Compliance19.03.2024 Newsletter
CSDDD update: the way is paved for a level playing field in supply chain compliance
The European legal framework for due diligence obligations in supply chains is now likely to come in a watered-down version. In the Council of the European Union, the majority of EU member states have agreed on a directive on supply chain compliance (Corporate Sustainability Due Diligence Directive/ CSDDD or CS3D for short) after initially failing to reach agreement at the European level.
As we had already reported [Strict framework for supply chain compliance in Europe - the "EU Supply Chain Act" is coming!], the Directive provides for comprehensive due diligence obligations and a significantly greater contribution to sustainability in future than under the German Supply Chain Due Diligence Act [Lieferkettensorgfaltspflichtengesetz, LkSG]. The main features of the CSDDD have remain unchanged, albeit that the following adjustments in particular were made on the "home straight":
1. Area of application significantly weakened
The compromise that has now been reached stipulates that the Directive applies exclusively to larger companies that fulfil the following requirements in two consecutive years and therefore generally already fall within the scope of the LkSG:
EU companies | Non-EU companies |
General threshold values | |
3 Jahre nach in Krafttreten | |
> EUR 1.5 billion turnover worldwide; and | > EUR 1.5 billion turnover in the EU |
> 5000 employees | |
4 years after entry into force | |
> EUR 900 million turnover worldwide; and | > EUR 900 million turnover in the EU |
> 3000 employees | |
5 years after entry into force | |
> EUR 450 million turnover worldwide; and | > EUR 450 million turnover in the EU |
> 1000 employees | |
Franchise and licence agreement parties | |
5 years after entry into force | |
> EUR 22.5 million in contract fees worldwide | > EUR 22.5 million in contract fees in the EU |
> EUR 80 million turnover worldwide | > EUR 80 million turnover in the EU |
Non-EU companies fall within the scope of application if they have significant operations in the EU. The EU Commission will then publish a list of non-EU companies that fall within the scope of application.
2. Abandonment of risk sector approach
The originally stricter scope of application for companies in sectors with particular "damage potential" has been abandoned.
3. Delegation of tasks to subsidiaries
A special regulation is provided for group parent companies that primarily function as non-operating holding companies. These can apply to be exempted from the obligations if these are delegated to a subsidiary. The prerequisite is that the subsidiary is equipped with the necessary resources and competences to fulfil these tasks and has access to the relevant information of the group companies. However, the parent company remains liable.
In addition, there have been a number of further adjustments in detail, amongst other things regarding the concept of the supply chain, the extension of the scope of obligations to climate change, the obligations of managing directors and the financial sector.
To be emphasised from a German perspective is that there is going to be civil liability for breaches of due diligence obligations. If affected companies violate the new regulations, they can be held liable in future by the affected parties and possibly by trade unions or NGOs. In particular, they may then face claims for damages and compensation for pain and suffering.
The draft still requires the approval of the European Parliament, which is expected in April at the latest.
