European Union member states have approved the Corporate Sustainability Due Diligence Directive (CS3D), removing a pledge to review the law’s application to the finance sector.
A vote by ambassadors in the European Council this morning saw Italy and France among the member states to support a revised proposal, after weeks of uncertainty and pushback.
The result was achieved by reducing the ambition of the text provisionally agreed in December by Council, Parliament and Commission.
The new version covers companies with more than 1,000 employees – double the original proposal – and more than €450m in turnover.
The law will be phased in more gently, too: it’s likely to be at least seven years before it applies to all in-scope companies.
The original agreement caused uproar because it exempted the financial sector from some of the obligations, on the basis that undertaking due diligence on portfolio companies and loan books would be overly complex and ineffective at mitigating environmental and social harms.
However, co-legislators had promised through a Joint Political Statement to review the inclusion of finance in coming years. This commitment was deleted from the text agreed by Council today.
In an unusual series of events, the final vote on CS3D – generally understood to be merely a procedural confirmation of the provisional agreement – has been blocked and postponed multiple times in recent weeks, as key member states fought to return to the drawing board with the plans.
Some politicians and industry players, particularly in Germany, argued that the rules would be overly burdensome for businesses.
Isabella Ritter, EU policy officer at campaign group ShareAction, said the vote “marks a watershed moment” but that the last-minute concessions “have substantially reduced the scope of what the CS3D could have achieved”.
“Slashing by more than half the number of affected companies that the legislation will apply to severely undermines its original intentions,” she said, adding that the delay in phasing the rules in means “we are unlikely to see tangible results for almost a decade”.
The law now needs to pass a final vote by the European Parliament. The outcome of that vote still remains uncertain, given the extent of the amendments made in recent weeks.
Speaking at a press conference earlier this month, Lara Wolters, Dutch member of European parliament and rapporteur for the CS3D, said Council’s last-minute pushback “shows a flagrant disregard for the European Parliament as a co-legislator”.
A committee-level vote is expected soon, followed by a vote at a parliamentary plenary session at the end of April.
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