CS3D and CSRD: Agreement by the end of 2023
Challenges and opportunities for companies
The Corporate Sustainability Due Diligence Directive (CS3D) is just around the corner!
The trilogue talks between the European Parliament (EP), the European Council and the Commission on the Corporate Sustainability Due Diligence Directive (CS3D) have come to an end, with very interesting agreements that will be both challenging and opportunity-rich for companies. However, it is crucial to emphasize that this agreement stands before the final revision of the directive text and approval by the Parliament and the Council.
The most important points of the provisional agreement are listed below:
- Scope of application:
The CS3D will apply to companies with more than 500 employees and a worldwide net turnover of at least €150 million. Additionally, non-EU companies will be subject to the directive if they have a net turnover of €300 million in the EU within three years of the regulations coming into force.
- Exemption for the financial sector:
Currently, the financial sector is exempt from the provisions of CS3D. However, this exemption will be reviewed in the future.
- Transition plan:
Companies that fall within the scope of CS3D will be required to draw up a transition plan. The purpose of this plan is to ensure that a company’s business model and strategy are aligned with the goals of transitioning to a sustainable economy and limiting global warming to 1.5°C to stay in line with the Paris Climate Agreement. Achieving climate neutrality is another important goal.
Regarding sustainability reporting, the focus is on specifying the reporting requirements of the Corporate Sustainability Reporting Directive (CSRD) through the European Sustainability Reporting Standards (ESRS). These standards are binding for all companies covered by the CSRD and contain implicit duties to act and corporate governance requirements. Examples of these are:
- Disclosure of climate action plans, water and marine resource management strategies and biodiversity targets, if these are relevant to the company. This requires the active involvement of corporate bodies.
- Disclosure of the persons responsible for sustainability-related tasks on the Management Board and Supervisory Board, which emphasizes the importance of sustainability expertise in these bodies.
Overall, the CS3D and CSRD go beyond the mere regulation of supply chains and reporting.
As the Directive moves ever closer to finalization and adoption, it will be critical for affected companies to prepare for the changes and ensure alignment with the evolving regulatory landscape. Stay tuned for more updates on this important initiative.