The EU’s Corporate Sustainability Due Diligence Directive (CS3D), published on 5 July 2024, comes in a context where corporate responsibility and sustainability are crucial. Social pressure and demand for transparency have led the EU to create a regulatory framework to ensure responsible practices in business operations and supply chains, as bad practices can seriously affect human rights and the environment.
Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859Text with EEA relevance.
The Directive establishes binding due diligence obligations requiring companies to identify, assess, prevent, monitor, mitigate, eliminate and remedy potential or actual adverse human rights and environmental impacts caused by their business activities, those of their subsidiaries and business partners.
It also obliges affected companies to develop a climate transition plan. Companies must implement a plan to mitigate climate change by aligning their business model with a sustainable economy and limiting global warming to 1.5°C, according to the Paris Agreement.
Timing of implementation of the Directive on corporate sustainability due diligence
Please note the following dates for the adaptation of the Corporate Sustainability Due Diligence Directive CS3D.
- Entry into force: 25 July 2024. 20 days after publication.
- Transposition into national law: 26 July 2026. Member States will have 2 years to transpose the directive into national law.
- Gradual Implementation by Companies: Companies will begin to implement the provisions of the standard gradually from 26 July 2027.
Scope of application
The CS3D applies to companies operating within the EU and also to those that, although not based in the region, have significant activities in the European market. This approach seeks to ensure that both large corporations and medium-sized companies properly assess and manage the risks associated with their operations, especially in high-risk sectors such as mining, agriculture, fashion and technology.
Companies incorporated in the European Union
In particular, it shall apply to undertakings which are incorporated in accordance with the law of one of the Member States and which meet one of the following conditions:
- > 450 million in the last financial year for which annual financial statements have been or should have been approved;
- Even if it has not met the above thresholds, being the ultimate parent undertaking of a group which has met those thresholds in the last financial year for which consolidated annual financial statements have been or should have been approved.
| No. of workers | Worldwide net turnover | Deadline for implementation of the Directive | Maximum date |
| > 5.000 | >1.5 billion | 3 years | 26/07/2027 |
| > 3.000 | > 900 million | 4 years | 26/07/2028 |
| > 1.000 | > 450 million | 5 years | 26/07/2029 |
Companies incorporated in a third country
It shall also apply to companies which are incorporated under the law of a third country and which meet one of the following conditions:
- Net turnover > EUR 450 million € in the Union in the financial year preceding the last financial year;
- Even if the thresholds set out in the previous point have not been met, being the ultimate parent undertaking of a group which, on a consolidated basis, has met those thresholds in the financial year preceding the last financial year.
| Net turnover in the European Union | Deadline for implementation of the Directive | Maximum date |
| >1.5 billion | 3 years | 26/07/2027 |
| > 900 million | 4 years | 26/07/2028 |
| > 450 million | 5 years | 26/07/2029 |
Franchise or licence agreements
It has concluded, or is the ultimate parent undertaking of a group which has concluded, franchise or licence agreements in the Union on a royalty-bearing basis with independent third party undertakings, where such agreements involve a common identity, a common business concept and the application of uniform business methods, if the following thresholds are exceeded:
| Royalties | Turnover | |
| Company incorporated in the EU (last financial year) | 22.5 million € > 22.5 million € | Net worldwide > €80 million |
| Company incorporated in a third country | 22.5 million € > 22.5 million € | Net in EU > €80 million |
Obligations of Companies
To comply with due diligence obligations, companies should take appropriate measures to identify, prevent, eliminate, minimise and remedy adverse human rights and environmental impacts. These measures should be proportionate to the level of severity and likelihood of the adverse impact, and reasonably achievable in the circumstances of the particular case. The nature and extent of the adverse impact, along with relevant risk factors, are critical elements for companies to consider when implementing these measures.
Companies are also obliged to engage constructively with stakeholders throughout the due diligence process. Such engagement not only fosters an open and transparent dialogue, but also enables companies to obtain crucial information about the risks and potential impacts of their operations. While companies are expected to make reasonable efforts to obtain necessary information, such as what might be considered trade secrets, they should be aware that there are circumstances where obtaining information may be difficult. If a business partner refuses to provide information and there is no legal basis to compel them to do so, companies will not be liable for the lack of information. However, they should be able to explain why they were unable to obtain it and take reasonable steps to acquire it as soon as possible.
Affecting Large Companies
The Corporate Sustainability Due Diligence Directive (CS3D) will have a notable impact on large companies, which must adapt to a more stringent regulatory framework in relation to their operational and sustainability practices. These companies, due to their size and complexity, are often involved in extensive and diverse supply chains, which makes them more susceptible to human rights and environmental risks.
Implementation Challenges
Large corporations face significant challenges in implementing CS3D obligations. The need to conduct comprehensive audits and risk assessments at multiple levels of their supply chain requires considerable effort in terms of resources and time. In addition, they must establish efficient processes to collect and analyse quantitative and qualitative data to support their impact assessments. This may include the integration of advanced technologies and the training of specialised staff.
Accountability and Transparency
Large companies are also under increased pressure from investors and society to demonstrate their commitment to sustainability and social responsibility. The CS3D requires these companies not only to identify and mitigate adverse impacts, but also to report publicly on their actions and results. This can enhance their reputation, but also entails significant reputational risk if these expectations are not met.
Leadership Opportunities
Despite the challenges, CS3D implementation offers large companies the opportunity to lead in sustainability. By adopting proactive risk management practices, these companies can differentiate themselves in the marketplace and attract consumers and investors who value social and environmental responsibility. And by establishing robust internal standards, they can positively influence their supply chains, promoting best practice across the industry.
Keeping up to date: EcoGestor Legislation
For companies seeking to comply with new obligations and keep abreast of regulatory changes, EcoGestor Legislation is a valuable tool. This service provides daily updates on current regulations, sending relevant information directly to the email addresses of its users. EcoGestor summarises legal obligations, allowing companies to easily understand the requirements they must comply with. In addition, the service is supported by specialised consultants who provide guidance on how to properly implement these obligations in the context of each company. Staying informed through EcoGestor not only facilitates regulatory compliance, but also promotes a more conscious and responsible business culture.