The key vote today by EU member states on the Corporate Sustainability Due Diligence Directive (CSDDD) remains up in the air, with several countries seemingly set to abstain or vote against the rules. A no vote could end moves to introduce the new rules given the limited legislative time left ahead of European elections.
The vote by member state representatives in Brussels today comes after the EU Parliament, Commission and member states informally reached agreement on the directive in December. The CSDDD would place mandatory human rights and environmental due diligence and transition plan requirements on firms that fall under its scope, and has been criticised by some for creating too much red tape for companies.
But Julia Grothaus, litigation, arbitration and investigations partner at Linklaters, told Commercial Risk Europe that the “political compromise painstakingly reached shortly before Christmas might not be enough to garner majority support among the EU member states in today’s vote”.
She said there are a number of member states that could refuse to approve the CSDDD. This includes Germany, where ministers of the country’s liberal FDP party have strongly criticised the rules for placing too much burden on companies, particularly SMEs. This could lead to Germany abstaining from the vote.
Other countries are also unsure of giving the CSDDD their backing. While France, Spain and the Netherlands looks set to support the new rules, Sweden and Finland have suggested they will not. Lithuania and Estonia have also raised concerns, while Italy is reportedly undecided.
Grothaus said that if the CSDDD, or at least parts of it, gets rejected today, there is the real risk that renegotiations between Council and Parliament could not take place before EU election this year.
“It is unlikely, albeit not entirely impossible, that it could still be adopted in modified form in late spring before the EU elections. It therefore remains to be seen whether and to what extent the project will push ahead in the new legislative period after the EU elections – and whether the EU will succeed in creating a level playing field for companies operating in the EU without charging them with considerable burdens,” she said.
Grothaus said if the CSDDD gets rejected, it could well be back to square one for European legislators. “For years, the CSDDD has been one of the EU’s key ESG projects supposed to move the needle for corporate responsibility by requiring companies to conduct environmental and human rights due diligence across their operations, subsidiaries and value chains, and to adopt climate transition plans,” she explained.
The lawyer said that while it is likely that Germany will abstain from voting in today’s council committee meeting, the majority of EU member states could still vote in favour of the CSDDD.
And she is clear that if the CSDDD does pass, it will “move the needle significantly” for corporate responsibility in global supply chains and mandate companies to adopt climate transition plans.
“The CSDDD will impose far-reaching obligations for in-scope companies to identify potential and real adverse environmental, and human rights impacts arising from their own operations, subsidiaries and business relationships, and to carry out due diligence and mitigate actual and potential adverse impacts on human rights and the environment,” said Grothaus.
Companies would have to take measures to prevent or mitigate any potential impacts they identify, as well as end or minimise any real impacts, she continued.
“Companies will also be obliged to adopt and put into effect a transition plan for climate change mitigation in line with the Paris Agreement, and in the case of infringements under the CSDDD, companies may be held liable and face financial penalties,” said Grothaus.
If the CSDDD is voted through today, it will still need to be formally adopted by the EU Parliament and Council but this is usually just a formality. Parliament would be expected to adopt the directive in April, followed by the Council.
After publication in the Official Journal of the EU and entry into force, member states would have 24 months to transpose the CSDDD into national law, and additional transition periods will apply.