EU Reaches Political Agreement on Groundbreaking New Rules for Corporate Sustainability Due Diligence Impacting US Companies

On 14 December 2023, the European Union (EU) announced that it had reached political agreement on the new Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). Once adopted, the CSDDD will create new and far-reaching mandatory human rights and environmental due diligence obligations for EU and non-EU companies operating in the EU. For the first time, large companies also will be required to adopt and put into effect a plan ensuring that their business model and strategy are compatible with limiting global warming to 1.5 °C. This new legislation represents a significant shift from the voluntary regimes of the Organisation for Economic Co-operation and Development (OECD) and the United Nations Guiding Principles on Business and Human Rights. The CSDDD establishes a civil liability regime for damages and introduces penalties for noncompliance – including fines of up to 5% of a company’s global turnover.

Key takeaways

• Political agreement on the new Corporate Sustainability Due Diligence Directive (CSDDD) was announced on 14 December 2023; it will be applicable to certain European Union (EU) and non-EU companies with activities in the EU
• The CSDDD will impose new mandatory human rights and environmental due diligence obligations – in particular, companies in scope will be required to identify and prevent, bring to an end, or mitigate the adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, such as pollution and biodiversity loss
• The CSDDD will apply to companies’ own operations, their subsidiaries, and their upstream and downstream business partners
• The legislation includes obligations for large companies to adopt and put into effect a climate transition plan to ensure their business strategy is compatible with limiting global warming to 1.5 °C
• Failure to comply risks fines of up to 5% of global turnover, claims under a new civil liability regime and potential disqualification from participating in public tenders

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