FEATURE
THIS IS A TESTAMENT TO HOW FAR EUROPE HAS COME IN TERMS OF CORPORATE SUSTAINABILITY AND HUMAN RIGHTS .
The council adopted its position on the directive in late 2022 and reached a provisional agreement on the CSDDD with parliament in December 2023 . By all appearances , the directive was set to be approved .
And then Germany happened . Or more accurately , Germany threatened not to support the legislation . This is an unusual move in the EU once a provisional agreement has been reached but it was done as support for the German government had been waning .
The move caught the parliament off guard . Germany has a similar national law , the Act on Corporate Due Diligence Obligations in Supply Chains , and had been a supporter of the legislation . But Germany ’ s pro-business Free Democratic Party ( FDP ), which is part of the ruling coalition and was trailing in national polls at the time , suddenly came out in opposition to the CSDDD . Business and industry associations had been calling on the government to oppose the directive .
FDP said this directive went much further than the German supply chain law and they were concerned that the bureaucratic and potential legal impact would be too burdensome for companies . Members of the party said that the provisional agreement met many of their demands , but fell short of what they wanted .
Without Germany , the council postponed the vote on CSDDD ’ s approval . Then Italy also pulled its support . Then France , in what supporters of the legislation saw as a real betrayal , proposed significantly scaling back the scope of the new rules to only the largest companies in the EU . These are three countries with strong voting power – and they knew it . The directive still didn ’ t pass .
In the next few weeks , the Belgian presidency of the council scrambled to reach a compromise . Finally , in March there was sufficient member state support to advance the new law . But this did not happen without pretty significant changes .
What changed ?
As I said , a lot . The biggest change was what France had wanted , that fewer companies are in scope of the new law . The threshold of companies covered under the legislation was increased to 1,000 employees , up from 500 , and to those with revenue over € 450 million , up from € 150 million . This slashed the number of companies in the scope of the CSDDD by almost two-thirds , 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 even come into scope until 2029 . In fact , in general , the legislation ’ s phasing in was extended . It will only be fully implemented for all in-scope companies five years after coming into force .
Also , lower thresholds that had been in place for high-risk sectors were removed . ( This could be reconsidered at a later date .) Supply chain definition was narrowed to only requiring due diligence on businesses with a direct relationship . ‘ Indirect ’ relationships do not require due diligence . Product disposal activities were removed from the scope of the law and the requirement for companies to promote the implementation of climate transition plans through financial incentives was removed .
The fact that the CSDDD ’ s passage was surprisingly complicated and ultimately led to the initially proposed and provisionally passed directive being watered down before it could be finally approved is a disappointment to its
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