🌍Introduction and Context
The European Council and Parliament have reached a provisional agreement on the CSDD (Corporate Sustainability Due Diligence) Directive.
The aim is to promote sustainable and responsible corporate behavior by integrating considerations of human rights and the environment into business operations and governance.
This directive aims to strengthen the protection of the environment and human rights, addressing the negative impacts of businesses both inside and outside Europe.
🏭Obligations for Companies
The CSDD requires large companies to identify, prevent, mitigate, end, and report negative impacts on human rights and the environment.
This involves not only the direct operations of the company but also those of its subsidiaries and value chains.
A key element is the creation of plans to align corporate strategies with the goal of limiting global warming to 1.5 °C, in line with the Paris Agreement.
Directors and executives are encouraged to contribute to sustainability goals and climate change mitigation.
🌐Scope
The directive applies to various categories of companies.
Group 1 includes about 9,400 companies with more than 500 employees and a global net turnover of more than 150 million euros.
Group 2 comprises about 3,400 companies in high-impact sectors, such as textiles, agriculture, and mineral extraction, with more than 250 employees and a turnover of more than 40 million euros.
The rules also apply to non-European companies active in the EU with turnover in line with these groups.
📉 Impact on the Financial Sector
The financial sector has been temporarily excluded from the CSDD, but the discussion is still open.
According to Eurosif, the IIGCC, and the PRI, the directive, if well-conceived, can strengthen the competitiveness of EU financial institutions.
By establishing solid sustainability due diligence practices, financial institutions could better manage sustainability-related risks, gaining competitive and reputational advantages.
🔍Details and Guidelines
Eurosif, IIGCC, and PRI have emphasized the importance of a risk-based approach to due diligence, in line with OECD guidelines.
This approach allows investors to effectively manage risk in a targeted manner, engaging with the most impactful companies in their portfolio.
📈 Benefits and Costs
The benefits of the CSDD include greater protection of human rights, a healthier environment, and increased trust in companies.
However, companies will face implementation and transition costs, including expenses and investments to change their operations and value chains to comply with the due diligence obligation.
📜Next Steps
The proposal will need to be approved by the European Parliament and the Council.
Once adopted, member states will have two years to transpose the Directive into national law.