EU Parliament votes in favor of the European Supply Chain Due Diligence Directive (CSDDD)

On April 24, 2024 the EU member states in the EU Parliament finally voted in favor of the European Supply Chain Directive (Corporate Sustainability Due Diligence Directive, “CSDDD”). This is one of the final steps in a long legislative process. This had been delayed several times at the beginning of the year because some EU member states - including Germany - had announced that they would vote against the directive. The planned liability regime of the directive was a particular point of contention.

Content and scope

The CSDDD obliges companies in the EU to ensure environmental, sustainability and social standards along the entire value chain. To this end, they must fulfill a catalog of due diligence obligations, including the establishment of a risk management system and corresponding reporting. Furthermore, the directive also provides for the mandatory implementation of the goals of the Paris Climate Agreement in the companies covered. The final version of the directive has not yet been published, but the key points of the directive can already be found in the EU Parliament's press release.

The CSDDD is applicable to:

EU companies with more than 1,000 employees and a worldwide net turnover of more than 450 million euros per annum.
Companies with franchise or license agreements in the EU that ensure a common corporate identity and achieve a worldwide net turnover of more than 80 million euros if at least 22.5 million euros were generated through license fees.
Non-EU companies, parent companies and companies with franchising or licensing agreements in the EU that reach the same turnover thresholds in the EU are also included.

The following transition periods apply:

For large companies with more than 5,000 employees and an annual turnover of 1,5 billion euros three years after entry into force (2027).
For companies with more than 3,000 employees and an annual turnover of 900 million euros four years after entry into force (2028).
For other companies within the scope of application five years after entry into force (2029).

The CSDDD states sanctions, such as:

Fines of up to 5% of the company's global net turnover per annum and liability for damages caused by a breach of due diligence obligations.

What happens next?

The agreement that has now been reached represents one of the final steps for the CSDDD. The directive must now be formally approved by the Council, signed and published in the Official Journal of the EU. It will then enter into force twenty days later. The member states then have two years to transpose the provisions into their national law.

In Germany, the German Supply Chain Act will therefore need to be amended. This relates in particular to the introduction of independent liability for violations of the due diligence obligations set out in the CSDDD and an extension of the scope of application.