A water-downed version of the CSDDD has been voted …. finally.
After several weeks of heated negotiations and pressures and what is surely a setback, it remains very important that EU legislation pushes companies toward more responsibility for people and the planet. It has real potential to drive change with the biggest players on the market.
And one for the lawyers among us practitioners: the UN Guiding Principles on Business and Human Rights are no longer just soft law. They have become binding laws and mark another milestone in the relationship between businesses, society, and the planet.
Scope of application
The scope of the directive has been significantly reduced and will now concern companies with more than 1,000 employees and a turnover of over €450 million. In all, an estimated 5,300 companies will be subject to the directive. Initially, the text intended to target companies with more than 500 employees and €150 million, with an estimated 15,000 companies.
References to high-risk sectors have been removed. All sectors potentially in scope.
Chain of activities: the downstream part of the definition has been limited as it does not cover the disposal of the product, nor the activities of a company’s downstream business partners related to services.
Civil liability: civil liability of companies in the event of non-compliance with their due diligence obligations, which would have enabled victims to obtain compensation and damages, has been left to each Member State to decide whether or not to include this in its transposition.
The Financial sector is not included: all references to the financial sector regarding the due diligence procedure have been removed, but a joint political statement recognizes the need for further development.
What are the practical implications for eligible companies?
Large companies will need to conduct sustainability due diligence, including environmental and human rights due diligence, for most of their value chains. They will ultimately also be held accountable in accordance with existing and upcoming national laws.
CSRD / CSDDD: to avoid duplication, companies that already comply with CSRD reporting obligations will be exempt from the obligation to adopt a climate transition plan. Companies conducting double materiality, including impact materiality, can claim to base their action plan on mitigating CSDDD-related risks using impact materiality aligned with UNGP and OECD RBC standards as a good basis.
Implementation: Companies have more than sufficient time to set their strategies, map, identify, and address their social and environmental impacts:
- 3 years for companies with more than 5000 employees and 1500 million turnovers,
- 4 years for companies with more than 3000 employees and 900 million turnovers, and
- 5 years for companies with more than 1000 employees and 450 million turnovers.
Penalties: Member States should provide for dissuasive, proportionate, and effective penalties for infringement of the measure above. This should include a pecuniary penalty within an applicable timeframe. To prevent the artificial reduction of potential administrative fines, Member States should ensure that pecuniary penalties are imposed, taking into account the consolidated turnover calculated at the level of the ultimate parent company. The maximum limit shall not be less than 5%.
What next?
The directive must now be voted on by the European Parliament in April for it to be fully adopted. Ksapa is a global platform with extensive expertise, tools, and networks that work with companies and financial institutions on human rights due diligence, action plans, and their implementation, ensuring the actual mitigation of risks on the ground. Contact us to understand what can be done for your case.
Krystel Bassil
Krystel is senior consultant, contributing to Ksapa’s consulting and advocacy missions, on the topic of business and human rights and more generally sustainability. Krystel Bassil is also Senior Legal Officer of the Human Rights and Business Unit at the Syrian Legal Development Programme (SLDP). Prior to that Krystel worked as a business and human rights consultant advising along with leading experts on a wide range of projects across the private sector, international organizations, and academic institutions. She is admitted to the Beirut Bar and worked as a lawyer in international arbitration and human rights. Krystel holds a LL.M. degree from SOAS, School of Oriental and African Studies, University of London, a law degree in public law from the Holy Spirit University of Kaslik, Lebanon, and a degree in political science from the Saint-Joseph University of Beirut. She is fluent in French, English and Arabic.
