Sustainability Rulebook: The Corporate Sustainability Due Diligence Directive

What is the CS3D?

The Corporate Sustainability Due Diligence Directive (CS3D) entered into force on 25 July 2024. This Directive will require large companies to establish due diligence procedures to address adverse impacts of their actions on human rights and the environment, including along their chains of activities worldwide. The aim is to counter the most harmful forms of corporate behaviour and to introduce sustainability considerations in companies’ operations and corporate governance.

The CS3D is part of the European Green Deal – a set of policy initiatives by the European Commission with the overarching aim of making the European Union's climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels, and climate-neutral by 2050. Together with existing regulations and other regulatory initiatives such as the Corporate Sustainability Reporting Directive (CSRD) or the EU Taxonomy Regulation, the CS3D represents a further step towards sustainable business under uniform European conditions.

Who is covered?

The CS3D imposes specific due diligence obligations on companies that for two consecutive financial years meet the following criteria:

• EU companies with a minimum of 1000 employees and a net worldwide turnover of a minimum of 450 million euros.
• Non-EU companies with a turnover of a minimum of 450 million euros in the Union.
• Companies (EU or non-EU) that enter into franchising or licensing agreements in the EU in return for royalties with independent third-party companies, where these agreements meet certain criteria and where the royalties amount to more than 22.5 million euros and the companies have a net worldwide turnover (for EU companies) or EU turnover (for non-EU companies) of more than 80 million euros. All the above thresholds also apply to ultimate parent companies (EU or non-EU) of a group where the group reaches the above thresholds even where the ultimate parent companies do not themselves meet the above thresholds.

What are the obligations?

All companies within the scope of the Directive will have to implement risk-based due diligence measures to identify, end, prevent, mitigate and account for negative human rights and environmental impacts of their actions. For instance, due diligence would imply developing and implementing so-called “prevention action plans”, including by obtaining contractual assurances from direct business partners, and subsequently verifying compliance. Companies covered by the directive would need to ensure due diligence not just regarding their own operations, but also regarding the activities of all entities in their chains of activities with which they have direct and indirect business relationships.

Companies will also have to develop a transition plan for climate change mitigation to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement and the EU Green Deal. Companies that identify climate change as “a principal risk for, or a principal impact of,” their operations will have to include emissions reduction objectives in their business plans. This plan must be updated every 12 months.

The due diligence policy will have to be developed in consultation with the company’s employees and stakeholders. Companies will also have to establish an accessible complaint mechanism, monitor the effectiveness of their due diligence measures and publish an annual statement on their website on the matters covered by the Directive.

In order to provide support to companies or to Member State authorities on how companies should fulfil their due diligence obligations, the European Commission may issue general guidelines and guidelines for specific sectors or specific adverse impacts in consultation with Member States and stakeholders such as the European Union Agency for Fundamental Rights, the European Environment Agency, the European Labour Authority and where appropriate with international organisations and bodies having expertise in due diligence. The Commission is also establishing a single helpdesk to provide information, guidance and support to companies on how to fulfil their obligations.

What human rights and environmental impacts are covered?

For due diligence, the CS3D aligns with the main international human rights and environmental law standards. However, it only covers those rights and prohibitions specifically listed in Annex I to the proposal as well as any human rights risks that are foreseeable.

The list includes a range of labour rights, the prohibition of interference with freedom of thought, conscience and religion, and the right to freedom of association, assembly, the rights to organise and collective bargaining. Although freedom of expression is not explicitly listed, it would presumably still fall within the scope of due diligence of any media organization given its operational context.

The list also includes certain violations of international environmental law concerning, for instance, the handling, collection, storage and disposal of waste, or the use of biological resources that could have adverse impacts on biodiversity.

Note that the CS3D does not cover the entire range of sustainability or ESG (Environmental Social Governance) standards. The latter include, for instance, considerations of diversity and inclusion or anti-corruption, but would not be covered by the CS3D.

How will the new rules be implemented and enforced?

Following the publication of the Directive in the Official Journal of the European Union, Member States have two years to transpose CS3D’s requirements into national law. The obligations foreseen in the Directive will start applying within 3, 4 or 5 years, depending on the size and turnover of the companies:

•  In 2027 for EU companies with over 5000 employees and a worldwide turnover of more than 1500 million euros, and non-EU companies generating a net turnover of more than 1500 million euros in the EU.
• In 2028 for EU companies with over 3000 employees and a worldwide turnover of 900 million euros and non-EU companies generating a net turnover of more than 900 million euros in the EU.
• In 2029 for all remaining companies within the directive’s scope.

The CS3D will be enforced at Member State-level, through two enforcement mechanisms: administrative supervision and sanctions, and civil liability.

• Administrative supervision and sanctions: Member States would designate an authority to supervise, require information, carry out investigations and impose administrative sanctions, including fines and compliance orders. At the European level, the Commission will set up a European Network of Supervisory Authorities that will bring together representatives of the national authorities to ensure exchange of information and a coordinated approach. Natural and legal persons would be entitled to submit “substantiated concerns” to any supervisory authority alleging that a company is failing to comply.
• Civil liability: Member States will ensure that victims have access to compensation for damages resulting from the companies’ failure to comply with their due diligence obligations.

The CS3D doesn't apply to me - why should I care?

Many PSM will not be covered by the CS3D because they are public entities. While not required to implement due diligence procedures, Members could still be affected in virtue of their direct or indirect business relationship with the relevant companies. Concretely, in-scope companies that deal with PSM might ask for contractual assurances and subsequently verify compliance. Members might also choose to establish due diligence procedures on a voluntary basis because they provide an opportunity to strengthen their legitimacy and the trust of their audiences by leading on these issues. Violations of human rights or environmental law resulting from failures of due diligence risk significantly harm PSM’s reputation, its relationship with audiences and other stakeholders, and its authority to hold others accountable.

Contact details

Sophia Wistehube
Legal Counsel
Legal & Policy
wistehube@ebu.ch

Sofia Nobre
EU Policy Adviser
Legal & Policy
nobre@ebu.ch