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A Landmark Decision
In a landmark decision, the European Council greenlit a scaled-back version of the long-debated Corporate Sustainability Due Diligence Directive (CSDDD) on Friday March 15. This move marks a significant step towards ensuring that businesses operating within the EU uphold fundamental ethical standards in their practices. While the law represents a compromise between various stakeholders, it nonetheless sets a precedent for corporate accountability and sustainability on a global scale.
The Journey to Compromise
This compromise comes after a prolonged process spanning four years, initiated by studies conducted by the European Commission in 2020. The proposed directive, which aimed to establish obligations for companies to address issues ranging from child labor to pollution in their supply chains, faced obstacles during its journey through the Council. Concerns raised by countries such as Germany and Italy led to delays and threats of non-support, casting doubts on the fate of the legislation.
Adjusting Thresholds: Redefining the Scope of CSDDD
The most notable aspect of the compromise is the adjustment of thresholds, effectively reducing the number of companies covered by the directive. The new thresholds raise the bar to include companies with over 1,000 employees or revenue exceeding €450 million, significantly reducing the scope of the legislation by around two thirds. Additionally, certain provisions, such as those related to high-risk sectors and climate transition plans, have been modified or removed.
Despite criticisms from some quarters, including Heidi Hautala, Vice President of the European Parliament, who lamented member states’ behavior during the negotiation process, the core principles of the directive remain intact. The agreement reached in the Council now paves the way for the CSDDD to be reconsidered by the EU Parliament, albeit with significant alterations from its original form.
Path Forward: Reconsideration by the EU Parliament and Final Vote
Looking ahead, the revised directive will undergo further scrutiny and discussion within the European Parliament, with a final vote expected in April. While the compromise may not satisfy all parties involved, it represents a crucial step forward in the EU’s ongoing efforts to promote corporate responsibility and sustainability.
Fostering Collaboration: Multi-Stakeholder Approach to Sustainability
One of the key features of the legislation is its focus on collaboration and dialogue between businesses, civil society organizations, and government authorities. By fostering a multi-stakeholder approach, the EU seeks to leverage collective expertise and resources to tackle complex sustainability challenges more effectively. Moreover, the law encourages the adoption of best practices and the sharing of knowledge across industries to drive continuous improvement in corporate sustainability performance.
Leading the Way
The approval of the CSDDD sends a clear message that the EU is committed to upholding its values of environmental protection, human rights, and social justice. While there is still work to be done to strengthen the law and ensure its robust implementation, it represents a significant milestone in the global movement towards more responsible and sustainable business practices. As other regions and countries consider similar legislation, the EU’s leadership in this area is likely to have far-reaching implications for the future of corporate governance and sustainability worldwide.
Exclusive insights to help you step up your ESG game
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