On April 24th, the European Parliament approved the CS3D Directive (Corporate Sustainability Due Diligence Directive). The initiative aims to establish mandatory legal criteria for corporate diligence with the goal of promoting sustainability, particularly focusing on environmental preservation practices, addressing climate change, and protecting human rights, also encompassing suppliers and subsidiaries.
The CS3D directive is part of a series of European rules and laws that have been approved in recent years and are aligned with the Green Deal, the European Green Deal, launched in 2019. The Green Deal was created with the aim of promoting energy transition in European countries to achieve climate neutrality by 2050.
Since the launch of the Green Deal, the European Commission has been developing mechanisms to eliminate net greenhouse gas emissions, finance the green transition, and encourage collaboration between public and private sectors to achieve these goals.
In summary, policies include efforts in combating deforestation, investing in environmentally sustainable activities, mitigating risks in value and supply chains, and imposing taxes on imports. All changes should gradually be incorporated by trading partners, including Brazilian companies, which can be done through the preparation of periodic reports indicating the sustainable measures adopted, under penalty of responsibility in case of non-compliance.
This effort, therefore, should be reflected in international operations and legal relations with European countries, in order to meet the established standards and advance global climate justice.
Understanding the CS3D Directive
The Corporate Sustainability Due Diligence Directive (CS3D) requires large European companies and companies doing business in Europe to act to prevent and mitigate negative impacts on human rights and the environment in their operations and value chains, especially focusing on discussions about climate justice.
Who does it apply to?
- EU companies with more than 1,000 employees and global revenue exceeding €450 million as of 2027.
- Foreign companies operating in the EU and generating net revenue exceeding €450 million in the EU, regardless of the number of employees.
- Indirectly, this directive will impact all supplier and global customer companies that do business with these EU companies.
What do companies need to do?
- Implement a due diligence process to identify, assess, and prevent negative impacts on human rights and the environment (including compliance with international human rights and environmental standards, often stricter than local legislation).
- Adopt action plans to mitigate identified negative impacts.
- Monitor and periodically review their due diligence processes and action plans.
- Publish annual reports on their due diligence processes.
Sanctions for non-compliance:
- Fines of up to 5% of annual global revenue.
- Obligation to repair damages caused by non-compliance with obligations.
When does it come into effect?
- Starting from 2027 for larger companies.
- Starting from 2028 for smaller companies.
Remarks
- The Directive is a significant milestone in promoting corporate sustainability and human rights.
- Companies will need to adapt to meet the new requirements.
- The Directive may have a significant impact on global value chains.
