EU member states vote in favor of compromise CSDDD text. Here’s what you need to know

On Friday, March 15th after numerous rounds of negotiations EU member states have voted in favor of the Corporate Sustainability Due Diligence Directive, or CSDDD.

MEPs and government officials initially struck a tentative deal on the corporate sustainability due diligence directive, or CSDDD, in December 2023 – but its future was thrown into doubt after intense pushback from member states including Germany, Italy and France. After a month and a half long saga in which the Belgian Presidency struggled to have the EU Council endorse a text based on the provisional agreement reached by co-legislators in December, all signs now point to CSDDD being adopted as EU law.

Qualification threshold

In the past days, the Presidency proposed to heighten once more the thresholds for qualification under the Directive in order to ensure sufficient support by Member States. The latest text suggested to raise the turnover bar to EUR 450 million, keeping the 1,000 employees bar suggested in another compromise proposal last week. As a consequence, the number of companies covered by the Directive has been reduced by almost 70% compared to the original agreement reached in December.

Qualification thresholds for non-EU companies and for franchisees are also heightened. For non-EU companies, the threshold is now a turnover of EUR 450 million in the EU, compared to EUR 300 million last week and EUR 150 million in December provisional agreement. The so-called “McDonald’s provision” on franchisees is also modified to cover companies that had or are the ultimate parent of a group with a net turnover of EUR 80 million, instead of EUR 40 million in the December provisional agreement. It applies when royalties amount to more than EUR 22.5 million, compared to EUR 7.5 million previously in the December agreement.

Non-operational holdings

A new paragraph on non-operational holdings is added in Article 2, stating that when the ultimate parent company has as its main activity the holding of shares in operational subsidiaries and is not engaged in management, financial or operational decisions, it may be exempted from the obligations under the Directive.

High-risk sectors

The provision on high-risks sectors is still deleted, as in previous compromise proposals. The review clause refers to the possibility to address later the high-risks sectors, if that is deemed necessary.

The obligation for companies above a certain threshold to promote through financial incentives the implementation of the climate plan set up in Article 15 (the so-called Director’s remuneration provision) is also deleted.

The political statement on the necessity to develop legal requirements for regulated financial undertakings has been withdrawn and will not be part of the agreement between the co-legislators.

What’s next

The lead Legal Affairs Committee is expected to endorse the text in the coming days, before a Plenary vote in April. This agreement reinforces the need for EU-based companies and large multinational corporations that do business in Europe to conduct due diligence on their end-to-end supply chains, in line with requirements established through the EU Deforestation Regulation, the EU Forced Labor Regulation, the EU Green Claims Directive, CSRD and more.

For more information on how Sourcemap can support compliance with the EU’s supply chain due diligence requirements, reach out to our team of experts.