Today (1st June 2023), the European Parliament (EP) voted in favour of the Corporate Sustainability Due Diligence Directive (CSDDD), marking a further step towards establishing environmental and human rights due diligence obligations for EU companies.
- Companies with over 250 employees will be required to develop transition plans for their businesses aligning with pathways to limit warming to 1.5°C.
- Financial institutions will also play their part by conducting due diligence and transition planning — a necessary step to incentivise a swifter transition.
- Directors could have their pay linked to achieving climate targets in transition plans, although they will not hold legal responsibility in setting up and overseeing the due diligence process of their own companies.
Parliament’s position on CSDDD, as voted in Plenary today, is an important step towards holding all large market players accountable for their human rights violations and harmful environmental impacts. With 366 votes in favour and 225 against, the proposal of the Parliament’s Legal Affairs Committee passed. Last-minute amendments and attempts to water down the text failed to gather support among MEPs.
A significant wave of opposition from businesses and financial institutions did not diminish political will on corporate sustainability regulations in the European market. The CSDDD requires the financial sector to conduct due diligence obligations to the same level as other industries. This is an important step in establishing a level playing field for the European clean market and holding polluting financiers accountable.
Connecting executives’ pay to achieving climate targets in companies’ transition plans will incentivise taking climate transition seriously and a more long-term approach to doing business. However, a last-minute amendment approved today removed directors’ obligations from the text, and they will no longer be accountable for carrying out due diligence. This leaves room for legal uncertainty and a lack of accountability for directors’ mismanagement.
Interinstitutional negotiations kick off today, with the expectation of reaching a political consensus by the end of the year, under the Spanish presidency of the European Council. If a political agreement is reached during trilogues, the rules would mandate transition planning and due diligence requirements – initially for larger companies with over 1000 employees, and broadening over four years to eventually include all companies with over 250 employees.
Jurei Yada, Programme Leader, EU Sustainable Finance, said:
“The European Parliament has shown its commitment to protecting people and planet with today’s vote on due diligence. The result is cause for celebration. But some votes showed how seriously certain business lobbies had targeted the outcome. The next step will be to maintain the text through the trilogue. If we get this right, the CSDDD will help align business models and company strategies with Paris goals and improve the EU’s long-term competitiveness in the process.”
Tsvetelina Kuzmanova, Senior Policy Advisor, EU Sustainable Finance, said:
“It is a truly historic moment for making industries and financial institutions play their part in protecting people and the planet. Given the recent anti-ESG movement in the US and political pressure on investors’ net zero pledges, the EU is stepping up to lead the way in financial regulation.”
Pietro Cesaro, Researcher, EU Sustainable Finance, said:
“The CSDDD Parliament position represents the first step towards the design of a broader EU transition finance framework. All regulations speak to each other, and the CSDDD must do so as well. While we are waiting for an EU definition of “transition investment”, the CSDDD must stay consistent with other EU reporting rules for businesses.”
Available for comment
Tsvetelina Kuzmanova (EN, BG, KR), Senior Policy Advisor, EU Sustainable Finance
m: +32 (0) 483 989 651 firstname.lastname@example.org
Pietro Cesaro (EN, IT, FR, ES), Researcher, EU Sustainable Finance
m: +39 3495416186 email@example.com
Notes to Editors
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