On March 15, 2024, the Council of the European Union approved a compromise text of the Corporate Sustainability Due Diligence Directive (CSDDD). This follows the initial failure of the Council to approve the CSDDD on February 28, 2024. The CSDDD must now go to the European Parliament for approval.

The CSDDD provides that companies should take appropriate steps to set up and carry out due diligence measures with respect to their own operations, those of their subsidiaries, as well as direct and indirect business partners throughout the supply chain. Notably, the CSDDD clarifies that it does not require companies to guarantee that adverse impacts will never occur or that they will be stopped. More specifically, the CSDDD stipulates that companies should take appropriate measures which are capable of achieving the objectives of due diligence by effectively addressing adverse impacts in a manner commensurate with the severity and likelihood of the adverse impact.

The CSDDD applies to companies that are formed in accordance with the legislation of an EU member state and which:

• had more than 1,000 employees on average and had a net worldwide turnover of more than €450 million in the last financial year;
• did not reach the threshold above but is the ultimate parent company of a group that reaches the thresholds in the last financial year for which consolidated annual financial statements have been or should have been adopted; or
• have entered into or are the ultimate parent company of a group that entered into a franchising or licensing agreement in the EU in return for royalties with independent third-party companies, where the agreements ensure a common identity, a common business concept, and the application of uniform business methods, and where these royalties amount to more than €22.5 million in the last financial year and provided that the company had or is the ultimate parent company of a group that had a net worldwide turnover of more than €80 million in the last financial year.

The CSDDD also applies to companies formed in accordance with the legislation of a third country and which:

• generated a net turnover of more than €450 million in the EU in the financial year preceding the last financial year;
• did not reach the threshold above but is the ultimate parent company of a group that on a consolidated basis, reaches the threshold above; or
• entered into or is the ultimate parent company of a group that entered into franchising or licensing agreements in the EU in return for royalties with independent third-party companies where the agreements ensure a common identity, a common business concept, and the application of uniform business methods, and where these royalties amount to more than €22.5 million in the EU in the financial year preceding the last financial year and provided that the company generated or is the ultimate parent company of a group that generated a net turnover of more than €80 million in the EU in the financial year preceding the last financial year.

You can read the copy of the CSDDD submitted to the European Parliament here.