1. Introduction
On 24 May 2024, the Council formally adopted the Corporate Sustainability Due Diligence Directive (“CSDDD”) – the last step in the decision-making procedure. The CSDDD was published on 5 July in the Official Journal of the European Union and entered into force on 25 July. Member States will have two years to transpose the Directive.
2. What will companies be required to do?
The CSDDD sets out several new obligations for companies, including:
- Implementing due diligence strategies and risk review in corporate policies;
- Identifying and mitigating risks in their business, taking measures to prevent negative impacts on human rights and the environments arising from their operations;
- Granting compensation to victims affected by corporate behaviour that violates human rights and sustainability; and
- Implementing and applying a transition and climate change plan in line with the Paris Agreement on climate change (limitation of global warming to 1.5º C)
3. To which companies does the CSDDD apply?
- EU based companies with more than 1000 employees and more than 450 million Euros of net worldwide turnover; or
- EU based companies that are the ultimate parent company of a group that reached the above-mentioned thresholds in the last financial year; or
- EU based companies that entered into or are the ultimate parent company of a group that entered into franchising or licensing agreements in the Union in return for royalties with independent third-party companies (royalties amounted to more than 22 500 million Euros and provided that the company had or is the ultimate parent company of a group that had a net worldwide turnover of more than 80 million Euros in the last financial year).
The CSDDD will also be applicable to non-EU companies with the same criteria mentioned above, provided that with the net turnover was generated in the EU.
4. How will the new rules be enforced?
The new rules of the CSDDD will be enforced through administrative supervision (an authority to supervise compliance and apply fines) and civil liability, through compensation of victims for damages resulting from the failure to comply with the duty to carry out corporate due diligence.
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