May 28, 2024
Source: LSE
Photo Source: Unsplash,
Last week, the long-delayed Corporate Sustainability Due Diligence Directive (CSDDD) was approved by the Council of the European Union. Ian Higham, Catherine Higham and Joana Setzer discuss the implications for companies and climate action in an evolving context that a year ago also saw climate-related updates to the OECD’s voluntary Guidelines for Multinational Enterprises on Responsible Business Conduct.
When the European Commission announced, back in February 2022, it was adopting a proposal for a Directive on corporate sustainability due diligence, its reception seemed broadly positive. The announcement followed requests in 2020 and 2021 from the Council and European Parliament to develop this legislation, which makes certain climate change responsibilities legally binding for companies. Earlier this spring, however, key Member States nearly withdrew their support, but they reached a deal in March and the Parliament adopted a revised text of the Directive on 24 April. Now, with formal approval given by the Council last Friday, 24 May, Member States will have two years to transpose the Directive into national law.
The CSDDD goes beyond requirements delineated in similar national legislation, such as in France and Germany, by explicitly including provisions on climate change. Although these earlier laws required companies to assess and mitigate their potential impacts on human rights and the environment through due diligence processes and may implicitly cover climate change, they do not expressly refer to climate change in the text.
The scope of the Directive includes companies with more than 1,000 employees and annual turnover exceeding €450 million. They will now be required to adopt transition plans that align with pathways to limit warming to 1.5°C in accordance with the goals of the Paris Agreement.
These requirements are among the first legally binding rules to require what some scholars refer to as corporate ‘climate due diligence’, a concept we unpack further in a new study co-authored with Dr Ekaterina Aristova published on 17 May in International & Comparative Law Quarterly. While the CSDDD enshrines corporate climate due diligence requirements in law, other voluntary governance initiatives and soft law instruments complement and may support implementation of the Directive, including recent changes to the Organisation for Economic Co-Operation and Development (OECD) Guidelines for Multinational Enterprises on Responsible Business Conduct, the focus of our study. Here we draw on our main findings to explore the implications of this evolving landscape of regulation on climate change.
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