CSDDD draft approved by EU member states

On March 15, 2024 the member states of the European Union have approved a draft of the Corporate Sustainability Due Diligence Directive (CSDDD). The scope of application is narrower than the scope of the German Supply Chain Due Diligence Act (SCDD) due to the additional turnover threshold. However, it goes well beyond the SCDD in terms of the supply chain and the protected rights.

Compared to the original draft, the scope of the directive has been significantly restricted. According to the previous version, the directive was to apply to companies with more than 500 employees and a global net annual turnover of 150 million euros. The approved draft now applies to companies with 1,000 employees or more and a net annual turnover of more than 450 million euros. The CSDDD’s scope of application is therefore narrower than the scope of the SCDD, which does not include a turnover threshold.

This means that fewer companies would be affected by the CSDDD than previously assumed. In terms of content, however, the directive provides for a considerable expansion of the protected legal interests compared to the SCDD currently applicable in Germany. In addition, affected companies will have to adjust to new liability regulations and other substantive requirements.

Extended due diligence obligations
The directive extends the due diligence obligations to the entire supply chain. According to the current status, extensive checks under the SCDD only have to be carried out with regard to direct suppliers. Indirect suppliers are only subject to special due diligence obligations if the company has substantiated knowledge of grievances or violations of the law.

According to the CSDDD, the due diligence obligations now relate to the following areas, among others:

• The company's own business activities (covered by SCDD)
• The activities of subsidiaries (covered by SCDD)
• Direct suppliers (covered by SCDD)
• Indirect suppliers (partially covered by SCDD)
• Distribution chain of the products (new)

New civil liability
In relation to the SCDD, civil liability of the companies concerning breaches of due diligence obligations towards individuals is new. In addition to high fines, companies can now, under specific circumstances, also be confronted with claims from those affected. This includes full compensation of those suffering damages. Currently, the SCDD only allowed domestic trade unions or non-governmental organizations to take legal action.

Covered prohibitions and obligations
In addition, in contrary to the SCDD, the Directive contains a specific list of the human rights and environmental concerns to be protected in the annexes to the Directive. In particular, more environmental areas are covered, including:

• Ban on certain mercury processes (covered by the SCDD)
• Ban on persistent organic pollutants (covered by the SCDD)
• Ban on the export of hazardous waste (covered by the SCDD)
• Protection of flora and fauna (new)
• Ban on substances that damage the ozone layer (new)
• Protection of cultural heritage (new)
• Minimization of damage to wetlands (new)
• Prevention of pollution caused by waste from ships (new)

The climate goal of limiting global warming to 1.5 degrees (Paris Climate Agreement) through CO² savings is another goal that is not yet included in the SCDD.

With regard to complaints procedures and the provision of specific remedial measures, there are only a few changes compared to the original CSDDD draft and the SCDD.

The amended directive still has to be approved by the EU Parliament before entering into force. Member states must transpose the directive into national law within two years after coming into force. The new regulations should therefore apply to the first companies for the 2028 financial year.

Published March 2024