European Council Advances Corporate Sustainability Due Diligence Directive

The European Union draft Directive on Corporate Sustainability Due Diligence (“CSDD”) took a big step forward on November 30, 2022, when the Council of the European Union (the “Council”) adopted a “negotiating position” on the European Commission’s CSDD proposal, and delivered it to the European Parliament. It is now ever more likely that CSDD will become law. 

The Council’s proposal includes the Commission’s climate change provisions. 

The Council proposes several noteworthy changes:

1. The financial services sector would enjoy a privileged position. When they individually “transpose” the Directive into their national laws, EU Member States would have the right to choose whether or not to apply CSDD to financial services companies.  

2. In-scope companies would not be responsible for the human rights or environmental shortcoming of their customers, as would have been required under the Commission’s draft – which would have made companies responsible for how their products and services are used and disposed of. 

3. Companies would have more time to comply with the legislative regime. 

4. Directors’ duties would be removed from the Directive. (Directors’ duties would remain within the purview of individual countries.)

5. There would be stiff government penalties for violating company duties. 

6. Civil liability would be retained and clarified. Significantly:

1. A company would not be held liable if the alleged damage was caused only by its business partners in its “chain of activities”.

2. The complaining party would be entitled to “full compensation” but not to “overcompensation”, such as punitive damages. 

Next Steps in the Legislative Process

The draft Directive is now under consideration by the European Parliament to determine its initial negotiating position, as per standard EU legislative procedure. Once that is done, the Parliament and the Council will negotiate to reach a final version of the Directive. Vigorous lobbying can be expected before the final version is agreed upon. Once the Directive enters into force, EU Member States will have two years to “transpose” the Directive into their national legislation.

What Should Companies Do at This Time?

CSDD will change the rules of the game and the business environment in which companies operate. CSDD directly targets companies with significant footprint in the EU. CSDD will indirectly affect companies in their value chains. 

Companies need to begin preparing for the days when CSDD gets enacted in Member States’ laws. Before then, smart, agile companies will have been at work to do what will be required of them, and beyond that, to find and/or create competitive advantages. 

This article is only a brief synopsis of the Council’s action. For more detailed information, see European Council Adopts Negotiating Position on Corporate Sustainability Due Diligence Directive at https://mcalan.com/european-council-adopts-negotiating-position-on-corporate-sustainability-due-diligence-directive.

Written Jan 06, 2023

©Allen Campbell, JD, MBA

www.linkedin.com/in/allencampbelljdmba

Email: AC@McAlan.com

Tel. 972-402-5300