Update on the Corporate Sustainability Due Diligence Directive

4 May 2023
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Key Takeaways:
  • The European Council and the European Parliament’s Committee on Legal Affairs have adopted negotiating positions on the European Commission’s proposed Corporate Sustainability Due Diligence Directive. The directive will introduce obligations for EU companies, and non-EU companies operating within the EU, regarding actual and potential human rights adverse impacts and environmental adverse impacts with respect to their own operations and those of their subsidiaries and other entities in their value chain. The directive is expected to be formally adopted in 2024.
  • The European Council’s draft narrows the scope of the due diligence obligations from the Commission’s full life-cycle “value chain” approach to a more limited “chain of activities” that excludes the use of a company's products by its consumers and leaves it up to the Member States to decide whether regulated financial undertakings (including fund managers) shall be included in the scope of the directive. In addition, the Council’s proposal deletes the director’s duties introduced by the Commission.
  • The Parliament Legal Committee’s draft reverts to the Commission’s “value chain” approach and includes regulated financial entities (including funds and fund managers) but limits the scope of the directive with respect to regulated financial entities by providing that their due diligence obligations extend only to the activities of clients that directly receive financial services from the in-scope entity. The proposal introduces an obligation for institutional investors and fund/asset managers (and possibly the funds which they control) to take appropriate (and proportionate) measures to induce their investee companies to bring actual adverse impacts caused by them to an end.