CORPORATE SUSTAINABILITY DUE DILIGENCE DIRECTIVE (CSDDD)

The European Parliament is expected to vote on the text of the proposed CSDDD on 24 April 2024. While provisional agreement was reached between the EU Council and the Parliament in trilogues in December 2023, significant amendments were subsequently made to address concerns raised by several EU Member States. Those amendments were endorsed by the EU Council's Permanent Representatives Committee on 15 March 2024. If formally ratified by the Parliament, the text will then need to be formally approved by the EU Council before it is published in the Official Journal. There is considerable political will to publish it in the Official Journal before the EU elections in June 2024. Member States will have two years to transpose the CSDDD into national law and the obligations will apply on a phased basis.

The updated compromise text increased the employee/turnover threshold criteria so that the number of in-scope companies has been reduced. In-scope companies now include:

  • EU companies with a minimum of 1,000 employees (previously 500 employees) and a net worldwide turnover of a minimum of EUR450 million (previously EUR150 million).
  • Non-EU companies with a turnover in the EU of a minimum of EUR450 million (previously EUR150 million).
  • Ultimate parent companies (EU or non-EU) of a group where the group reaches the above thresholds even where the ultimate parent companies do not themselves meet the above thresholds.

The CSDDD requires in-scope companies to adopt and put into effect a climate transition plan. The plan must be updated every 12 months and must contain a description of the progress made by the company in achieving the targets set out in its plan. An earlier proposal was that climate transition plans should be taken into account when setting directors' variable remuneration – that proposal was removed as part of the agreement on the compromise text.

Regulated financial undertakings will be in-scope with regard to their own operations, those of their subsidiaries and their upstream operations in addition to the obligations regarding climate transition plans. The joint EU Council – Parliament political statement (agreed post-trilogues) on the need to develop appropriate sustainability due diligence requirements for regulated financial undertakings regarding the activities of, among others, their clients has been withdrawn. The Commission is to submit a report, no later than two years after the CSDDD enters into force, to the Parliament and Council on whether such requirements are needed.

The CSDDD will apply on a phased basis. Read our recent insights here for more information: CSDDD: Compromise Text Agreed and CSDDD Receives Council Endorsement.

DRAFT EBA GUIDELINES ON MANAGEMENT OF ESG RISKS

The EBA's Consultation Paper on draft Guidelines on the Management of ESG Risks closes for feedback on 18 April 2024. This reflects a mandate to the EBA under the CRD IV Directive to issue guidelines on:

  • Minimum standards and reference methodologies for the identification, measurement, management and monitoring of ESG risks by institutions.
  • The content of transition plans to be prepared under Article 76(2) of the CRD IV Directive.
  • Qualitative and quantitative criteria for the assessment of the impact of ESG risks on the risk profile and solvency of institutions in the short, medium and long term.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.