Last but not least, the EU Council voted to endorse the CS3D

Progress of the CS3D so far

The CS3D was highly controversial from the very beginning in 2022. On 23 February 2022, the European Commission published a proposal for a Directive on Corporate Sustainability Due Diligence, aiming to introduce a harmonised human rights due diligence requirement for large companies operating in the EU. The EU Council finalised its position on the Commission’s proposal on 30 November 2022and on 1^st June 2023, the European Parliament adopted and put forward its own version of the proposal.

Then, in June 2023, the proposal went through the "trilogue" phase (i.e. discussions between the EU institutions). After long months of debate, the EU institutions eventually agreed, on 14 December 2023, on a "final" version of the proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence.

This "final" version of the CS3D was due to be voted on by the EU Council on 9 February 2024. After several postponements of the vote, the EU Council failed to approve CS3D on 28 February 2024, due to a lack of sufficient support from several key Member States.

On 13 March 2024, the Council Presidency proposed a new compromise text to overcome the deadlock. Finally, on 15 March 2024, the EU Council has eventually voted to endorse the CS3D.

Main changes in the new compromise text

The most significant concession made concerns the scope of the CS3D. The “general thresholds” for in-scope companies have been raised by increasing the number of employees from 500 to 1,000 and the net turnover from €150 million to €450 million (worldwide net turnover for EU companies / net turnover generated in the EU for non-EU companies). The thresholds for companies operating in high-risk sectors have been removed altogether, although a review clause allows the approach to high-risk sectors to be addressed at a later date. The CS3D would now affect around 5,000 companies in the EU.

The definition of the downstream part of the “chain of activities” was also amended to restrict it to business partners that carry out activities for or on behalf of the company, i.e. by deleting the references to (i) the disposal of the product and (ii) indirect relationships. The scope of CS3D obligations would now exclude activities such as product disposal, dismantling, recycling, composting and landfilling.

Regarding the civil liability of companies, the main elements have been maintained as regards the conditions that have to be met for a company to be held liable. Several elements on access to justice have been included. The compromise text provides in particular for a period of minimum five years to bring claims by those concerned by adverse impacts, including, under certain conditions, trade unions or non-governmental organisations. The compromise text also includes new elements on disclosure of evidence and injunctive measures, e.g. claimants must be able to seek injunctive measures, and it expressly mentions that the cost of the proceedings should not be prohibitively expensive for claimants seeking justice.

The compromise text no longer mentions the obligation to promote the implementation of the climate transition plan in line with the Paris agreement through financial incentives.

According to the compromise text, Member States will have two years to transpose the CS3D into national law and a staged approach based on the size of the company has been added to enable a progressive application. The obligations laid down in the CS3D would apply:

• after a 3-year application period for companies with more than 5,000 employees and €1,500 million turnover;
• after a 4-year application period for companies with more than 3,000 employees and €900 million turnover;
• after a 5-year application period for companies with more than 1,000 employees and €450 million turnover.

Despite those far-reaching concessions and although these changes lead to a German Supply Chain Due Diligence Act-style CS3D, the German Government still abstained in the EU Council voting.

Next steps

The new compromise text was voted today, 19 March, by the JURI Committee so that it can be adopted at the last plenary session of the European Parliament scheduled in April 2024, i.e. before the European parliamentary elections in June.

Some MEPs believe the political controversy which arose shortly before the election has done considerable damage to the EU's legislative process. As the new changes were not negotiated with the European Parliament, but rather dictated by the EU Council, this vote may constitute a new obstacle to the adoption of CS3D. To be continued.

If adopted, the CS3D would further complement the ESG Compliance landscape in the EU, which has just recently been enlarged by the EU Forced Labour Import Ban.

Authored by Christelle Coslin, Christian Ritz, Margaux Renard, and Felix Werner.