Corporate Sustainability ' Sharing The Green Deal Burden

JurisdictionEuropean Union
Law FirmBird & Bird
Subject MatterCorporate/Commercial Law, Environment, Government, Public Sector, Corporate and Company Law, Environmental Law, Human Rights, Climate Change
AuthorMs Pauline Kuipers, Sander Wagemakers and Paul Waszink
Published date13 March 2023

In February 2022, the European Commission published a proposal for the Corporate Sustainable Due Diligence Directive (CSDD-proposal) as part of its European Green Deal action plan. The CSDD-proposal fits in the context of the UN Guiding Principles on Business and Human Rights (UNGP) and OECD Guidelines for Multinational Enterprises.

The CSDD-proposal lays down rules on obligations for large companies regarding actual and potential adverse impacts on human rights and the environment, with respect to their own operations, those of their subsidiaries, throughout their global supply chain.

Regarding the reduction of hazardous anthropogenic climate change, the CSDD also requires a climate reduction plan. Recital 50 of the CSDD provides: "In case climate isor should have beenidentified as a principal risk for or a principal impact of the company's operations, the companyshouldinclude emissions reduction objectives in its plan." In addition, Article 7 and 8 of the CSDD obliges companies to take preventive measures, as well as to end activities that result with an adverse climate change impact. Furthermore, Article 15 of the CSDD includes a requirement to adopt a plan that ensures that the company's business model(s) and strategy(/ies) are compatibility with the transition to a sustainable economy and the limiting of global warming to 1.5°C in line with the Paris Agreement. The plan should, in particular, identify the extent to which climate change is a risk for, or a result of, the company's operations. If risks are, or should have been, identified, the company must include emission reduction objectives in its plan. Furthermore, the variable remuneration of directors should be linked to the achievement of the plan if ESG aspects are taken into account in the remuneration.

Furthermore, the CSDD-proposal not only imposes environmental and human rights due diligence monitoring for both EU-based and non-EU companies but also imposes a combination of administrative enforcement and civil liability to ensure overall compliance.

The CSDD Directive is proposed to apply two main groups of companies, based in the EU:

  • Group 1 - large EU limited liability companies that on average employ more than 500 people and whose worldwide annual net turnover surpasses euro (EUR) 150 million.
  • Group 2 - other EU limited liability companies that do not reach these two thresholds, but which operate in certain high-risk sectors (for example, the garment, agriculture and food manufacturing...

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