The Council of the European Union approved the EU Directive on corporate sustainability due diligence (CSDDD) on Friday. The CSDDD introduces obligations for EU and non-EU companies related to compliance with human rights and their impact on the environment. The approval by the Council means that the CSDDD is adopted as legislation and its approval comes after the proposal was initially blocked in February.
The CSDDD was approved with 374 votes in European Parliament and will take a risk-based approach to ensuring corporate responsibility. The legislation compliments other legislative acts including “the deforestation regulation, conflict minerals regulation and regulation prohibiting products made with forced labour.” The Directive received significant push from rights groups and trade unions, especially in light of corporate abuses of human rights such as the Rana Plaza tragedy.
The directive applies five years from entry to companies with more than 1000 employees and that make a turnover of 450 million Euro; four years from entry for companies with more than 3000 employees and 900 million Euro turnover; and three years from entry for companies with more than 5000 employees and 1500 million Euro turnover.
The CSDDD aims to ensure that companies and their subsidiaries adhere to responsible and sustainable corporate practices, and mitigate any risks to human rights and the environment both within and outside of Europe. The rules apply to large EU limited liability companies and partnerships and large non-EU companies. It outlines that its goals aim to protect citizens, companies and developing countries.
The European Commission outlined that the CSDDD will be enforced through two mechanisms: administrative supervision and civil liability. It elaborated that Member States will “designate an authority to supervise and enforce the rules, including through injunctive orders and effective, proportionate and dissuasive penalties.” It also said that the Commission will instate a “European Network of Supervisory Authorities.” With regards to civil liability, any negligent or intentional failure to carry out due diligence will result in compensatory damages for victims.
The approval has been met with praise from many human rights bodies including Human Rights Watch (HRW) and Amnesty International. Tirana Hassan, executive director at HRW, said in relation to the CSDDD:
The EU’s Due Diligence Directive represents a landmark shift from voluntary corporate responsibility to mandatory obligations for corporations to prevent and address human rights abuses … This groundbreaking law is a major victory for rights groups, trade unions, and civil society networks at the forefront of the fight for corporate accountability.
Hannah Storey, Amnesty International Policy Advisor on Business and Human Rights said, “This is a defining moment for human rights and corporate accountability. The EU has set a binding standard for responsible business conduct in the world’s biggest single market.”
The CSDDD will come into force 20 days after its publication in the Official Journal of the European Union.
