Corporate Sustainability Due diligence

On April 24, 2024, the European Parliament finally adopted the final text concerning the Corporate Sustainability Due Diligence, also known as CS3D. This new legislation complements the CSRD, which we have already covered in an article. In this article, we will provide a quick overview of the key points of this legislation. 

 

 Firstly, the purpose of this new legislation is to complement the CSRD, to cover as many aspects as possible aiming at the sustainability of our economy, environment, and human rights. This legislation applies to companies within the European Union and companies providing goods or services in the EU.  

The implementation year will begin in 2027.  

The first companies subject to the legislation are: 

• European companies with more than 5000 employees and a net turnover of over 1.5 billion Euros 
• Non-European companies with a turnover of over 1.5 billion Euros generated in Europe. 

In 2028: 

• European companies with over 3000 employees, generating a net turnover of over 900 million Euros. 
• Non-European companies generating a turnover of over 900 million Euros in Europe. 

 In 2029: 

• European companies with over 1000 employees and generating a turnover of over 450 million Euros. 
• Non-European companies generating European turnover of over 450 million Euros. 

 

The enterprises with the highest turnover are also those with the most resources, and potentially emit the most emissions. It is for this reason that the EU has decided to impose this standard on the most powerful among them. 

This new regulation allows quantifying, structuring, and minimizing, if not eliminating, the risks or negative impacts that companies or their business partners could have on the environment or human rights by prioritizing them from the highest risk to the potential risk. This would increase the chances of achieving the goals set by the EU regarding carbon neutrality (to be achieved by 2050) and reducing emissions by 55% by 2030. Therefore, the parent company will now be responsible for the activities of its subsidiaries and their partners. They must ensure compliance with due diligence measures. 

 

Six measures are defined in the due diligence process for responsible business conduct: 

1. Integrate the duty of diligence into policies and management systems 
2. Identify and assess negative impacts on human rights and the environment 
3. Prevent, eliminate, or minimize actual and potential negative impacts on human rights and the environment 
4. Monitor and evaluate the effectiveness of measures 
5. Communicate 
6. Remedy any resulting harm. 

The inventory of negative impacts aims to assess the situation dynamically and regularly regarding human rights and the environment. This assessment should be carried out: 

• When a significant change occurs 
• At least once every 12 months 
• Throughout the life cycle of an activity 
• Whenever new risks could arise 

 

This pushes companies to review and monitor their partnerships more regularly, especially those in conflict or at-risk areas, which may be more prone to human rights or environmental violations. 

What happens when a company violates CS3D obligations? 

The sanctions imposed by supervisory authorities must be effective and deterrent, based on the company’s global turnover. They can reach up to 5% of this figure. For group parent companies, sanctions are based on their consolidated turnover. Authorities’ decisions must be made public, potentially affecting the reputation of companies. Several factors are considered in determining sanctions, such as the severity of the violation and the measures taken by the company. Fines can be significant, and companies must collaborate to mitigate the consequences of their actions. 

In conclusion, as mentioned at the beginning of the article, this new regulation complements the CSRD. In simple terms, the CSDDD imposes due diligence on companies, applying to both EU and non-EU companies operating within the European territory. The goal is to minimize the negative effects caused by companies. The CSRD, on the other hand, focuses on Europe, imposing a reporting framework to enable disclosure and transparency on their sustainable activities. 

 

Author: Samira Di Cicco, Junior Sustainability Expert at acting responsibly AG