The European Union’s Corporate Sustainability Due Diligence Directive faced further delays as the European Parliament pulled the proposal from the agenda of the Legal Affairs Committee. The Parliament’s decision comes as the measure has also been pulled from the European Council’s consideration. Despite significant efforts by supporters, indications are that the CSDDD is most likely dead until after the EU elections in June, and any revival will be significantly watered down.
As the name implies, the CSDDD, also called the CS3D, establishes a corporate due diligence standard on sustainability issues for businesses operating in the EU. In this case, sustainability most directly applies to environmental concerns, climate change, and human rights.
The new due diligence requirements apply not only to the direct actions of the company, but also to their subsidiaries and supply chain. EU based companies, as well as non-EU companies that conduct a set level of business in the EU, could become liable for the actions of their suppliers.
The proposed due diligence standard adopts a risk-based approach, in which companies must identify risks where they are most severe or most likely to occur, then prioritize the order of mitigation based on severity and likelihood. Failure to act will result in regulatory liability from member states, as well as opening them up to civil litigation from those who are impacted.
The final draft of the CSDDD, released on January 30, initially appeared poised for easy approval. However, that support quickly eroded following Germany’s indication they will abstain from the vote. Once Germany announced their no vote, multiple members joined in, both in public and behind closed doors, until it became clear that the European Council would be unable to get a majority vote in support.
The Council was originally scheduled to vote on the CSDDD on February 9. However, the vote was pulled from the agenda before the meeting. It was initially postponed to February 14, then indefinitely. As the legislation struggled in the Council, the European Parliament’s Legal Affairs Committee, also known as JURI, removed it from their February 13 agenda.
For EU legislation like the CSDDD, three proposals are passed, then negotiated to the final agreement. The proposals come from the European Commission, the European Parliament, and the European Council through individually passed legislation. Those differences in the proposals are then negotiated by representatives of each body to reach a final draft proposal that is then brought back to the original three for final approval. Once approved, member states have two years to enact it into state law.
The current final draft of the CSDDD cannot be amended by the voting bodies. The vote is either to approve or reject. This removes the ability of members to negotiate last-minute changes to the legislation to reach an agreement for passage. Negotiations are supposed to occur prior to the release of the final draft, a point which has frustrated supporters who felt that the released draft had met all party’s demands.
With the lack of support, it appears that the vote will be delayed until after the June elections. Advocates were hoping for quick approval, as the composure of the body may change on this issue, removing majority support for the CSDDD and other sustainability directives like the Corporate Sustainability Reporting Directive. If that occurs, it is likely that the EU may attempt to further reduce sustainability requirements enacted within the past few years. While some version of the CS3D may exist in the future, expect a significant reduction in corporate liability.