Last Updated on July 10, 2024
5 July 2024 saw the publication of the Corporate Sustainability Due Diligence Directive (so-called CSDD or CS3D), which aims to strengthen companies’ due diligence for sustainability purposes, supplementing the reporting obligations already put in place by Directive 2022/2464 (so-called ESG).
Directive 2024/1760 of 13 June 2024 is part of the framework of European policies aimed at promoting sustainable development and a green economy, in response to growing concerns about the impact of business activities on the environment and on human rights, which explicitly include the right to enjoy just and favourable working conditions, including equal wages, appropriate health and safety measures as well as the rights of association, assembly, organisation and collective bargaining.
To whom does it apply?
The subjective scope of application of the measure includes large EU companies with an average of more than 1,000 employees and a worldwide net turnover of more than EUR 450 million in the last financial year, and non-EU companies that, regardless of the number of employees employed, generated the same turnover in the European Union in the penultimate financial year.
The CS3D also applies to:
- EU or non-EU companies that, despite not meeting the above figures, are the parent company of a group that does;
- EU or non-EU companies that have signed franchise or licensing agreements in the EU in exchange for royalties with independent third-party companies, that generate licence fees exceeding EUR 22.5 million in the EU and that had a total net turnover exceeding EUR 80 million in the last financial year.
What measures should be taken?
In order to comply with the new due diligence obligation, companies are required to:
- integrate due diligence into all company policies and, after consultation with employees and their representatives, draw up an appropriate policy that must be updated at least every two years or when necessary;
- identify and assess actual or potential negative impacts on human rights and the environment by mapping their business activities, those of their subsidiaries and business partners in the value chain;
- prevent and mitigate potential negative impacts as well as stop and remedy actual negative impacts by preparing and implementing prevention and remedial operational plans, if necessary;
- actively involve, through effective and transparent consultations, the so-called stakeholders including employees, unions and workers’ representatives, of both the company and its the respective business partners;
- establish grievance procedures that can be brought against companies by all stakeholders who have been (or may be) adversely affected by the negative impact;
- put in place a mechanism of notification to companies by those in possession of relevant information;
- adopt a transition plan for climate change mitigation;
- verify the effectiveness of the measures taken at least once a year;
- publish an annual statement on its website detailing the diligence obligations implemented.
What are the consequences for violations?
It is left to the member states to define effective dissuasive sanctions, including fines totalling a maximum of not less than 5% of the net worldwide turnover, in the event of violations of the provisions implementing the Directive, and to put in place a mechanism for compensation by companies held liable for the damages caused to injured parties.
Next steps
Italy has until 26 July 2026 to transpose the Directive, ensuring that the relevant obligations will apply as from:
- 26 July 2027 for large European companies with more than 5,000 employees and a worldwide net turnover exceeding EUR 1.5 billion as well as for non-EU companies with the same turnover;
- 26 July 2028 for European companies with more than 3,000 employees and a worldwide net turnover of more than EUR 900 million as well as non-EU companies with the same turnover;
- 26 July 2029 for all the other cases.
The CSDDD brings with it significant changes that, although enforcing new responsibilities, may also translate into opportunities and advantages.
Toffoletto De Luca Tamajo is at your disposal for any support or clarification you may need.
For further information: comunicazione@toffolettodeluca.it
