Down to the Wire – Why it’s a nail-biting finish for the CS3D

On Wednesday 24 April, The European Parliament will hold its last Plenary session, where the final fate of the much-anticipated CS3D will be determined. If passed, it will mark another major milestone in the multi-year quest to codify for the first time in EU law, the UN Guiding Principles on Business and Human Rights, obliging businesses to conduct environmental and human rights due diligence in their operations and supply chains.

Yet no one said transforming corporate behaviour is easy – and the CSDDD’s passage has been fraught with serious challenges. Ever since the final text of the draft was released on 20th January, influential countries with strong voting power, including Germany and Italy, voiced their opposition, citing bureaucratic burdens to business in an economically challenging environment. France also stepped in with a last-minute demand to significantly reduce the number of in-scope businesses. This led to a failed vote in the Council on 28th February. For more information on the political intrigue and horse-trading that surrounded the vote, please see my article Two steps forward, one step back.

The vote was also a stark reminder to supporters that although 80 percent of citizens in multiple EU countries agree there should be laws to hold companies liable for human rights and environmental violations, there are still those that seek to stymie that goal. The legislative journey of the CSDDD made it clear that there are passionate voices on both sides of the debate.

On March 15th emerged the silver lining, with the Council of the European Union reaching an agreement on a compromise text of the #CSDDD. On March 19th the JURI Committee of the EU Parliament also passed the text in a vote with 20 for, 4 against and no abstentions. This success was not without its sacrifices with notable changes including:

·?????? Scope: A 70% reduction in scope meaning that only around 5,400 EU companies will have to comply and improve their due diligence in their business. A phased approach was also taken and companies with 1,000-3,000 employees won’t come into scope until 2029.

·?????? High Risk Sector: The new text also removed the high-rise sector approach, which would have expanded the scope to include companies that do not meet the employee or turnover requirements but operate in high-risk sectors.

·?????? Climate Transition Plans: the requirement for companies to promote the implementation of climate transition plans through financial incentives has been removed.

·?????? Regulated financial undertakings will be in-scope with regard to their own operations, those of their subsidiaries and their upstream operations in addition to the obligations regarding Climate Transition Plans. The Commission will submit a on whether those undertakings should be subject to additional requirements.

·?????? Civil Liability: Provisions on civil liability now give more flexibility to Member States.

And now it brings us back to the present moment, where the plenary of the European Parliament will vote on the CSDDD on 24 April 2024. It is important that the text is formally adopted before the upcoming EU elections in June. If this happens the CSDDD would apply (in a phased approach) from mid-2027 to mid-2029 to in-scope companies, depending on their size.?

However, while most believe the biggest hurdles are now passed, not believe the plenary vote is not a sure in with Bart Devos from the Responsible Business Alliance commenting that “Its outcome will be largely determined by whether or not conservative groups' determination to block the law will be somehow tempered by the significant concessions granted in past weeks.” Assuming the final Parliamentary vote is successful, the directive is slated for formal adoption in the first half of 2024. EU Member States will then have two years to transpose the legislation into national laws.

As a reminder, companies in scope of the CSDDD will be required to execute the following steps:

• Integrate human rights and environmental due diligence into policies.
• Develop a process to identify and assess actual or potential adverse human rights and environmental impacts – both in own operations and in the supply chain.
• Prevent or mitigate potential impacts.
• Bring to an end or minimize actual impacts.
• Track the implementation and results to evaluate the effectiveness of due diligence procedures (at least once every 12 months).
• Publish an annual statement on your website to communicate the relevant due diligence measures taken during the previous calendar year.
• Establish and maintain a complaints procedure.

On 24th April many of us that have been following this process from its inception are waiting with bated breath for the CSDDD’s final seal of approval. Of course, the real evidence of potential impact will only emerge in 2025 and 2026 as we start to see EU members states transpose CSDDD into national law and then in mid-2027 as CSDDD starts to take effect at the national level. We know that for this law to make any difference for the 450 million people working in global supply chains, governments must take enforcement of its provisions seriously, and many companies are going to have to fundamentally upgrade their corporate governance approaches.

What do I look forward most to seeing once this new legislation sees the light of day? For me it’s seeing an important shift away from top-down, compliance approaches to a focus on rights’-holders and stakeholder engagement. According to the final text, companies must consult with affected stakeholders at key parts of the due diligence process, including when conducting risk assessments, and developing preventative and corrective action plans. The definition is broad with stakeholders being anyone who is affected by the company’s operations, value chain or products, including employees, workers, trade unions, community members and their representatives. ?Of course, that dialogue needs to be meaningful and done in good faith for it to be effective – but the passing of the CSDDD is a great step in the right direction.

Article written by Leanne Melnyk , Head of Impact and Partnerships Quizrr . Get in touch to learn more!