Today, the Legal Affairs (JURI) Committee of the European Parliament secured an ambitious compromise on the Corporate Sustainability Due Diligence Directive that mandates EU companies to disclose transition plans to climate neutrality in their long-term corporate strategies and links them to the remunerations of large companies’ directors. The approved opinion would green companies’ operations and combat human rights violations in value chains.
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The compromise approved in the JURI Committee of the European Parliament today would require EU companies and financial institutions with more than 250 employees to conduct environmental and human rights due diligence. If it makes it to the final Directive, companies will have to design climate transition plans as a part of their long-term strategies and ensure they do not contribute to adverse environmental and human rights impacts across their value chain. This would be enforced through companies’ civil liability, a linkage with the remunerations of large companies’ (i.e., +1,000 employees) directors, and the public authorities’ capacity to impose sanctions.
The transition planning requirement for companies would bolster competitiveness within the EU market in line with the objectives of the Green Deal Industrial Plan. The inclusion of financial institutions would channel investments towards sustainable business practices and contribute to financial stability. However, liabilities and due diligence would not apply to the whole value chain, as it excludes the emissions and negative environmental impacts from the final use of the products and services. Moreover, the absence of a “science-based targets” provision is a missed opportunity for clarity of interpretation.
The text will have to be approved in the plenary of the European Parliament, expected in June, and maintain its ambition during the trilogue negotiations with the Council later this year. It will be crucial to ensure that this level of ambition is kept throughout the legislative process and that regulatory coherence is guaranteed with the Corporate Sustainability Reporting Directive (CSRD), the Capital Requirement Directive and Regulation (CRD/CRR) and the EU Climate Law, so that it contributes positively to a robust EU transition finance framework.
Quotes – Transition plans for companies in the EU
Jurei Yada, EU Sustainable Finance Program Leader at E3G said:
“Today, we’re closer to requiring climate transition plans for the private sector. Credible plans will help close critical data gaps and embed climate risk assessment in financial operations. They will also enhance sectoral competitiveness by identifying bottlenecks for the transition and opportunities for innovation and investment.”
Tsvetelina Kuzmanova, Senior Policy Advisor at E3G said:
“The Parliament’s support to aligning business models and company strategies with the Paris commitments is a clear win for climate action. However, robust, science-based decarbonisation targets for the whole value chain, tied to executives’ pay are key, and are unfortunately largely missing.”
Pietro Cesaro, Researcher at E3G said:
“Establishing a credible transition finance framework in the EU market is necessary for our competitive journey towards climate neutrality. The CSDDD will help hold companies accountable throughout the implementation of their transition.”
– ENDS –
Available for comment
- Tsvetelina Kuzmanova (EN, BG, KR), Senior Policy Advisor, EU Sustainable Finance. +32 (0) 483 989 651, tsvetelina.kuzmanova@e3g.org
- Pietro Cesaro (EN, IT, ES, FR), Researcher, EU Sustainable Finance. +32 (0) 492 11 38 67, pietro.cesaro@e3g.org
Notes to Editors
- E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G
- For further enquiries email press@e3g.org or phone +44 (0)7783 787 863
