on the plan with executive remuneration schemes.

The agreed text of the CSDDD has not yet been published.

Companies in Scope

According to press releases from the Council and the European Parliament the agreement between the co-legislators fixes the scope of the CSDDD on large EU companies with more than 500 employees and a net worldwide turnover of EUR 150 million.  Non-EU companies with substantial turnover within the EU will fall within scope. The European Commission will publish a list of non-EU companies that fall within scope of the CSDDD.

The obligations will also apply to companies with over 250 employees and with a turnover of more than EUR 40 million if at least EUR 20 million is generated in one of the following sectors: manufacture and wholesale trade of textiles, clothing and footwear, agriculture including forestry and fisheries, manufacture of food and trade of raw agricultural materials, extraction and wholesale trade of mineral resources or manufacture of related products and construction.

It was agreed that the financial sector be temporarily excluded from scope of the CSDDD in respect of their downstream operations, with a review clause for a possible future inclusion based on a sufficient impact assessment. It was confirmed at a press conference hosted by the European Parliament that financial institutions will be in-scope with regard to their own operations and upstream operations, in addition to the obligations regarding climate transition plans and remuneration schemes.

Main Elements of the Agreement

The agreement also clarifies the liabilities for non-compliant companies, better defines the different penalties and completes the list of rights and prohibitions that companies should respect.

Next Steps

The provisional agreement now needs to be endorsed and formally adopted by both institutions.