This week, the European Parliament gave its approval to the Corporate Sustainability Due Diligence Directive, taking it one step closer to formal adoption by the European Union.
Also known as the CSDDD or CS3D, this directive holds companies legally accountable for environmental and human rights violations within their supply chain. It establishes a standard of corporate due diligence on sustainability matters for businesses operating within the EU.
Initially proposed to apply to companies with at least 500 employees and a turnover of €150 million, the directive underwent significant amendments before approval. Following substantial political pressure, particularly from Germany, the threshold was raised to encompass only companies with 1,000 employees or more and a turnover of €450 million.
Under these new requirements, companies will be responsible not only for their own actions but also for those of their subsidiaries and suppliers. This means that both EU-based companies and non-EU companies conducting business within the EU could be held liable for the actions of their supply chain partners.
However, despite its approval, the directive has been criticized for being watered down from its original proposal. Dr. David Fabri, a lecturer in Company Law, remarked that the final version falls short of the ambitious goals initially envisioned. He expressed disappointment that what was anticipated as a bold initiative in favor of corporate governance and sustainability has been diluted.
The impact of this directive is expected to be felt most significantly in sectors such as manufacturing, wholesale of textiles, food and beverage, agriculture, forestry, fisheries, and extractive industries.
