Emily Seitz
The European Union (“EU”) presented the European Green Deal in December of 2019.[1] The European Green Deal consists of various policy instruments that will be used with the goal of creating a more sustainable European economy in areas like energy, agriculture, and industry.[2] The hope for the European Green Deal is to make Europe the first climate neutral continent by 2050, and “to put sustainability and the well-being of citizens at the cent[er] of economic policy,” among many other sustainability goals.[3]
As part of the European Green Deal, the EU approved the Corporate Sustainability Due Diligence Directive (“CSDDD”)which brings private companies into their vision and focuses on stopping environmental adverse impacts and human rights abuses in value chains.[4] This Directive,[5] was adopted by the European Parliament and Council on June 13, 2024.[6] Companies will be required to adopt a climate change mitigation transition plan that ensures company practices are in line with the Paris Agreement’s 1.5 degree Celsius limit on global warming objective.[7] The CSDDD introduces a civil liability system where a company may be held liable for damage when the company intentionally or negligently failed to comply with CSDDD obligations that were aimed at protecting a person.[8]
The CSDDD also obligates companies to “conduct risk-based human rights and environmental due diligence”[9] “with respect to their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies. . ..”[10] Due diligence for the CSDDD is similar to due diligence under the UN Guiding Principles (“UNGP”) and the Organization for Economic Cooperation and Development (“OECD”).[11]
The CSDDD applies starting in 2029[12] to companies formed in accordance with Member State legislation that have more than 1,000 employees and a net worldwide turnover of over 450 million EUR and to non-EU companies if they have a net turnover of over 450 million EUR within the EU.[13] While these companies are very large, smaller companies might also be impacted if they are a part of the value chain of an in-scope company.
All companies within the scope of the CSDDD are required to look upstream and downstream at their chain of activities and operations.[14] Upstream relates to production of goods or provision of services, and downstream relates to distribution, transport, and storage, but nothing past that (i.e., final consumer use).[15] U.S. companies will therefore be impacted by the CSDDD not only if they meet the threshold for net turnover in the EU, but also if they are a part of the value chain of any company within the scope. For example, an EU company that is within the scope of the CSDDD will be required to undertake due diligence to ensure all companies within their value chain meet the CSDDD obligations, no matter their size, and will ask for contractual assurances from those companies in the value chain that they will comply.[16] To reduce the burden on smaller companies, the CSDDD states these contractual assurance terms shall be “fair, reasonable and non-discriminatory.”[17] This scenario is why some hypothesize that the CSDDD will lead to the “de facto Brussels effect,” where companies outside of the scope of the EU adopt policies in line with it to maintain business relationships with companies within the EU.[18]
The impact of the CSDDD on companies of all sizes both in the EU and outside of it could be substantial. Hopefully, human rights abuses and environmental impacts are reduced with its implementation.
[1] The European Green Deal, European Comm’n, https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en (last visited Sept. 23, 2024).
[2] Id.
[3] Id.
[4] Council Directive 2024/1760 On Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859, 2024 O.J., at Art. 1(1)(a) [hereinafter CSDDD].
[5] Others might also refer to the CSDDD as the CS3D.
[6] CSDDD, supra note 4.
[7] Id. at Art. 22(1).
[8] Id. at Art. 29(1).
[9] Id. at Art. 5(1).
[10] Id. at Art. 1(1)(a).
[11] Id. at recitals (5)–(6).
[12] Id. at Art. 37(1)(e).
[13] Id. at Art. 2(1)–(2).
[14] Id. at recital (25), Art. 8(2)(a).
[15] Id. at. Recital (25), Art. 2(g)(ii).
[16] CSDDD, supra note 4, at recital (46) (“Companies should seek to obtain contractual assurances from a direct business partner that it will ensure compliance with the code of conduct.”); Bueno et. al, The EU Directive on Corporate Sustainability Due Diligence (CSDDD): The Final Political Compromise, Bus. and Hum. Rts. J. 1–7 (2024).
[17] Radu Mares, The Unintended Consequences of Mandatory Due Diligence, Verfassungsblog (June 13, 2024), https://verfassungsblog.de/csddd-the-unintended-consequences-of-mandatory-due-diligence/; CSDDD, supra note 4, at Art. 10(5), 11(6).
[18] Bueno et. al, supra note 16, at 5.