European Parliament gives the green light to EU Corporate Sustainability Due Diligence obligations

On 24^th April the Parliament saw 374 MEPs vote in the Plenary session to support the compromise text of the EU Corporate Sustainability Due Diligence Directive, with 235 MEPs voting against and 19 abstaining. This follows drawn out discussions and negotiations among Member States and between Council and the Parliament, on how to frame the obligation on corporations to address their impact on human rights and the environment.

 The text voted through means that:

Ø EU and non-EU companies and parent companies must comply with the CSDDD if they have over 1000 employees + a turnover of more than EUR 450 million and to franchises have a turnover of more than 80 million euro where at least 22.5 million was generated by royalties.

Ø Companies must

-conduct risk-based human rights and environmental due diligence

-integrate due diligence into their policies and risk management systems

-identify and assess actual or potential adverse impacts

-prevent and mitigate potential adverse impacts,

-bring to an end and provide remediation for actual adverse impacts

-establish and maintain a notification mechanism and complaints procedure

-publicly communicating on due diligence

ØThe due diligence obligation applies to the operations carried out by business partners in a company’s chain of activities: (i) upstream in relation to the production of goods or the provision of services by the company, including the design, extraction, sourcing, manufacture, transport, storage and supply of raw materials, products or parts of the products and development of the product or the service, and (ii) downstream in relation to the distribution, transport and storage of the product, where the business partners carry out those activities for the company or on behalf of the company.

ØPenalties Fines of up to 5% of companies’ net worldwide turnover. Decisions on penalties must be publicly available for at least 5 years.

The Directive must now be endorsed by the Council and will enter into force on the twentieth day following its publication in the EU Official Journal. Member States must adopt national legislation two years from the date of entry into force.

However, there is a cascading application of the CSDDD following its entry into force:

-From 3 years for companies with > 5000 employees + net worldwide turnover of > EUR 1500 million (EU and third country)

-From 4 years for companies with > 3000 employees + net worldwide turnover of > EUR 900 million (EU and third country)

-From 5 years for all other companies falling within the scope (i.e. > 1000 employees + turnover > EUR 450 million, EU and third country)

More information: https://www.europarl.europa.eu/news/en/press-room/20240419IPR20585/due-diligence-meps-adopt-rules-for-firms-on-human-rights-and-environment

Contact: Lebo Mofolo, lmofolo@frucom.eu