Corporate Sustainability Due Diligence Directive approved by Parliament
The Corporate Sustainability Due Diligence Directive (CS3D) has been officially adopted by the European Parliament, marking a significant step towards more sustainable business practices across the continent. The adoption follows two years of intense political discussions and negotiations.
The CS3D aligns more closely with international standards and aims to reduce legal uncertainty, providing a clear framework for companies to follow. The need for companies to prioritise mitigation efforts based on risk assessment is explicitly recognised in the final text of CS3D. This means that businesses will need to assess and address the environmental and social risks in their operations and supply chains.
The role of sector initiatives has been strengthened in the final text of CS3D. This could help encourage collaboration and the sharing of best practices within industries. The CS3D also includes provisions for stakeholder engagement, ensuring that the voices of workers, communities, and other stakeholders are heard in the decision-making process.
However, the CS3D poses a significant implementation challenge for companies, particularly in terms of supply chain transparency and control over indirect suppliers. Limited visibility into the activities of suppliers can make it difficult for companies to ensure that their operations are sustainable.
To help facilitate the implementation of CS3D, the European Commission and supervisory authorities will provide forthcoming guidance. The overall responsibility for enforcing the CS3D in the European Union lies primarily with the national authorities of the EU member states after its implementation into national law, as the directive came into force on EU level on 25 July 2024 but requires transposition into national legislation for enforcement.
In addition to the requirements for due diligence and stakeholder engagement, the CS3D also includes provisions for responsible disengagement. This means that companies can take action to end business relationships with suppliers who are not meeting the required standards of sustainability.
The final text of CS3D has undergone significant improvements compared to the initial proposal tabled in February 2022. These improvements include the strengthening of sector initiatives and the recognition of the need for companies to prioritise mitigation efforts based on risk assessment. The CS3D also includes provisions for responsible disengagement, providing companies with a tool to address non-compliance in their supply chains.
Overall, the adoption of the CS3D represents a major step towards more sustainable business practices in the European Union. While the directive poses challenges for companies, particularly in terms of supply chain transparency and control over indirect suppliers, the European Commission and supervisory authorities will provide guidance to help facilitate implementation. The CS3D also includes provisions for stakeholder engagement and responsible disengagement, providing companies with the tools they need to address sustainability issues in their operations and supply chains.
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