EU member states vote in favour of watered down CS3D

After weeks of uncertainty and after the proposed corporate sustainability due diligence directive (“CS3D” or “CSDDD”) failed to gather support from EU Member States on 28 February, EU Member States voted in favour of a lighter version of the proposed CS3D.

If passed into law the CS3D would require in-scope entities to conduct due diligence in order identify potential and actual adverse impacts on the environment and human rights related to their operations, including those of their subsidiaries, and business partners throughout their value chain. In addition, CS3D would also require in-scope entities to take action in order to prevent, remedy, mitigate and bring to an end potential adverse impacts identified as part of their due diligence process.

The proposed CS3D version approved by the EU Member States has been significantly watered down compared to its initial language in order to gain acceptance from certain Member States. For instance, provisions relating to (i) directors responsibility to set up and oversee the due diligence process, (ii) directors duty of care and (iii) the integration of ESG considerations in the concept of corporate interest originally included in the initial proposal do not appear in the version approved by EU Member States.

Another key take away is that the scope of the amended proposed CS3D has also been significantly reduced as it now only targets companies having 1,000 employee or more (in place of 500) or having a turnover threshold of € 450 million (in place of € 150 million). Most of the due diligence rules should also not apply to the financial sector and so called “high-risks sectors” should have been entirely deleted from the proposal. Finally, the entry into force should also be significantly delayed.

The next step for the proposed CS3D is to be formally voted upon by the Council of Ministers and then be adopted by the European Parliament, most likely in April, although not formally confirmed.