By Allen Campbell, JD, MBA
CSDDD, the world’s most consequential piece of sustainability legislation, appears to be proceeding to enactment. This is happening even though the legislative process seemed to have stalled out in February, after being subjected to contentious lobbying. If enacted, it will be the pre-eminent example of what I call Value Chain Sustainability, in that it will impose several ESG obligations, notably (i) mandating how business is done, not just how it is reported, (ii) reaching deep into supply chains, and (iii) touching companies outside the EU.
Remember, however, that the law was considered a shoo-in earlier in the year, and then it wasn’t. If it does not get enacted before EU elections in June, the odds against enactment will go much higher.
I have been following this legislation closely for several years. It was originally called the Mandatory Due Diligence (MDD) Directive but was later renamed the Corporate Sustainability Due Diligence Directive (the “CSDD Directive” or simply “CSDDD”). I wrote the first article about it to be published in a peer-reviewed professional journal, The CPA Journal (reproduced at http://mcalan.com/proposed-european-value-chain-legislation-will-affect-companies-around-the-world). I have co-authored a follow-up article in The CPA Journal and written several articles on the CSDD that have been posted in the Blog section of www.McAlan.com. I invite you to read those blog posts to see the legislative history of the CSDDD – and what to do about it.
March 15th Action
On March 15, 2024, the Council of the European Union approved a compromise text of the CSDDD.
This came as a surprise to many observers who had believed that all bets were off after the failure of the Council to approve the CSDDD on February 28, 2024. The new text of the CSDDD has been submitted to the European Parliament for approval.
The new text is a compromise that came after extensive negotiations. Mainly, the changes adjusted the threshold levels of size and activity that determine (i) which companies are in-scope and (ii) the years in which their obligations will begin. Basically, compared with the previous version of the law, fewer companies will be within the scope of the law, and their obligations will be phased in over several years. These rules are complex and will not be set forth here.
To remind readers, the CSDDD requires companies to take appropriate steps to set up and carry out due diligence measures with respect to their own operations, those of their subsidiaries, and companies in their direct and indirect supply chains. The CSDDD will not require companies to guarantee that adverse impacts will never occur or that they will be stopped. Rather, it mandates that companies take appropriate measures to remediate or eliminate problems in proportion to their severity and the likelihood of adverse impact.
To read the full text of the CSDDD submitted to the European Parliament, click here.
Key Takeaways
The CSDDD is a major development in the way commerce has historically been conducted around the world.
The CSDDD is about business behavior and the impact of companies on our planet and its inhabitants. It is not about providing information to benefit investors.
The legislative process has been slower and more convoluted than expected. The law has powerful enemies. It may yet go off the rails.