Member States must implement corporate sustainability due diligence directive by 26 July 2026

5 July 2024 3 min read

By Barbara Angene

At a glance

On 5 July 2024, the corporate sustainability due diligence directive (CSDDD) was published in the Official Journal of the European Union.
The CSDDD entered into force on 25 July 2024.
EU Member States must transpose the CSDDD into national law by 26 July 2026.

Background

As highlighted in our previous article, on 23 February 2022, the EU Commission submitted to the European Parliament and to the Council its proposal for a CSDDD. The key aim of the CSDDD is to oblige companies to minimise their negative impact on human rights and the environment, laying down rules on obligations for companies regarding actual and potential adverse human rights and environmental impacts.

A final vote in the European Council was scheduled for 9 February 2024. However, as some Member States were critical of the draft of the directive, there was a risk that the required majority would not be achieved and the vote was therefore postponed at short notice. Following mediation by the Belgian Council Presidency, a compromise was developed, and the directive's original text was watered down.

Following the approval by the European Parliament on 24 April 2024, the Council formally adopted the CSDDD on 24 May 2024.

On 5 July 2024, the CSDDD was published in the Official Journal of the European Union. The text can be found here.

Key requirements

The CSDDD applies both to EU companies and parent companies with 1,000 or more employees and a global turnover of more than EUR450 million as well as to franchise companies with a global turnover of more than EUR80 million that generate at least EUR22.5 million through licence fees.

Non-EU companies, parent companies and companies with franchising or licensing agreements in the EU reaching the same turnover thresholds in the EU will also be covered.

The CSDDD provides an option to exempt holding companies from their due diligence obligations in certain exceptional circumstances.

Companies within the scope of the CSDDD will be obliged to take appropriate due diligence measures: they must make related investments, obtain contractual assurances from their partners and improve their business plan. If necessary, they must also support small and medium-sized enterprises with which they do business so that they can fulfil the new obligations.

In addition, companies are required to develop a transition plan to ensure that their business model is compatible with the Paris Agreement's goal of limiting global warming to 1.5°C.

Staggered application

The CSDDD provides for staggered application based on company size and turnover. From 2027, the new rules (except for the communication obligations) will apply gradually to EU companies. The same applies to non-EU companies reaching the same turnover thresholds in the EU:

From 26 July 2027 as regards companies formed in accordance with the legislation of the Member State and that had more than 5,000 employees on average and generated a net worldwide turnover of more than EUR1,500,000,000 in the last financial year preceding 26 July 2027;
From 26 July 2028 as regards companies formed in accordance with the legislation of the Member State and that had more than 3,000 employees on average and generated a net worldwide turnover of more than EUR900,000,000 in the last financial year preceding 26 July 2028;
From 26 July 2027 as regards companies formed in accordance with the legislation of a third country and that generated a net turnover of more than EUR1,500,000,000 in the Union, in the financial year preceding the last financial year preceding 26 July 2027;
From 26 July 2028 as regards companies formed in accordance with the legislation of a third country and that generated a net turnover of more than EUR900,000,000 in the Union, in the financial year preceding the last financial year preceding 26 July 2028;
From 26 July 2029 as regards all other companies referred to in the CSDDD.