Corporate Sustainability Due Diligence Directive (CSDDD) Approved

Öykü Su Sabancı co-authored this article.

The European Council achieved a consensus on 15 March 2024 related to the content and scope of the Corporate Sustainability Due Diligence Directive (“the Directive”) which applies to large companies of a certain size both inside and outside the European Union (“EU”). The Directive was approved with a “qualified majority” and positive votes by fifteen (15) countries representing the 65% of the EU.

The Directive imposes binding obligations on companies to respect human rights and environmental standards in the supply chains with which they engage in business and sets out liability rules to ensure that companies are held accountable for violations. The Directive is also ensuring that companies are held accountable for any violations in these matters.

The approved Directive requires companies to monitor activities in their supply chains. With this obligation of the Directive, companies must identify, prevent, mitigate, find solutions for, and report on any negative impacts resulting from their activities.

The Directive aims to encourage the transition of companies operating in the European market to the green economy. Although its wide scope initially prevented its approval in the first negotiations. Therefore, the final version of the Directive adopts a gradual implementation approach, significantly narrows its scope, and extends the implementation period. Accordingly, companies within the scope of the Directive are:

- Companies with more than 1000 employees,

- Companies with an annual turnover of over 450 Million Euros, and

- EU and non-EU companies.

The previous version of the Directive imposed obligations on all companies with over 500 employees and a turnover of EUR 150 million. As a result of this narrowing of the scope, the number of companies covered by the Directive has been reduced to approximately two thirds. In addition, as can be seen from the scope of the Directive, companies that exceed a certain turnover threshold within the EU and are not established in the EU may also fall within the scope of the Directive.

In addition to the limiting the scope of the Directive, a gradual transition approach has been adopted. This gradual implementation approach is set out in the table below.

In addition to this stated scope, companies with fewer employees, but at risk of human rights violations and operating in sectors such as agriculture and textile industry may also be included in the scope of liability.

In order for the Directive to become law, it will have to be approved by the European Parliament.