Sustainable Value Chains Directive approved. Less companies will be affected

The Council of the European Union has approved a significantly reduced version of the Corporate Sustainability Due Diligence Directive (CSDDD), which, compared to the original proposal, only requires a limited number of companies to identify and address human rights and environmental impacts in supply and supply (or value) chains. The new rules are estimated to affect around 0.05% of companies in the EU. The European Parliament will vote on the Directive in April.

"The Belgian Presidency of the Council has succeeded in adopting a unified approach towards greater sustainability and avoiding exploitation in global value chains. It has thus managed to avoid a situation where companies operating across the EU would have to comply with disparate national legislation, but the cuts in the text of the Directive leave a bitter aftertaste. As a result of their limited scope, they are likely to reduce the positive impact on people working in companies' supply chains and call into question the reliability and legitimacy of standard EU decision-making processes," comments Julie Otten, Policy Officer at Frank Bold.

The content of the Directive is based on the principles of corporate due diligence as defined in the international standards of the UN and the OECD. The document thus provides rules for identifying and assessing negative environmental and human rights impacts in companies' own operations, their supply chains and business relationships and for avoiding, preventing or reducing the identified impacts.

Companies will therefore need to identify and address negative impacts throughout their supply chain and also with direct partners distributing their services and products (the original proposal covered the entire supply chain). The Directive also provides a list of measures to help companies choose the appropriate approach to address the problems identified.

In the approved version of the Directive, the obligation for companies to implement Climate Transition Plans (also decarbonisation plans) in line with the requirements of the CSRD has been retained. Despite its considerable limitations, the Directive represents a first step towards more sustainable supply chains for companies operating in the EU.

Although only a fraction of companies will be directly affected by the CSDDD, the due diligence system itself is crucial for all companies wishing to profile themselves in ESG. As well as being one of the frequent requirements for sustainable finance, it is also part of the mandatory reporting under ESG standards - it is an important input for materiality assessment and will also need to inform the due diligence in the report.

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