Update On The European Supply Chain Directive

• Published date: 01 April 2024
• Subject Matter: International Law, Export Controls & Trade & Investment Sanctions
• Law Firm: Littler Mendelson
• Author: Sabine Vianden and Lars Kussmann

On March 15, 2024, the EU member states voted in favor of the European Supply Chain Directive (Corporate Sustainability Due Diligence Directive - CSDDD) in the EU Committee of Permanent Representatives (COREPER) after a long back-and-forth. The vote, originally scheduled for February 9, 2024, had been initially canceled and postponed indefinitely. The reason for this was that numerous member states - including Germany - had already announced their abstention from the vote in advance. The final version of the directive is less burdensome for companies compared to the previous draft. While the full text of the directive has not yet been published, the key provisions are already known. This article provides an overview.

What is the European Supply Chain Directive?

Representatives of the European member states, the European Parliament, and the Commission had already agreed on key points of a European Supply Chain Directive as part of a trilogue¹ procedure on December 14, 2023. This directive is intended to obligate companies in the EU to ensure environmental, sustainability, and social standards along their value chains. This responsibility would affect the entire upstream value chain (resource extraction, production at suppliers) and downstream value chain (processing at customers, disposal). Further content relates to the implementation of the goals of the Paris Climate Agreement in the companies covered, e.g., by making management salaries dependent on the achievement of certain climate targets.

Under the earlier draft directive, European companies with more than 500 employees and a worldwide net turnover of 150 million euros per year and non-European companies with an annual turnover of 150 million euros within the EU fell within the scope of the directive. The earlier draft had also established that companies with more than 250 employees and a global net turnover of more than 40 million euros would also fall within the scope of the directive's application, provided that at least half of this turnover came from one of the listed "high-risk sectors" (textiles, agriculture, forestry, fisheries, raw materials production and trade). The directive did not apply to companies in the financial sector, at least for the time being.

According to the outcome of the trilogue negotiations, companies found to be in violation of the directive could face fines of up to 5% of their global turnover. Another sanction proposed was exclusion from public procurement contracts...