This week, the European Parliament approved the Corporate Sustainability Due Diligence Directive, making it one step further away from its formal adoption by the European Union.

The CSDDD directive, also called the CS3D, makes companies legally liable for environmental and human rights violations within their supply chain, establishing a corporate due diligence standard on sustainability issues for businesses operating in the EU.

The Directive was approved after it was significantly watered-down from the initial proposal which originally applied to companies with a minimum of 500 employees and a turnover of €150 million.

In fact, after substantial political pressure, especially from Germany, the threshold was raised to apply only to companies with 1,000 employees or more and a turnover of €450

million.

The new due diligence requirements not only apply to the direct actions of companies but also to their subsidiaries and supply chain. EU-based companies, as well as non-EU companies that conduct business in the EU, could become liable for the actions of their suppliers.

“Unfortunately, the new Directive is a significantly watered-down compromise version of what had originally been proposed and it will now apply to much fewer companies. What was enthusiastically hyped as heralding a brave new EU-wide initiative in favour of corporate governance, corporate sustainability and due diligence is today no longer so grand.  It is not the game-changer that its unfortunate drafters and many EU citizens were expecting,” says Dr David Fabri, lecturer in Company Law.

This Directive is expected to mostly impact sectors such as manufacturing, wholesale of textiles, food and beverage, agriculture, forestry, fisheries and extractive industries.