European Supply Chain Act close to finalization

Historic breakthrough in the trilogue negotiations on the EU Corporate Sustainability Due Diligence Directive (CSDDD): On 14 December 2023, the negotiators from the Parliament and Council reached an initially informal agreement on the content of the upcoming European supply chain law, as reported in a press release from the Parliament: Corporate due diligence rules agreed to safeguard human rights and environment | News | European Parliament (europa.eu)

The agreement reached now needs to be formally confirmed by the Parliament and the Council. Only then will there be final certainty about the content of the new directive. Once it comes into force, the CSDDD will then have to be transposed into national law by the EU member states. For Germany, this will in all likelihood take place via corresponding amendments to the German Supply Chain Due Diligence Act, which already came into force on 1 January 2023 (for more details, see our respective flyer The German Act on Corporate Due Diligence Obligations in Supply Chains_ADVANT Beiten.pdf (advant-beiten.com)).

Addressees of the new EU regulation shall be:

(i) EU companies and parent companies over 500 employees and a worldwide turnover higher than 150 million euro.

(ii) EU companies with over 250 employees and with a turnover of more than 40 million euro if at least 20 million are generated in one of the following sectors: manufacture and wholesale trade of textiles, clothing and footwear, agriculture including forestry and fisheries, manufacture of food and trade of raw agricultural materials, extraction and wholesale trade of mineral resources or manufacture of related products and construction.

(iii) Non-EU companies and parent companies with equivalent turnover in the EU.

The companies concerned will have to introduce a human rights risk management. In addition, companies, including the financial sector, must adopt a plan to ensure that their business model is consistent with limiting global warming to 1.5°C.

As with the LkSG, fulfilment of the CSDDD requirements will in future be monitored by a national supervisory authority in each EU member state. The supervisory authorities can initiate investigations and impose sanctions on companies that violate the regulations. This includes naming and shaming and the imposition of fines of up to 5% of global net turnover. In addition, compliance with due diligence obligations is to be included as part of the award criteria for public contracts and concessions.

Finally, the CSDDD - in contrast to the LkSG - will apparently also contain explicit provisions on companies being liable for breaches of their due diligence obligations and victims having the right to compensation.

Further details will emerge from the correspondingly revised regulatory drafts.

Dr Daniel Walden
 

Dr André Depping