What Is the European CS3D Directive?
Category: News Author: Corentin Mathias Date: 17/6/2024 Reading time: 3 min
Since April 2024, the CS3D extends corporate sustainability responsibilities.
What Is the European CS3D Directive?
Context
The European regulatory landscape is evolving rapidly, and companies must prepare for new obligations regarding sustainability and social responsibility. Following the adoption of the Corporate Sustainability Reporting Directive (CSRD) earlier in the year, the European Parliament definitively adopted the Corporate Sustainability Due Diligence Directive (CS3D) on April 24, 2024. By imposing due diligence and transparency obligations across the entire supply chain, this new directive—inspired by the French Duty of Vigilance Law of 2017—aims to hold companies accountable for respecting human rights and environmental standards throughout their supply chain.
What Does the Text Say?
The CS3D introduces strict requirements for large companies operating in Europe. Key takeaways include:
Obligations: The text requires companies to prevent, cease, or mitigate their negative impact on human rights and the environment at every stage of their value chain. Companies will need to publish a risk mapping and develop prevention and transition plans to ensure compliance with human rights and environmental standards by their subcontractors and suppliers.
For companies, this means:
- Integrating due diligence into their policies and risk management systems;
- Preparing a remediation and compensation system in case of damages;
- Establishing alert and monitoring systems for compliance with these directives;
- Adopting a transition plan to make their business model compatible with the Paris Agreement targets;
- Publicly communicating on all of these topics.
Scope of action: Due diligence obligations will cover the company’s own activities, those of its subsidiaries, and those of its chain of activities. They span the entire value chain, from production to distribution, including the full logistics chain. Only end-of-life product disposal is excluded.
Penalties: Fines can amount to up to 5% of a company’s worldwide net turnover. They will be determined by dedicated supervisory authorities. Member States are responsible for providing detailed information on corporate obligations, accessible online.
Which Companies Are Subject to This New Standard?
The directive applies to European companies with more than 1,000 employees and a worldwide net turnover exceeding €450 million. Third-country companies operating in the EU with a net turnover exceeding €450 million are also included.
The implementation timeline will be phased:
- 3 years after entry into force for companies with more than 5,000 employees and a worldwide net turnover exceeding €1.5 billion.
- 4 years after for companies with more than 3,000 employees and a worldwide net turnover exceeding €900 million.
- 5 years after for companies with more than 1,000 employees and a worldwide net turnover exceeding €450 million.
What Are the Next Steps?
The CS3D directive was approved by the European Parliament in plenary session in April 2024. Once published in the Official Journal, Member States will have two years to transpose it into national law. Companies should therefore begin preparing for compliance now, in close collaboration with their procurement and supply chain departments.