European vigilance: further progress towards the CSDD Directive
On Tuesday 25 April, the Committee on Legal Affairs of the European Parliament gave its green light for the adoption of the CSRD (Corporate Sustainability Due Diligence) Directive proposed by the European Commission in February 2022 (cf.CSR: European Commission adopts proposal for a directive on due diligence) after several years of consultation on the subject. This directive will encourage large companies to prevent risks of infringement of human rights and fundamental freedoms, health and safety of persons and the environment, which may result from their activities and from those of their subcontractors.
The compromise text of the Parliament's Committee on Legal Affairs extends the obligations to EU companies ofmore than 250 peopleandturnover over EUR 40 million(the Council text concerned only European enterprises with more than 500 persons with turnover of more than EUR 150 million). Theforeign enterprises with net turnover of at least EUR 40 million in the European Unionwill also be affected. Directors of companies with more than 1000 employees will be required to implement a carbon reduction plan and will be punished in case of infringement. The text also recommends that SMEs should be excluded from the scope of the Directive. Finally, it now imposes a risk-based duty of vigilance on businesses, which is no longer limited to « established commercial relations », a concept that already caused a lot of ink to sink.
Moreover, while the European Council had sought to exclude the financial sector from the scope of the Directive last December (seeCSR: European Council moves forward on duty of vigilance directive), the Members of Parliament reintroduced it in their text, with nevertheless some concessions for certain areas such as pension funds or credit rating agencies.
MEPs also agreed to leave the burden of proof to the complainants and not to companies, which means that victims will have to prove the existence of the negative impacts of a company's activities, a point on which NGOs are standing.
This text should be voted by Parliament in plenary around 1 June. Negotiations with the EU Member States (the Council) can then begin, with the aim of ensuring that both institutions take a parallel position during the summer. Secondly, the interinstitutional negotiations with the European Commission, called trilogues, will be held with a view to reaching a final agreement by the end of 2023 andimplementation in stages tofrom 2024-2025.
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