European Union
CS3D proposal approved by European Parliament, awaits Council approval on May 27
- After a legislative process that started more than two years ago, the European Parliament approved on April 24 the Final Proposal of the Corporate Sustainability Due Diligence Directive ("CS3D Directive"). Its final approval is pending the green light from the Council, which is expected to take place on May 23.
- The text approved by the Parliament is the result of a legislative process initiated more than two years ago by the European Commission, in which the initial expectations have been lowered. Among the most relevant developments are the following:
- Reduction of the subjective scope (by raising thresholds, by replacing the definition of "value chain" with "chain of activities", and by limiting the regime applicable to the financial sector).
- Extension of the deadlines for entry into force and implementation.
- Elimination of the internal corporate governance aspects relating to directors—in particular, the rules on their due diligence obligations and variable remuneration linked to climate-related targets.
- Clarification of the grounds for corporate civil liability, which requires fault or negligence and damage to the legal interest of a natural or legal person protected by the regulation. Standing for bringing civil liability actions is also limited.
- CS3D provides for a staggered implementation, with looser deadlines than those established in previous versions:
- Three years (2027) for the largest EU companies (5,000 employees and with a net worldwide turnover exceeding €1.5 billion) and non-EU companies meeting the above turnover threshold in the European market.
- Four years (2028) for EU companies with more than 3,000 employees and a net worldwide turnover of more than €900 million, and non-EU companies meeting the above turnover threshold in the European market.
- Five years (2029) for other companies.
- It is worth highlighting the interrelation and synergies that exist between the CS3D Directive and the Corporate Sustainability Reporting Directive ("CSRD"). Among other things, the preparation of sustainability reports required by the CSRD Directive will require processes that relate to the identification of negative impacts of the CS3D Directive. See Legal Flash | Corporate Sustainability Reporting: CSRD