10 Jul 2024

Corporate Sustainability Due Diligence Directive adopted by Council of the EU

The European Union’s recent Corporate Sustainability Due Diligence Directive (the Directive) is a milestone for business and human rights in the region. ENNHRI welcomes its adoption on 24 May 2024 by the Council of the EU, outlining its benefits and drawbacks in its recent statement on the Directive. The Directive represents a step forward for ensuring business respect for human rights in practice. NHRIs will play a key role in supporting transposition and implementation of the Directive.

Key details on the Directive and its implementation

This Directive imposes obligations on large companies to undertake risk-based due diligence to identify and address negative human rights and environmental impacts in their own operations, subsidiaries, and their supply chain and certain business relationships in the downstream value chain.

The Directive will enter into force on 26 July 2024 – that is, 20 days after its publication in the Official Journal of the European Union. From then on, Member States have two years to implement the provisions and administrative procedures into national law.

Following its renegotiation earlier this year, the Directive will apply to large companies with over 1,000 employees and a net worldwide turnover of €450 million. Non-EU companies are subject to it if they have a €450 million net turnover in the EU. The financial sector is included in the scope, but in a limited way. Financial institutions will only have to carry out due diligence on their own operations and in their supply chains, but not on their downstream activities (investments, loans, insurance and other financial services). The CSDD Directive also compels companies to align their business models with the Paris Agreement on Climate Change and obliges companies to adopt and put into effect a transition plan for climate change mitigation.

The Directive is enforced by a combination of administrative supervision and civil liability. Member States must appoint a national supervisory authority that deals with the supervision and enforcement of the rules. These supervisory authorities can impose a penalty regime and are to be given a broad range of powers to investigate and make orders.

Penalties include fines of at least up to 5% of the company’s net turnover. The text emphasises the obligation for companies to carry out meaningful engagement with affected stakeholders as one of the core elements of the due diligence process. In addition, companies are required to establish complaint mechanisms accessible to a broad range of stakeholders. The Directive also provides for civil liability where a failure to undertake adequate due diligence results in harm being caused intentionally or negligently.

ENNHRI’s advocacy on the Directive

ENNHRI, through its Business and Human Rights Working Group, has been active throughout the CSDD Directive negotiation process in advocating for strong human rights protection.

In its latest statement, ENNHRI welcomes the Directive’s adoption and sets out how it can be effectively implemented in a way that centres human rights outcomes. ENNHRI also welcomes the inclusion of several of its suggestions in the final text of this Directive. These include:

  • a risk-based approach to due diligence;
  • effectiveness criteria in the definition of appropriate measures;
  • stronger requirements for meaningful engagement with stakeholders; and
  • a recital recalling that all businesses have a responsibility to respect human rights.

However, the Directive does not reach its full potential and risks creating additional burdens to access to remedy for rightsholders. It does this through limitations on civil liability and the exclusion of downstream activities of financial institutions, even omitting several downstream activities altogether. Despite such limitations, we appreciate the European Commission’s commitment to review the Directive’s effectiveness in reaching its objectives. This leaves room for future improvements.

How NHRIs can support the Directive’s transposition and implementation

NHRIs will play a key role in supporting the effective transposition of the CSDD Directive by providing expert advice on transposition laws. They can aid its implementation in various ways, including by:

  • engaging with and building the human rights expertise of the CSDD Directive supervisory authorities;
  • monitoring implementation of the law;
  • building awareness and capacity among key stakeholders including business, policymakers and civil society;
  • supporting rightsholders to access the remedy and accountability mechanisms in the law; and
  • providing evidence to the Commission’s review of the law, to take place 6 years after entry into force.

ENNHRI looks forward to supporting the implementation of this key initiative to advance business respect for human rights in practice.

Find out more about ENNHRI’s work on business and human rights.