The EU’s Corporate Sustainability Due Diligence Directive (CS3D or CSDDD) is facing problems in its development. Lawmakers are not on the same page on major components of the law – including the scoping of financial services sectors and a provision mandating net-zero transition plans. The inclusion of financial services firms in the law’s scoping requirements is controversial as some believe their inclusion is a step too far. However, a compromise is taking shape as some lawmakers push for a narrower scope that would only cover financial service firms who have direct business relationships with corporates.
There is also disagreement about whether the CS3D should require companies to develop climate transition plans. The European Council would like to see this requirement only for large firms and would not include an implantation component. European Parliament on the other hand argues that all firms within the scope of the directive should be required to create and implement net zero plans.
Responsible Investor recently reported on the troubles facing the legislation:
“The hope and expectation is that there will be political agreement on the directive by January. There is definitely a sense of urgency from stakeholders.”
Whatever the final version of the CS3D includes, it is likely to fundamentally alter the current regulatory landscape surrounding ESG. Unlike the CSRD, the CS3D is not just a reporting regime – it requires the identification and mitigation of ESG risks. Like the CSRD, it also has extra-jurisdictional requirements which may impact US companies. For more on the CS3D, see our checklist 6 Things You Need to Know About the EU’s CS3D.
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