European Parliament agrees negotiating position on CSDDD - let the trilogues commence

The vote today and next steps 

The European Parliament agreed its negotiating position on the Commission’s proposal for a Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) on 1 June 2023.

The Council reached its own negotiating position on the CSDDD in December 2022.

This means the "trilogues" (i.e. official negotiations between the Parliament and the Council) can now begin, with the first trilogue scheduled for 8 June. The parties are hoping to be able to reach a final agreement on the CSDDD by the end of this year (although the timeline could possibly slip until early 2024). 

We are expecting more heated debate during the trilogues so there will no doubt be further changes to the wording of the CSDDD, in particular on key issues such as the inclusion of financial services and civil liability. The Linklaters team will be following the negotiations in detail. 

What did the Parliament agree today?

Today's vote in the plenary follows an earlier vote by the Parliament's legal affairs committee (known as JURI) on 25 April, which suggested a number of changes to the Commission's proposal (see our previous blog post). So today's vote in the plenary was basically a decision on which of the JURI amendments, and further amendments tabled by MEPs, to accept or reject. 

Despite a last minute attempt today by a number of MEPs to reject the CSDDD proposal, the JURI text was (by and large) adopted by the plenary, with a handful of amendments. One of those amendments relates to directors' duties. Article 25 (which relates to directors' duty of care) remains. But Article 26 (which would have required company directors to oversee compliance with due diligence requirements) has been deleted. 

The final text of what was agreed today is not yet publicly available but according to the EP press release:

• The Parliament is asking for changes to the scope of the regime so that it applies to: 
  • EU-based companies, regardless of their sector and including financial services, with more than 250 employees and a worldwide turnover of over EUR 40 million, as well as parent companies with over 500 employees and a worldwide turnover of more than EUR 150 million; and 
  • non-EU companies with a turnover higher than EUR 150 million, if at least EUR 40 million was generated in the EU.
• Companies will have to publish a climate transition plan that is aligned with the 1.5 degrees Celsius target in the Paris Agreement - and for companies with over 1,000 employees, meeting the targets in the transition plan will need to be reflected in directors' variable remuneration.
• Sanctions include fines of at least 5% of the net worldwide turnover and non-EU companies that fail to comply with the regime will be banned from public procurement in the EU. 
• The new obligations would apply after 3 or 4 years depending on the company's size and smaller companies will be able to delay applying the new rules by one additional year.

One of the key sticking points between the Parliament and the Council is whether the regime should apply to financial services. The Council wants to give Member States the right to choose whether to apply the regime to financial services when they implement the Directive into national law. The Parliament has voted to include financial services within the scope of the Directive. Even if financial services are included in the scope, much will depend on which type of financial institutions are included and which type of financial activities are covered. 

As mentioned above, we are expecting more heated debate during the forthcoming trilogues on the inclusion of financial services, and other key sticking points such as civil liability and when the new rules will apply. Basically, it's not over until it's over!

Further reading 

For more information on:

• the Commission's proposal, see our previous client alert; 
• the Council's negotiating position, see our previous blog post;
• supply chain due diligence regimes in other jurisdictions, see our client briefing;
• business and human rights in general, including podcasts and other key materials, see our Business and Human Rights page. 

The Linklaters cross-border Business and Human Rights practice has been at the forefront of advising clients in this space for a number of years. Please do get in touch if you would like to discuss the CSDDD further.