After intensive negotiations on the (final) text, the long-expected CSDDD has now formally endorsed by the European Council The CSDDD establishes on the one hand a corporate due diligence duty and reporting obligations to ensure prevention of (potential) adverse impacts on human rights and the environment for in-scope companies on its operations, subsidiaries and supply chains. On the other hand, the CSDDD imposes the obligation to adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, that the business model and strategy of in-scope companies are compatible with the Paris Agreement.
Today, on 24 May 2024 the European Council formally approved the finalised text of the CSDDD following the adjusted proposal(s) and final approval by the European Parliament on 25 April 2024 and the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (Coreper) on 15 May 2024.
Our key takeaways for in-scope companies:
- Implement due diligence into comprehensive plans (procedures, structures, policies, and risk management systems) to ensure prevention of potential adverse impacts on human rights and the environment (HREDD),in-scope companies should also make financial or non-financial investments, adjustment or upgrades, which aim to prevent adverse impacts
- Identify and assess actual and/or potential adverse impacts on human rights and the environment within the value chains through the implemented due diligence process (in line with the OECD Due Diligence Guidance for Responsible Business Conduct)
- Ensure an effective and meaningful engagement with stakeholders as part of the due diligence process
- Adopt a climate change transition plan to ensure, through best efforts, that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement
- Report due diligence efforts (g., in the annual management report under the CSRD; read our blog here)
- The CSDDD also applies to the financial sector, albeit that the HREDD is limited to its own operations and upstream chain of activities. Still, also financial undertakings will have to adopt climate change action plans
- The CSDDD includes public enforcement (by administrative supervision and sanctions) and possible private enforcement with civil liability for caused damages (leading to potential class actions)
For more information about the requirements under and potential impact of the CSDDD please be referred to our previous blog.
Next steps?
With the formal sign off by the European Council on the text of the CSDDD as approved upon by the European Council on 13 March 2024, the CSDDD will enter into force across all Member States 20 days after its publication the Official Journal of the EU. Member states will have two years to transpose the legislation into national law. The CSDDD includes a phased implementation for in-scope companies (please see our earlier blog in this regard).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.