Adopted on 24 May 2024 by the Council of the European Union, the CS3D (Corporate Sustainability Due Diligence Directive) introduces a Europe-wide duty of diligence. From 2027, it will gradually impose obligations on large companies with significant dispositions in the European Union, largely inspired by French provisions. This Directive, which is more far-reaching than the current provisions of the French Commercial Code resulting from the 2017-399 Act of 27 March 2017, will raise the due diligence requirements applicable to French companies and increase the number of companies covered by this scheme.
What is the Duty of Diligence?
The duty of diligence is the obligation placed on companies to prevent social, environmental and governance risks related to their activities, including their subsidiaries and business partners.
Companies concerned
The Directive significantly expands the number of companies subject to this obligation. This will affect :
- Parent companies and companies established in the European Union with an average of more than 1,000 employees and worldwide net sales of more than €450 million;
- Companies established outside the European Union with net sales in the European Union in excess of €450 million.
New Bonds
Companies will have to establish a due diligence policy to identify and assess human rights and environmental risks in their operations and supply chains. They will have to specify the actions taken to mitigate and prevent the risks identified, and set up alert and notification mechanisms, as well as monitoring systems.
The Directive expressly covers direct and indirect business partners involved upstream in the production of goods or the provision of services, as well as direct partners involved downstream in the distribution, transport and storage of products. It should be noted that service providers are not included in this second category, which excludes, in particular, financial services companies involved in downstream transactions.
Companies will also have to adopt and implement a transition plan to make their business model compatible with the objective of limiting global warming to 1.5°C set out in the Paris Agreement. They will have to publish on their website an annual statement of public information on their due diligence policies, measures and results.
Penalties
In addition to the civil liability of companies that fail to comply with their obligations, the Directive provides for financial penalties in the event of non-compliance. Member States will have to designate a supervisory authority responsible for monitoring, investigating and, if necessary, imposing penalties. Companies could face fines of up to 5% of their worldwide net sales.
Conclusion
The duty of care is therefore back in the spotlight, with the aim of strengthening corporate responsibility at European level, harmonising requirements in this area and broadening the scope of the companies concerned. The first court rulings in France have also clarified the scope of the duty of care and the conditions under which injunctive relief is admissible, underlining the growing importance of this legal framework for companies.