Debunking Myths: A Closer Look at the EU Council’s CSDDD Vote

Before delving into the myths and realities surrounding the upcoming vote, it’s essential to understand what the Corporate Sustainability Due Diligence Directive (CSDDD) actually is. The CSDDD is a legislative proposal by the European Union aimed at promoting sustainable and responsible corporate behavior throughout global supply chains. It seeks to ensure that large companies operating within the EU market conduct their business in a manner that respects human rights and environmental standards. By mandating due diligence processes, the directive requires these companies to identify, prevent, mitigate, and account for how their activities impact human rights and the environment. The CSDDD represents a significant step towards integrating sustainability into the core operational strategies of companies, emphasizing the importance of transparency, accountability, and ethical business practices in tackling some of the most pressing global challenges.

As the EU Council’s vote on the Corporate Sustainability Due Diligence Directive (CSDDD) looms, a whirlwind of myths and misconceptions has clouded the discourse. It’s crucial to dissect these narratives to understand the directive’s true implications. Here, we debunk three prevalent “CSDDD myths” and offer clarity on what the directive entails for businesses across the European Union.

Myth 1: An Overwhelming Bureaucratic Burden

The Reality: Critics argue that the CSDDD imposes an unreasonable bureaucratic load on companies, demanding compliance in an unrealistically short timeframe. However, this perspective overlooks the directive’s nuanced approach to applicability and implementation. Specifically, the CSDDD targets larger entities, applying only to companies with both 500 employees and an annual turnover exceeding €150 million. Furthermore, the directive introduces a phased implementation strategy, easing companies into compliance based on their size:

• Firms with more than 1000 employees are to report from 2027.
• Firms with over 500 employees from 2028.
• Companies in high-risk sectors with more than 250 employees in 2029.

This staggered timeline, coupled with overlaps in reporting requirements between the CSDDD and the Corporate Sustainability Reporting Directive (CSRD), aims to streamline the reporting process, mitigating the perceived bureaucratic burden.

Myth 2: Excessive Civil Liability Risks

The Reality: Another widespread concern is that the CSDDD exposes companies to disproportionate civil liability risks. However, the directive delineates clear boundaries for liability, limiting it to instances of willful neglect of due diligence obligations. Importantly, it stipulates that companies cannot be held liable for damages caused solely by their business partners within the supply chain. This provision aims to foster a balanced approach to accountability, encouraging companies to engage in due diligence without the constant fear of disproportionate legal repercussions.

Myth 3: Alteration of Director Duties

The Reality: There’s been considerable buzz around the notion that the CSDDD fundamentally alters directors’ duties. Yet, this is a misinterpretation of the directive’s final form. The contentious “duty of care” requirement was removed during the trilogue negotiations, leading to the deletion of Articles 25 and 26, which concerned directors’ duty of care and the establishment and oversight of due diligence processes. This adjustment reflects a compromise aimed at preserving the essence of directorial responsibilities while aligning with the directive’s broader objectives.

The State of Play Among EU Member States

The positions of EU member states on the CSDDD are varied, reflecting a spectrum of support and opposition:

• Supportive: Spain, France, and the Netherlands have voiced their backing.
• Opposed: Germany, Sweden, and Finland have signaled their reluctance.
• Critics: Lithuania and Estonia have expressed concerns, while Italy’s stance remains unclear.

The Council’s decision hinges on the ‘double majority rule,’ requiring either 55% of member states (15 out of 27) or support from states representing at least 65% of the EU population. The divergent views among member states underscore the complexity of reaching a consensus on such a pivotal issue.

Navigating Through the “Mess”

The journey to the CSDDD vote has been marred by “long and hard negotiations,” spanning over three years and filled with compromises. The division among EU countries is regrettable, given the directive’s potential to significantly advance corporate sustainability practices. As the vote approaches, it’s imperative to move beyond myths and misconceptions, focusing instead on the directive’s capacity to foster a more sustainable and responsible business landscape across Europe. The CSDDD represents a critical step forward in aligning corporate operations with broader environmental and social goals, and its successful implementation could set a precedent for global sustainability standards. #CSDDD