The Council has now formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD). It is therefore clear that the Directive is now set to become a reality. From the date of its publication in the Official Journal of the European Union, Member States will have two years to implement the regulations and administrative provisions needed to comply with the Directive. The Directive introduces obligations for large companies regarding the adverse impacts of their activities on human rights and the environment along their chain of activities. The rules not only apply to the companies' own operations, but also to the activities of their subsidiaries and business partners. After being signed by the President of the European Parliament and the President of the Council, the Directive will be published in the Official Journal of the European Union and will enter into force on the twentieth day following its publication.
Scope of application (EU and third-country companies):
- Group A: Companies with a worldwide turnover of more than EUR 450 million and an average of more than 1000 employees. In the case of third-country companies, it is only a question of whether they generate net turnover of EUR 450 million by providing services in the European Union.
- Group B: Companies having entered into certain franchising or licensing agreements in the European Union with a net worldwide turnover of more than EUR 80 million. Third-country companies fall within the scope of the Directive if they generate total turnover of EUR 80 million in the European Union.
- Ultimate parent company – Group A: In addition, a company that did not itself reach the Group A thresholds but is the ultimate parent company of a group of companies that reached the Group A thresholds also falls within the scope of application of the Directive. If the ultimate parent company is not an EU company, the turnover of EUR 450 million must have been generated by the group of companies in the European Union.
- Ultimate parent company – Group B: The Directive also applies to an EU company that did not itself reach the threshold of EUR 80 million but is the ultimate parent company of a group of companies that had a net worldwide turnover of more than EUR 80 million. If the ultimate parent company is not an EU company, the turnover of EUR 80 million must have been generated by the group of companies in the European Union.
Please note: For EU companies, the turnover figures are those for the last financial year. For third-country companies, however, they are those for the financial year preceding the last financial year. The thresholds must also have been met in two consecutive financial years.
Key obligations:
- Develop a risk management concept and a code of conduct
- Assess and prioritise potential adverse impacts relating to their chain of activities
- Take measures to prevent or mitigate these impacts
- Introduce measures to bring to an end, remedy, minimize the extent of and redress actual adverse impacts
- Establish notification mechanisms and complaints procedures
- Regular monitoring and public reporting
- Appoint an authorized representative
- Develop a transition plan to mitigate climate change
Definition of the term 'chain of activities': The chain of activities covers the activities of upstream business partners (including all phases related to the development and production of goods or the provision of services, from the extraction of raw materials to the completion and delivery of the product) and also covers the activities of downstream business partners in connection with the distribution, transport and storage of the product.
Transposition:
- Group A: From 2027 for companies with more than 5000 employees and a turnover of more than EUR 1.5 billion.
- Group B: From 2028 for companies with more than 3000 employees and a turnover of more than EUR 900 million.
- Group C: From 2029 for companies with more than 1000 employees and a turnover of more than EUR 450 million.
⚖️ Liability regimes: Companies are liable under civil law for damage caused as a result of their failure to carry out adequate due diligence. Subsidiaries and business partners can also be held liable. Persons who suffer damage are entitled to full compensation, but this must not lead to overcompensation. The limitation period for bringing civil liability claims for damages is at least five years.
Fines: Member States must lay down a system of sanctions, including fines. These fines are calculated based on the net worldwide turnover of the company concerned and can amount to up to 5% of its net worldwide turnover.
CERHA HEMPEL supports companies to transition successfully and satisfy EU compliance requirements. Please do not hesitate to contact us if you have any further questions.