29 February 2024

Adoption of Corporate Sustainability Due Diligence Directive no longer likely

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After two years of negotiating the Corporate Sustainability Due Diligence Directive (CSDDD), this proposed directive may not reach the finish line.

What is happening

After the Council and the European Parliament reached a provisional agreement on the CSDDD in December 2023 (see this article for more information), the two bodies still had to vote separately on the proposal.

The Council was due to vote on 9 February 2024, but its presidency, currently held by Belgium, decided at the last minute to postpone the vote and remove it from the meeting agenda. The reason for the postponement was that before the vote, Germany had indicated that it would abstain from voting. Ministers from Germany’s liberal FDP coalition opposed the CSDDD on the grounds that it would burden business with excessive bureaucracy. The German Social Democrats and the Greens backed the CSDDD, warning that Germany would lose credibility in the EU. Italy was likely to follow Germany's lead.

In this situation, the required qualified majority of 15 EU countries representing 65% of the EU population (needed to bring the CSDDD to a final vote in the European Parliament) would not be met. Following this news, many companies across Europe, including in Germany and Italy, issued statements in support of the CSDDD. The Confederation of Netherlands Industry and Employers (known as VNO-NCW) also reiterated its support for the CSDDD.

The Council put the CSDDD back on the agenda for its meeting on 28 February 2024. The Council's Belgian presidency issued a statement after the meeting that despite its efforts, the necessary support could not be secured. The Council will now assess the situation and examine whether it is possible to address the concerns expressed by certain member states. The Council will do so in consultation with the European Parliament.

It is unclear what will happen next, and if the Council will still vote on a proposal, whether in its current form or otherwise. The last opportunity for the European Parliament to adopt the CSDDD before the EU elections in June will be the plenary session taking place from 22 to 25 April. Before that, members of parliament must vote in the Legal Affairs Committee, which could take place during its sitting on 7 March. To meet this timeline, about one week remains for the Council's presidency to find a majority. As things currently stand, there does not seem to be a viable path to achieve this quickly enough. In the unlikely case that a majority can be assembled, the Parliament is expected to support the CSDDD.

What is the impact of a negative vote

After the EU elections in June 2024, the fate of the CSDDD may take a further negative turn. The composition of the European Parliament may change, possibly removing its majority support for the CSDDD as well.

As a result of these developments, more individual EU member states may enact national legislation to ensure that businesses address adverse impacts of their actions, including in their value chains. This would be in addition to existing regulations; for example, due diligence laws like those in Germany and France. Momentum for the member-initiated Dutch bill on Responsible and Sustainable International Business Conduct and for implementation of the Dutch Child Labour Due Diligence Act may also return. However, the future of the former remains unclear now that the Dutch 2023 elections have changed the composition of the Dutch government currently being formed.

Until any statute on due diligence obligations is in place, companies may continue to obtain guidance in establishing best practices from; for example, the recently updated OECD guidelines and industry schemes. Without the CSDDD, activism may increase on this front, while there may also be greater focus on voluntary commitments companies have made on due diligence.

We will keep you informed on any further developments.