After two failed attempts to win approval since the announcement of a ‘political agreement’ on December 14, 2023, the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) was finally approved by the Council of the European Union (EU) on March 15, 2024. The European Parliament must now endorse the agreed text, which is considered a formality.
The CS3D encompasses due diligence and governance obligations that will have significant impacts on many EU companies and non-EU companies active in the EU, as well as on their value chains worldwide.
Background
Within the framework of the European Union’s ambitious European Green Deal, there has been a pronounced and swift evolution in the realm of corporate sustainability governance within EU legislation. This domain is dedicated to guiding companies in their management of environmental, social, and governance (ESG) concerns. Several significant EU directives have already been enacted in this sphere, notably the Corporate Sustainability Reporting Directive (CSRD) and the Taxonomy Regulation.
The CS3D was provisionally agreed upon at a political level in December 2023. The final text of the CS3D must be formally adopted by the European Parliament, and it still awaits formal adoption by the Council of Ministers before it can enter into force. However, this step is typically a formality at this stage.
Conclusion
The leading Legal Affairs Committee is anticipated to ratify the text in the forthcoming days, preceding a Plenary vote scheduled for April. This accord underscores the imperative for European Union-based enterprises and major multinational corporations operating within Europe to conduct comprehensive due diligence across their entire supply chains, aligning with the stipulations set forth by regulations such as the EU Deforestation Regulation, the EU Forced Labor Regulation, the EU Green Claims Directive, CSRD, and others.
The implications of the CS3D will extend significantly to both covered entities and, due to the expansive ramifications of the due diligence and governance mandates on contractual engagements with third parties, to non-covered entities as well. Every enterprise operating within the EU will be compelled to ascertain the applicability of the CS3D to their operations, the requisite information they must furnish, and the adjustments or establishment of processes and procedures necessary for compliance with the CS3D.
For more details on which companies are covered by CS3D, phase-in periods, requirements, liability, and penalties, please Download Newsletter.
Please contact Milica Pešterić for more information at milica.pesteric@d2plaw.com.
