CSDDD: A Rocky Road to Agreement

After weeks of uncertainty and intense negotiations, the European Union (EU) is on the verge of passing groundbreaking legislation aimed at ensuring sustainable supply chains. The Corporate Sustainability Due Diligence Directive (CSDDD), a key piece of legislation that mandates companies to address their negative impacts on human rights and the environment, seems likely to become law after member states in the European Council reached a compromise agreement.

A Compromise After Controversy

The journey to this point has been anything but smooth. The CSDDD faced significant hurdles, with objections from major EU countries like Germany and Italy threatening its passage. These objections centered around concerns over the bureaucratic and legal burdens the directive might impose on companies. The deadlock was broken only after France proposed a significant scaling back of the directive's scope, limiting its application to the largest companies within the EU. This compromise, while controversial, has been pivotal in moving the directive forward.

The Evolution of the CSDDD

The CSDDD's development has been a lengthy process, initiated by studies from the European Commission in 2020 on sustainable corporate governance and supply chain due diligence. The proposed draft in February 2022 outlined comprehensive obligations for companies to address issues ranging from child labor and slavery to environmental degradation. Despite reaching a provisional agreement with the EU Parliament, the directive's approval was stalled by the Council's objections and the subsequent failure to pass the regulation.

Significant Changes in the Compromise

The compromise reached in the Council introduces several key changes to the CSDDD. Notably, it raises the threshold for companies covered by the legislation, now including only those with more than 1,000 employees and revenue exceeding €450 million. This adjustment significantly reduces the number of companies affected by the directive. Additionally, the compromise phases in the legislation over five years, excludes product disposal activities from its scope, and removes the requirement for companies to promote climate transition plans through financial incentives.

Next Steps and Criticism

The revised CSDDD will now return to the EU Parliament for consideration of the compromise text, despite significant deviations from the initial agreement. The directive's approval process will involve a review by the Parliament’s legal affairs committee, followed by a final plenary vote, likely in April.

The compromise has not been without its critics. Heidi Hautala, Vice President of the European Parliament, has condemned the member states' behavior as damaging to the EU's credibility. She criticized the endless rounds of negotiations and attempts to dilute the legislation. Despite these criticisms, Hautala acknowledges that the core of the directive remains intact, signaling a cautious optimism for the future of sustainable supply chains in the EU.

Conclusion

The CSDDD represents a significant step forward in the EU's commitment to sustainable and responsible business practices. While the path to agreement has been fraught with challenges, the compromise reached signifies a collective will to address the pressing issues of human rights and environmental impact within corporate supply chains. As the directive moves towards final approval, it stands as a testament to the complex interplay of economic interests, political negotiation, and the pursuit of ethical business practices on the global stage.