The EU legislature has finally reached an agreement on the text of the Corporate Sustainability Due Diligence Directive (CS3D) (see here our previous client alert). The CS3D profoundly affects the ways companies active in Europe will manage their supply relationships and supply chains worldwide. The CS3D also establishes legal liability for companies regarding both environmental and human rights harm within their supply chain. EU and non-EU companies should be aware that violations of the CS3D may result in fines of up to 5% of their net worldwide turnover, harming the company's reputation by naming and shaming, and potential private enforcement. Its global impact may be compared to that of the General Data Protection Regulation (GDPR).
Reaching an agreement was challenging; several EU countries objected at the last minute to the proposal that had been provisionally agreed on by the EU Council and the European Parliament in December 2023, unless the CS3D was sharply toned down compared to the initial proposal made by the European Commission. To reach a deal before the June European Parliament elections, the Belgian Presidency of the EU Council proposed a watered-down text, which garnered enough support. Following EU Council approval on March 15, the European Parliament's Committee on Legal Affairs approved the compromise text on March 19, with 20 votes in favor and 4 against. The CS3D is now set for final approval with a vote during the European Parliament's Plenary Session scheduled for April 22–25, 2024. Typically, wordsmithing takes some months before the definitive text will be published. The polished text may necessitate another vote by the newly elected Parliament later this year, followed by a final vote in the EU Council before eventual publication.
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