Last week, a landmark decision was reached as the European Parliament finally approved the Corporate Sustainability Due Diligence Directive (CS3D), signalling a significant shift towards holding companies accountable for the human rights and environmental impact within their supply chains. This directive establishes a clear legal framework, making companies liable for ensuring sustainability and respecting human rights across their operations and supply networks.

Originally targeting companies with 500 or more employees and annual revenues exceeding €150 million, the CS3D's scope has been broadened with revised thresholds now encompassing companies with 1000 or more employees and revenues exceeding €450 million. This adjustment reflects an acknowledgment of the diverse range of businesses affected by the directive and underscores the EU's commitment to ensuring corporate accountability across various sectors.

This directive sets forth stringent due diligence standards for businesses operating within the EU, particularly focusing on environmental preservation, combating climate change, and upholding human rights standards.

The scope of the CS3D extends not only to the direct operations of companies but also encompasses their subsidiaries and suppliers. This means that both EU-based companies and non-EU entities engaged in substantial business activities within the EU could face legal repercussions for the actions of their supply chain partners.

However, the path to approval was far from smooth. Initially proposed on January 30, the CS3D underwent extensive modifications during closed-door negotiations, lasting 45 days. This period was marked by fluctuating support, political pressures, and emotional turmoil for sustainability advocates. Eventually, a diluted version of the directive received approval from the Council on March 15.

Originally targeting companies with 500 employees and a turnover of €150 million, the directive's thresholds were revised upwards to encompass those with 1,000 employees and a turnover of €450 million.

The implementation of the CS3D will be phased in over five years, with larger companies facing compliance obligations earlier than smaller counterparts.

With the European Parliament's endorsement secured, the directive now proceeds to the Committee of the Permanent Representatives of the Governments of the Member States to the European Union (COREPER) for a vote on May 15. Subsequently, a final vote will be held by the Competitiveness Council (COMPET) on May 23.

Once formally adopted by the EU, member states will have a two-year period to transpose the directive into national legislation, marking a significant milestone in corporate accountability and sustainability efforts within the region.

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