CS3D - Requirements for April 2024 Version
Perceived as an EU supply chain act, CS3D requires associated companies to conduct human rights and environmental due diligence and to integrate such due diligence into their management systems (including risk management and business operations systems). Mandatory due diligence identifies, addresses, prevents and mitigates adverse impacts on human rights and the environment, and establishes a legal basis for these companies to be held accountable for breaches of these obligations. The companies concerned are required to review not only their own activities, but also those of their subsidiaries or business partners along the value chain.
In addition, the Directive obliges the associated companies to adopt and implement a transition plan for climate change mitigation through best efforts.
Major Changes
As compared to the December 2023 version, the requirements of the CS3D have been reduced.
- The regulation applies to companies with 1,000 employees and a net turnover of €450 million (global net turnover of EU companies and net turnover generated in the EU by non-EU companies);
- The downstream part of the "series of activities" is limited to business partners carrying out activities for or on behalf of the company, with indirectly related companies no longer falling within the scope of the regulation;
- Remove the obligation to promote the implementation of the Climate Transition Plan under the Paris Agreement through financial incentives.
Transition period
Depending on the sizes, the associated companies shall gradually implement the obligations set out in the CS3D in stages:
- Companies with more than 5,000 employees and a turnover of €1.5 billion become applicable after a 3-year transition period;
- Companies with more than 3,000 employees and a turnover of €900 million, after a transition period of 4 years;
- for companies with more than 1,000 employees and a turnover of €450 million, after a transition period of 5 years.
For non-EU companies, the benchmark for the number of employees does not apply and is based on the turnover they generate in the EU.
Relevant companies' Preparation
If the CS3D comes into force, the obligations on companies will come into force at the earliest within the next 3 years, and companies need to start preparing their compliance work as early as possible. In addition, it cannot be ruled out that some large companies will require their suppliers to impose similar obligations on sub-suppliers in their terms of business. It is therefore important that other companies in the supply chain keep abreast of the developments in this legislation and the commercial requirements of the companies concerned.
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