On 1 June 2023, the European Parliament published its decision for the amendment of the EU Corporate Sustainability Due Diligence Directive.
On 1 June 2023, the European Parliament published its decision for the amendment of the EU Corporate Sustainability Due Diligence Directive. While German companies are dealing with the implementation of the German Supply Chain Due Diligence Act (LkSG), the European Directive on Corporate Sustainability Due Diligence is thus taking on a more definite form. Since the systematics of both legal acts are similar, it makes sense to already take into account the developments on the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) during the implementation (we already reported thereon). Although the CSDDD is still at the draft stage, significant differences in the requirements are foreseeable compared to the LkSG.
Gradual expansion the scope of application
While the scope of application of the LkSG is exclusively linked to the number of employees, the CSDDD combines this criterion with the minimum turnover of the company. The relevant thresholds for the number of employees and net turnover will be gradually reduced until, after a period of five years following the entry into force of the Directive, companies based in the EU with 250 employees and a worldwide net turnover of 40 million euros will be obliged to comply. For companies from third countries, the planned threshold is a worldwide net turnover of 150 million euros, 40 million of which would have to be generated in the EU.
The special regulation provided for in the Commission draft, according to which lower thresholds would apply to companies active in certain risk sectors, was deleted. Instead, the expectations for the implementation of due diligence obligations by these companies are to be specifically defined in guidelines.
Requirement of uniform and effective risk minimisation
The reduction of greenhouse gases, the protection of waters and oceans as well as the protection of animals and species are only some of the additional environmental concerns to be taken into account. Special attention is to be paid to climate protection: Companies are intended to be obliged to develop and implement a strategy that enables the fulfilment of European climate targets, and the degree of fulfilment will have an impact on the remuneration of the company management. Protected human rights also include minorities and indigenous peoples; the latter are to be granted a say and decision-making rights with regard to business activities that have an impact on the habitat of such population groups.
All business operations are to be continuously geared towards risk minimisation. In contrast to the LkSG, neither substantiated knowledge of risks nor the possibility to influence (indirect) suppliers is decisive. Instead, the focus is on the effectiveness of the measures. Close cooperation along the supply chain is required, as is prevention (investment and support for SME) and remedying the consequences of non-compliance (compensation and reconstruction).
Liability, fines and sanctions
With regard to the legal consequences, a clear tightening becomes apparent. The maximum rate of possible fines is to be up to 5% of the annual group turnover. In addition, it is intended to establish liability under civil law for damage caused by (avoidable) non-compliance with due diligence obligations – and companies are to bear the burden of proof that they have fulfilled their obligations. Such claims can be asserted not only by those affected themselves, but also by stakeholders (NGOs, trade unions) invoking the standing to sue doctrine (Prozessstandschaft). Finally, further sanctions are envisaged, such as the exclusion from public procurement procedures and market access and trade bans.
Conclusion
The final version of the Directive is to be worked out in the trilogue before the end of this summer. Then it will become clear which of the ambitious expectations will have to be transposed into national law as obligatory requirements and will probably come into force from 2026.
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