The rules will require firms to mitigate their negative impacts in the areas of human rights and the environment.

On 24 March 2024, the European Parliament approved the Corporate Sustainability Due Diligence Directive (CSDDD) with a vote of 374 in favour (compared with 235 votes against and 19 abstentions).

The CSDDD will impose mandatory obligations for companies and their upstream and downstream partners to prevent, end, or take steps to mitigate their adverse impacts, covering topics including slavery, child labour, biodiversity loss, and pollution or destruction of natural heritage.

Approval from the European Parliament marks a key step in the legislative process. It follows an extended period of negotiation after the provisional agreement between the negotiating parties of the European Council and European Parliament was reached in December 2023. The European Council ultimately endorsed a revised draft in March 2024 after additional discussions.

For further information on the timeline and details of the CSDDD, refer to this Latham blog post.

Scope of the Directive

The rules will apply to EU companies and parent companies with over 1,000 employees and a worldwide turnover of over €450 million.

The CSDDD will also apply to non-EU companies and parent companies that have turnover of over €450 million in the EU.The scoping thresholds were revised significantly from the provisional agreement of the Council and Parliament, resulting in significantly fewer companies falling within the scope of the CSDDD. Notably, there is no employee threshold for such non-EU entities.

Implementation Timeline

The new rules will be phased in beginning with the largest EU and non-EU companies as follows:

• From 2027 for EU companies with over 5,000 employees and worldwide turnover of over €1.5 billion, and non-EU companies with EU turnover of over €1.5 billion
• From 2028 for firms with over 3,000 employees and €900 million worldwide turnover and non-EU companies with EU turnover of over €900 million
• From 2029 for all the remaining companies within the scope of the directive (including those EU companies with over 1,000 employees and worldwide turnover of over €450 million and non-EU companies with EU turnover of over €450 million).

Next Steps

The CSDDD now needs to be formally adopted by the Council and signed. The text is expected to be endorsed by Member State representatives at the Coreper meeting on May 15, 2024, followed by EU Ministers in the Competitiveness Council later that month. It will then be published in the EU Official Journal and enter into force 20 days later.

EU Member States will have a period of two years to transpose the new rules into national laws.

Latham & Watkins will continue to monitor developments relating to the CSDDD and other legal initiatives on supply chain due diligence in the EU and globally, and will be publishing a Client Alert following the release of the final text in the Official Journal.

ENDNOTES

¹The scoping thresholds were revised significantly from the provisional agreement of the Council and Parliament, resulting in significantly fewer companies falling within the scope of the CSDDD.