ESG: Directive 2024/1760 on Corporate Sustainability Due Diligence
On May 24, 2024, the Council approved the final version of the Corporate Sustainability Due Diligence Directive "CS3D" or the "Directive").
The CS3D establishes binding due diligence obligations that require the companies to which it applies to identify, assess, prevent, monitor, mitigate, eliminate and remedy, where appropriate, potential or actual adverse human rights and environmental impacts caused by their business activities. These are real obligations that require concrete actions.
These obligations are not limited to the activities of the company itself, but extend to those of its subsidiaries and of the group's business partners in their activity chains. The chains of activities include both the activities of the business partners upstream in the production of the good or supply of services (upstream) and downstreamin distribution, transportation and storage (downstream).
Failure to comply with these obligations may result in the imposition of sanctions by a national supervisory authority to be established in each Member State and civil liability claims against companies for damage caused to third parties.
This regime of binding obligations and administrative and civil liabilities represents a fundamental change with respect to the framework that existed until now , which consisted of voluntary market standards, international soft law instruments , rules adopted by some Member States and rules of the European Union regarding certain raw materials and products associated with deforestation and forest degradation . The CS3D therefore aims at harmonization between the countries of the European Union and at promoting legal certainty for companies and represents an explicit recognition of the need to go beyond the structure of voluntary action that has governed until now and that does not seem to be sufficient in the opinion of the European legislator.
Furthermore, the CS3D requires, in addition to the due diligence obligations mentioned above, the approval by companies of a climate change mitigation transition plan to achieve compatibility of their business models with the 1.5°C global warming limit of the Paris Agreement and the goal of achieving climate neutrality.