The Council’s position contains a number of differences from the original Commission’s proposal. This includes the need to scrutinize the broader value chain.
On 30 November 2022, the European Council (Council), including the views of the EU Member State Governments, adopted a negotiating position on the EU’s proposed Corporate Sustainability Due Diligence Directive (CSDDD). CSDDD requires large companies operating in the EU to carry out due diligence on their own activities and those of their suppliers to identify, mitigate or avoid any actual or potential adverse impacts on their business operations. increase. CSDDD also establishes penalties (including possible civil liability) associated with breach of such obligations.
The Council’s adoption of its position is the latest step in supply chain due diligence legislation in the EU. The CSDDD itself was first proposed by the European Commission in February 2022 (Commission Proposal). The Commission’s proposal follows the European Parliament’s March 2022 resolution on a legislative initiative on corporate due diligence to support the adoption of binding legislation at EU level on corporate due diligence obligations. expressed. Moreover, many EU Member States (particularly France and Germany) have passed laws covering similar issues in recent years, reflecting the growing importance of these issues to EU legislators.
HIGHLIGHTS OF THE LAST COMMITTEE PROPOSAL
As I explained in my previous blog post on CSDDD, the Commission’s proposal applies to both large EU-based companies and non-EU companies that generate significant revenues in the EU (for the threshold , see the table below).
The Commission’s proposal requires covered companies to scrutinize their operations and their operations in their value chains and publicly disclose the “actual and potential” adverse effects of such operations on the environment and/or human rights. would have required you to specify the For more information on the substantive requirements of the Commission Proposal, see the aforementioned blog post.
Notable Changes in Board Proposals
While reflecting many of the requirements of the Commission’s proposal, the Negotiated Position on CSDDD adopted by the Board includes some notable amendments, including:
- range — The General Size Threshold of the Commission Proposal will be retained, but the Board has introduced a phase-in period. The CSDDD will therefore apply first to companies with more than 1,000 employees and a worldwide net turnover of EUR 300 million (or non-EU companies with an EU turnover of EUR 300 million) and later It will apply to other eligible companies in stages.
- chain of activities — The term ‘value chain’ in the Commission’s proposal has been replaced by the concept of ‘chain of activities’ in the capacity of the Board. A set of activities in this context has a narrower meaning than a value chain, as it focuses on a firm’s suppliers and excludes entirely the use of the firm’s products or provision of services. This concept significantly reduces the obligations of companies within many scopes compared to the Commission Proposal.
- Approach to financial business— Contrary to the Commission’s proposal, the Council’s position would make the application of the CSDDD to financial services optional, allowing Member States to decide whether financial services are within scope when implementing the CSDDD into national law. to
- Migration plan — The requirement to prepare a transition plan for 1.5°C, included in the European Commission’s proposal, is in line with similar reporting requirements in the EU’s upcoming Corporate Sustainability Reporting Directive (CSRD). See this global ELR blog post for more information). This includes the requirement to disclose exposures to coal, oil and gas related activities (included in the CSRD).
next step
The Council’s initial negotiating position will form the basis for future negotiations with the European Parliament on the final terms of the CSDDD. The European Parliament is currently conducting internal discussions at Commission level (led by the Legal Commission), after which the European Parliament will vote to determine initial negotiating positions on the outcome of those discussions. The Council hopes that the European Parliament will eventually adopt the first negotiating position in May 2023, after which formal inter-agency negotiations will begin.
Latham & Watkins will continue to monitor developments related to the CSDDD and other legal initiatives related to EU and global supply chain due diligence.
