After a tumultuous lawmaking process, the European Parliament and the European Council announced an informal agreement on the Corporate Sustainability Due Diligence Directive (CS3D). The Directive will require in scope companies to identify and remediate environmental and human rights issues in their supply chains. After much debate, financial services companies will be excluded from the CS3D for now, but will potentially be brought into scope in the future. The Directive will apply to both EU and certain non-EU companies. The Council’s press release states that:
“The agreement fixes the scope of the directive on large companies that have more than 500 employees and a net worldwide turnover of €150 million. For non-EU companies it will apply if they have a €150 million net turnover generated in the EU, three years from the entry into force of the directive. The Commission will have to publish a list of non-EU companies that fall under the scope of the directive.”
Another sticking point was the required adoption and enforcement of net zero plans. The final version of the law as it was announced requires in-scope companies to adopt net zero plans and will offer financial benefits to companies that properly implement their plans.
The specifics of the agreement are currently unclear as no draft agreement has been made public. However, this law is expected to have a large impact in and outside of the EU. Unlike the Corporate Sustainability Reporting Directive, it will require more than disclosures and requires that companies take concrete actions on the covered issues. This is yet another ambitious ESG regulation from the EU. As of now, the timeline for implementation is unclear, but we will know more once the provisional agreement is endorsed and adopted by Parliament and the Council.
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