Europe continued its leadership in sustainability policy with the approval of the Corporate Sustainability Due Diligence Directive (CS3D) late last week. The new policy requires companies to identify and mitigate adverse environmental and social impacts in their supply chains. 

While this directive was expected to be finalized back in January, support faded as the backlash against over-regulation in Europe grew. After 45 days of intense negotiations, a majority of EU member states approved a substantially modified version of the policy. An 11th-hour switch from Italy was enough to get the ‘qualified majority’ of over 15 member states, representing more than 65% of the EU population. 

Here are the key aspects:

Phased in applicability: 

• 2027: EU companies with > 5,000 employees and global revenue > €1.5 billion; Non-EU companies with a net EU revenue > €1.5 billion.
• 2028: EU companies with > 3,000 employees and global revenue > €900 million; Non-EU companies with a net EU revenue of > €900 million.
• 2029: EU companies with > 1,000 employees and global revenue > €450 million; Non-EU companies with a net EU revenue of > €450 million.

RELATED ARTICLE: Tim Mohin – SEC Climate Disclosure Rule Fallout: the Good, the Bad, and the Ugly

Due diligence obligations:

• A due diligence policy will have to be established in consultation with employees
• Identify, assess, and prioritize adverse impacts 
• Address and remediate adverse impacts 
• Engage with stakeholders for the identification and mitigation of adverse impacts
• Establish a grievance mechanism 
• Ongoing monitoring of the effectiveness at least every 12 months and after significant changes or new risks emerge.
• Publish an annual statement on due diligence on matters unless they are covered by reporting under the Corporate Sustainability Reporting Directive
• Retain documentation for at least five years
• Fines of up to 5% of companies’ global revenue can be levied for noncompliance

The bill passed its next hurdle on Tuesday with a lot less duress, clearing The European Parliament’s Legal Affairs Committee by a 20-4 vote. It will now go onto a full plenary vote in Parliament in April, where it is expected to easily pass.

This Smart Read article is contributed by Tim Mohin, Global Sustainability Leader, BCG. Every week ESG News delivers smart commentary from ESG practitioners and experts to unpack issues of the week. Submit your ESG Smart Read to editor@esgnews.com

To get Tim Mohin’s full ESG and climate newsletter, subscribe here.

Tim Mohin

Tim Mohin is weekly smart read contributor to ESG News. Tim is globally recognized sustainable business executive. He is a partner and director for the Boston Consulting Group (BCG) in climate and sustainability.

Prior to BCG, Tim was the EVP and Chief Sustainability Officer with leading carbon accounting software company – Persefoni . He is the former Chief Executive of the Global Reporting Initiative (GRI), the world’s largest sustainability reporting standard.

He brings more than 20 years’ experience leading sustainability functions at three Fortune 500 companies – Intel, Apple and AMD – Tim has deep experience developing strategies to embed sustainability into business. Tim also led the development of environmental policy in the Environmental Protection Agency and the United States Senate, including the Clean Air Act. He is a sustainability advisor to the Financial Conduct Authority of the United Kingdom, the Board of BASF, Workiva and others. Previously, Tim was a founder and Chairman of the Board for the Responsible Business Alliance.

He is the author of Changing Business from the Inside Out and a frequent speaker and writer on sustainability and corporate responsibility. Tim writes a weekly ESG Newsletter, and is one of LinkedIn’s 2022 Top Voices in the Green Economy. He is consistently recognized in the top 20 of Corporate Social Responsibility Influence Leaders.