Following its earlier refusal to back the Corporate Sustainability Due Diligence Directive (CSDDD), the EU has now changed course and supported it.
The CSDDD is a piece of EU legislation that aims to keep businesses' supply chains, including those of the food industry, free from both human rights and environmental abuses. In its original form, it would have meant that businesses larger than 500 employees (250 for high risk industries such as agriculture) and with a turnover of more than €150m would need to ensure that their supply chains were free of these things.
However, after Germany announced its abstention, and was followed in this by France and Italy, the EU presidency refused to back it. It was criticised for potentially stifling business with bureaucracy, as well as unintentionally affecting smaller businesses due to the focus on supply chains.
On Friday 15 March, the EU then changed its mind, backing the legislation. This was after a number of changes were made in order to make it more palatable for critical member states.
A changed directive
The scope of the directive has been changed significantly, and will now only cover businesses with 1,000 employees and, in the current text, a turnover of €450m or over. It also applies to non-EU companies operating in the EU. The European Coalition for Corporate Justice (ECCJ) estimates that, while the original draft of the CSDDD would have covered 16,000 companies, the current draft covers less than 5,500.
The directive will no longer have a lower employee threshold for industries, such as agriculture, which have a greater impact on the environment.
The deal has also reduced activities that will be subject to due diligence duties, cutting out product disposal, dismantling and recycling, and composting and landfill.
The section focusing on cases when a person affected by the value chain of a company brings forward a civil court claim has been removed. This gives individual member states greater influence over what could be done in this instance.
The directive now introduces a staged approach, giving companies with 5000 employees and a €1500m annual turnover a three year application process; companies with 3000 employees and a €900m turnover four years; and companies with 1000 employees and a €450m turnover five years.
The definition of supply chains has been narrowed, with businesses only needing to do due diligence on businesses they have a ‘direct’ contractual relationship with, the term 'indirect’ being removed.
Finally, companies will no longer be required to provide financial incentives to their directors to implement climate transition plans.
The significantly changed deal will likely go to a vote in the European Council in April.
Response were mixed, with some praising the fact that the directive had passed, while others bemoaning the fact that it had been watered down.
"While the CSDDD may not have retained its original strength and breadth of scope, it still represents a step forward in promoting corporate sustainability within the EU,” said Matthew Germain, head of environment at law firm Osborne Clarke.
"Companies, both in the EU and outside, now face the task of reassessing whether they fall within its scope, understanding when the measures will take effect and what actions they will need to start taking to ensure compliance with the new rules."
However, Marion Lupin, policy officer for the ECCJ, was not impressed. “Today's BE Presidency's major concessions on the CSDDD are yet another blow to human rights and corporate accountability efforts globally. It's truly disheartening that a democratically agreed trialogue compromise has become a kindergarten for political haggling. Meanwhile, profit-driven corporations get a pass to keep driving environmental degradation, labour right and human rights abuses continue with impunity. EU Member States must step up and reach an agreement now. The alternative — a future without CSDDD —is an even bleaker reality, one with an intensified burden on human rights and justice,” she said.