European Union legislators have today failed to reach an agreement on the Corporate Sustainability Due Diligence Directive (CS3D).
The law, which was provisionally signed off in December, is intended to increase corporate accountability for environmental and social harms caused by business activities. It requires large companies to conduct due diligence on firms within their supply chains, and to publish climate transition plans, among other things.
But it has faced last-minute pushback from key European member states – primarily Germany and Italy, which have been leading efforts to block the proposal. Germany was the first major state to announce that it would abstain from the final vote, under pressure from minority German coalition party the FDP.
In response, a string of investors groups, NGOs and politicians have come out in support of the plans.
European responsible investment body Eurosif has described the directive as “groundbreaking”, saying it would “help companies better manage their sustainability risks and mitigate and address negative impacts on people and the planet”.
Speaking to IPE last month, Hazell Ransome, a senior policy analyst at the Principles for Responsible Investment, said the rules could reduce portfolio risks for investors and increase transparency around companies’ sustainability performance.
Ambassadors at Coreper have been scheduled to sign off on the final legal text a number of times in recent weeks, but the vote has been repeatedly postponed as the Belgian Presidency of the European Council struggled to find enough consensus among members.
Just before today’s vote, France caught observers by surprise when it reportedly proposed a reduction in the number of companies covered by the Directive – from those with more than 500 employees, to those with more than 5,000. Around 80% of companies would potentially be removed from scope under that plan.
But, based on the positions that member states expressed, the Belgian Presidency failed to secure a qualified majority at the meeting, This meant the vote did not go ahead.
In a statement on social media, it confirmed the outcome, adding: “We now have to consider the state of play and will see if it’s possible to address the concerns put forward by member states, in consultation with the European Parliament.”
Time is fast running out, though. With European elections coming up this summer, the text would need to be renegotiated and approved in the next fortnight for European Parliament to have time to vote on it in this legislative window.
Speaking about the decision, Richard Gardiner, head of EU policy at the World Benchmarking Alliance, said: “In 15 years following EU legislation, this is one of the messiest and most disappointing processes I have ever witnessed.”
“We started off with a simple goal of bringing about an EU Green Deal, yet where we have ended up is member states pushing national self-interests and intentionally disrupting any attempt to form a consensus. CSDDD is a significant piece of legislation that needs meaningful member state dialogue – otherwise we will be faced with yet another watered down “green law” and a further bolstering of the anti-ESG agenda.”
Read the digital edition of IPE’s latest magazine
No comments yet