The EU’s Sustainability Due Diligence Directive (CS3D) has been approved by the Council of the EU after two previous unsuccessful attempts. This directive, a key part of the EU’s Green Deal legislative package, will add to existing ESG-related rules such as the Corporate Sustainability Reporting Directive and the Deforestation Regulation.
Key aspects of the approved directive include:
Scope of Covered Companies: Non-EU companies with more than €450 million in EU net turnover over the past two years, and EU companies with the same turnover and over 1,000 full-time equivalent employees, must comply.
Phase-In Periods: Compliance will be phased in over three to five years depending on company size, with the earliest compliance date set for 2027.
Substantive Requirements: Companies must conduct due diligence on business partners, assess impacts of their activities, and establish governance structures.
Liability: Third-party claims for noncompliance are allowed, with penalties of up to 5% of net worldwide turnover.
Regulatory Actions and Penalties: Regulatory authorities can enforce the directive and impose fines.
Applicability to the Financial Sector: Financial institutions, including banks, will generally be subject to the directive.
The CS3D will have significant implications for covered and non-covered companies alike, affecting contractual relationships and requiring adjustments to processes and procedures for compliance.
Source: Jones Day
