Sustainability Blog #18

This month, our sustainability blog will be a bit different than usual, as we are putting the focus on the challenging process of adopting the Corporate Sustainability Due Diligence Directive (CSDDD).

Developments in the previous months had clearly indicated that February was going to be a very important month for the CSDDD. The directive was proposed back in February 2022, and we have updated you regularly on all the news regarding the complex legislative process. Trying to develop the CSDDD has taken much longer than anticipated, and therefore this final stretch has turned into a proper race against time – especially since it’s one of the Belgian EU presidency’s priorities that the CSDDD be enacted during the current term of the European Parliament. However, time hasn’t been the only obstacle in the past few weeks.

Since the final text of the directive was negotiated last month, many expected that it would basically be smooth sailing to the final vote. However, the process got stuck at the COREPER sessions when the Member States’ ambassadors couldn’t reach a final agreement. The blockage is mainly attributable to some large Member States. The abstention announced early on by influential Germany – which was surprising, since Germany is one of only a few EU countries to have already enacted a similar law – was quickly followed by Italy and then by France. The latter is also a special case, since the French Duty of Vigilance Act basically served as inspiration for the CSDDD. France proposed major changes to the text just a couple of days before the vote on 28 February, revolving around the scope of the directive. Specifically, instead of criteria that would make it obligatory for companies with more than 500 employees to report under the CSDDD, France suggested a significant reduction in the number of companies falling under the directive’s scope by increasing the threshold to 5000 employees (thus removing around 80% of companies). This would further dilute the directive, after several important articles included in the proposal had already been removed during negotiations on the final text. In particular, article 25 on directors’ duty of care and article 26 on setting up and overseeing due diligence were deleted even before these final complications, sparking outrage from various stakeholders, as these articles were some of the most significant aspects of the directive.

All these last-minute political disagreements have substantially weakened expectations for the CSDDD's future. With each faltering negotiation and every postponed vote, there is less and less time for the directive to be adopted at the last plenary session of this EP in April. However, all hope is not yet lost. At the moment, a final proposal is on the table and awaiting approval by the Member States at the Council of the EU. It includes major concessions, particularly regarding the directive’s scope, as it raises the thresholds to target only the largest companies. Moreover, the application period has also been changed as various stages have been introduced. Depending on the size and turnover of companies, they would have 3, 4 or even 5 years to implement the CSDDD. Therefore, significant will and readiness for compromise have been shown in order to finally adopt this long-awaited directive.

The past few weeks have seen numerous last-minute changes and postponements in the course of efforts to reach an agreement between the Member States. The symbolic culmination of these complications was apparent in the final vote at the COREPER session, where the ambassadors were to have a final chance to agree on a compromise deal. This was supposed to happen on 8 March, but it was (once again) postponed at the last minute to Friday, 15 March. Hopefully, we will finally see a decision then.