Agreement on European corporate duty of care on sustainability and human rights

Our lawyers Véronique Bruneau-Bayard, Pierrick Le Goff and Bruno Deffains analyse the CS3D directive

 

The European Parliament and the Council have agreed on new rules requiring companies to integrate human rights and environmental impact into their management systems. Deciphering the CS3D directive, by Véronique Bruneau-Bayard, Pierrick Le Goff and Bruno Deffains, lawyers at De Gaulle Fleurance.

 

Companies should not underestimate the practical implications of these new rules, which affect a growing number of them. Following the CSRD directive, which established the principles of non-financial reporting, the CS3D directive marks a new milestone. Although the objectives are similar, the tools are different since one involves communication (CSRD) and the other focuses on actions (CS3D).

 

The future directive on corporate sustainability due diligence (CS3D or CSDD) will require companies i) to integrate a “duty of care” into their risk management policies and systems, and ii) to include a description of their approaches, operations and code of conduct. Companies will also have to adopt a plan to ensure that their business model is consistent with efforts to limit global warming to 1.5°C.

 

This directive is more burdensome than the French “devoir de vigilance” in 3 respects:

 

1. Its scope is much broader. Whereas the French law only concerns companies with over 5,000 employees, the Directive will apply to European Union (EU) companies and parent companies with over 500 employees and worldwide sales of over €150 million. It will also apply to companies with more than 250 employees and sales in excess of 40 million euros, if at least 20 million euros are generated in one of the following sectors: manufacture and wholesale of textiles, clothing and footwear, agriculture (including forestry and fishing), manufacture of foodstuffs and trade in agricultural raw materials, extraction and wholesale of mineral resources or manufacture of related products, and construction. The directive will also apply to non-European companies with net sales of €300 million in the EU.

These companies will have to identify, assess, prevent, mitigate, halt and remedy the negative impact of their activities on people and the planet. They will have to engage meaningfully with those affected by their actions, introduce a complaints mechanism, communicate on their duty of care policies and regularly monitor their effectiveness.

 

2. A supervisory body will be appointed. While French law makes no provision for this, the European directive states that each EU country will designate a controlling authority responsible for checking that companies comply with their obligations.

 

3. Fines may be imposed. The controlling authority will be able to launch inspections and investigations, and impose sanctions on non-compliant companies, including public denunciation and fines of up to 5% of their worldwide net sales. French law makes no provision for fines.

The financial sector is temporarily excluded from the scope of the future Directive, but a review clause will aim at a possible inclusion of this sector in the future, subject to a satisfactory impact study.

 

The draft Directive now requires the formal approval of the Legal Affairs Committee, the Parliament as a whole and the Council. Its entry into force is not expected before 2026, or even 2027.