European Parliament votes for ‘hard-fought compromise’ on CSDDD

MEPs have voted in favour of the Corporate Sustainability Due Diligence Directive (CSDDD), giving the final green light to rules requiring firms to prevent and mitigate negative impacts on human rights and the environment in their supply chains.

The full plenary vote in the European Parliament (EP), which was approved with 374 in favour over 235 votes against and 19 abstentions, followed a vote by the EP’s Legal Affairs Committee last month and approval from the European Council of a watered-down version of the directive in a “hard-fought compromise”.

The due diligence requirements will apply to European companies and non-EU companies operating in the bloc with annual turnover of more than €450m and employees of more than 1,000, a major concession in the negotiations that had previously set the threshold at €150m for firms with employees of 500.

The EP said the rules will commit firms to transition plans that comply with the Paris Agreement global warming limits of 1.5°C and makes companies liable for environmental damages, including biodiversity loss, incurring fines for non-compliance. Due diligence rules on human rights require firms to prevent slavery, child labour and exploitation throughout their supply chain.

“Firms will have to integrate due diligence into their policies, make related investments, seek contractual assurances from their partners, improve their business plan or provide support to small and medium-sized business partners to ensure they comply with new obligations,” the EP said.

Each member state will have to designate a supervisor to investigate non-compliance and impose fines of up to 5% of a company’s worldwide turnover and hold liability to compensate victims.

Lead negotiator MEP Lara Wolters said: “Today’s vote is a milestone for responsible business conduct and a considerable step towards ending the exploitation of people and the planet by cowboy companies. This law is a hard-fought compromise and the result of many years of tough negotiations.

“I am proud of what we have achieved with our progressive allies. In Parliament’s next mandate, we will fight not only for its swift implementation, but also for making Europe’s economy even more sustainable.”

The EP and Council reached agreement on the CSDDD in December and the rules were sent to each body for final approval. But the vote in the Council was delayed after Germany and other member states said they wouldn’t support the rules, citing red tape and high costs. At one point it looked like the CSDDD might not get the go-ahead before European elections this summer.

The CSDDD will need formal endorsement by the Council before it is published in the EU Official Journal, after which it will enter into force 20 days later. Member states will have two years to implement the rules into national law.

Ferma told CRE last month: “There is still a way to go before the final text, so Ferma will remain vigilant. We need to ensure that the text is practical as possible, and that when implemented there will be sufficient support and guidance for risk managers, who are bound to be impacted by the directive.”