After years of extensive negotiations between the European institutions and EU member states, no (qualified) majority in the European Council has approved the final text of the corporate sustainable due diligence directive (CSDDD). Mainly due to the decision of Germany to abstain from voting in favour of the final text of the CSDDD and the alleged last-minute proposal from France with regard to the threshold of in-scope companies, the CSDDD is for now off the table. This means that the CSDDD, including the scope, mechanisms and obligations as entailed by the earlier provisional agreement on the CSDDD, is – again – subject to discussion and change. For now, it is unclear what the next steps will be.
The CSDDD as provisional agreed upon earlier by the European Parliament and European Council
On 14 December 2023, the European Parliament and the European Council reached a provisional agreement on the CSDDD. Afterwards, on 30 January 2024 a revised (final) version of the CSDDD was published. This final version of the CSDDD was submitted to the European Council for agreement today on 28 February 2024, after the initial vote on 9 February 2024 was postponed following Germany's indication it would abstain from the vote. Subsequently, the final text of the CSDDD should have been submitted to the European Parliament's Committee on Legal Affairs (JURI) for a vote, after agreement by the European Council. After approval by both the European Council and the JURI, the final text would have been submitted to the full European Parliament sometime during April 2024. The European Commission, as being part of the European legislature together with the European Parliament and European Council, should have followed a similar timetable for the formalisation of the CSDDD.
CSDDD obligations
Under the CSDDD, in-scope companies (including the financial sector, albeit limited at first) are required to adopt transition plans to ensure that their strategies and business plans are in line with the Paris Agreement. In case an in-scope company identifies actual and potential adverse impact on human rights or the environment (CSDDD-risks) in its value chain which cannot be prevented or ended, it should end its partnerships with the companies responsible for such adverse impact. The CSDDD contains a risk-based approach. Therefore, in-scope companies only have the obligation to take measures if it is directly responsible for the CSDDD-risks. Otherwise, the responsibility extends to a general duty of care of the in-scope company. The duty of care of directors of in-scope companies is excluded from the CSDDD.
Political developments
However, during the last days before the initially planned European Council's vote on the final text of the CSDDD on 9 February 2024, Germany announced that it would abstain from voting in favour of the CSDDD. Following this official announcement from Germany on 6 February 2024, the support for the CSDDD from other EU member states quickly eroded, in deviation of the earlier reached provisional agreement on 14 December 2023. This resulted initially in postponement of the European Council's vote on the final text of the CSDDD on 9 February 2024 to today, 28 February 2024.
CSDDD is off the table for now
Despite last-minute attempts to still get a (qualified) majority for the CSDDD within the European Council, the required (qualified) majority was not achieved. Consequently, the European Council has therefore not accepted the final text as earlier (provisional) agreed upon between the European Parliament and the European Council. As a result, the CSDDD is off the table (for now) and the European institutions have to go back to the drawing board. An agreement on the CSDDD, however, before the European elections in June 2024, seems unlikely given the prescribed timelines for the European institutions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
