The European Union (EU) Parliament has voted in favor of the proposed rules aiming to mandate ESG compliance for most companies based in the EU, as well as international companies that do business within the EU. One of the most stringent aspects of these proposed rules is the new responsibility for companies to assess their ESG and sustainability impacts throughout their entire value and supply chains, and freeze out companies that do not score highly on ESG metrics. This proposal is encapsulated in the EU Corporate Sustainability Due Diligence Directive (CSDDD).
The recent parliamentary vote paves the way for trilateral negotiations between the European Parliament, the European Commission, and the Council of the European Union, the three policymaking bodies of the EU. The Commission and the Council have already passed their versions of the CSDDD. Upcoming negotiations will iron out the minor differences between each of the three governing bodies.
This process follows intensive debates and late-stage opposition from a group of Parliament representatives, primarily from the center-right EPP, who challenged key elements of the proposed rules. This opposition attempted to dilute climate due diligence obligations, promote total harmonization, and remove directors’ duties from the legislation, areas of significant concern for businesses. Despite this, most of their amendments were rejected by the Parliament. However, they did succeed in removing the responsibilities of directors regarding the establishment and oversight of due diligence obligations from the draft law. Ultimately, the CSDDD passed by a vote of 366 to 225.
The law would not only apply to the supply chain but also extend to the sale, distribution, transport, storage, and waste management of products and services. This regulation will affect a larger number of companies, particularly those with more than 250 employees and a turnover exceeding €40 million within Europe and €150 million globally. Civil liability and access to justice will be crucial issues to navigate in the final version of the CSDDD.
Negotiations will begin next week, with a goal of formally adopting the law before the European Union elections next year.
