Failure of the EU Council to endorse the Corporate Sustainability Due Diligence Directive

Hogan Lovells

Hogan Lovells

While the European Parliament and Council negotiators eventually reached a political agreement on 14 December 2023 on the much-awaited proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence (CS3D) – aiming to impose on certain companies operating in the EU the incorporation of human rights and environmental due diligence into their management systems – the European Council decided not to endorse the proposal on 28 February 2024.

Progress of the CS3D so far

After being presented as a priority by the French Presidency of the Council of the European Union, the European Commission eventually published, on 23 February 2022, a proposal for a Directive on Corporate Sustainability Due Diligence, aiming to introduce a harmonised human rights due diligence requirement for large companies operating in the EU.

The Council of the EU then finalised its position on the Commission’s proposal on 30 November 2022. While the text amended some of the provisions of the proposal, the substantive due diligence obligations remained the same broadly speaking.

On 1st June 2023, the European Parliament adopted and put forward its own version of the proposal, going further in terms of scope of application and obligations than the version proposed by the European Commission and the Council.

Then, in June 2023, the proposal went through the "trilogue" phase (i.e. discussions between the EU institutions). After long months of debate, the EU institutions eventually agreed, on 14 December 2023, on a "final" version of the proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence.

Major backlash from Member States

This "final" version of the CS3D was due to be voted upon by the Council on 9 February 2024 and by the JURI Committee of the European Parliament on 13 February 2024 to be adopted during the plenary session of the European Parliament in early April 2024, so that the CS3D could enter into force before the elections of members of the European Parliament in June 2024.

However, the decision by Member State governments on whether to endorse the CS3D was postponed after it became clear that CS3D lacked sufficient support from several key Member States.

Indeed, in recent weeks, Germany, reiterating concerns already expressed when negotiating the Council's position, has announced not to support the "final" version abstaining in the final voting due to the potential bureaucratic and legal impact it would have on businesses. This encouraged other Member States - such as Italy - to withdraw their support for CS3D. The question was then put on the agenda for a further meeting, only to be postponed again, with no consensus emerging. The hope was that the EU Member States would vote on the CS3D on 28 February 2024.

The European Council today failed to approve the CS3D despite the efforts of the Belgian Presidency of the Council to gather the necessary support.

Reportedly, this initiative was not successful due to a last-minute effort by France to significantly reduce the scope of the CS3D (France would have requested that the CS3D only apply to companies with more than 5,000 employees, instead of the proposed threshold of 500 employees, which would have the effect of exempting around 80% of companies from CS3D obligations).

Next steps

The Belgian Presidency of the Council issued a statement explaining that it has "to consider the state of play and will see if it’s possible to address the concerns put forward by member states, in consultation with the European Parliament".

Over 130 organisations have strongly criticised the failure of the Member States to endorse the CS3D, urging the Belgian Presidency to work with EU Member States to find a way to ensure that the CS3D is approved by the Council.

In any case, whether CS3D will make it through the EU legislative process is now rather uncertain. This is all the more true as the latest date by which the European Parliament could give its green – or red – light to the CS3D would be 15 March 2024, so that it could enter into force before the European Parliament elections in June.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hogan Lovells | Attorney Advertising

Written by:

Hogan Lovells

Hogan Lovells on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide