On 24 May, the Council of the European Union (hereinafter referred to as the "Council") officially approved the Corporate Sustainability Due Diligence Directive (hereinafter referred to as the "CS3D"), European Parliament and Council Directive (EU) 2024/1760 which imposes obligations on large companies to mitigate their negative impact on human rights and the environment. The approval comes a month after the European Parliament approved CS3D, completing a long and complicated decision-making process. CS3D is part of a recent wave of EU legislation on sustainable and responsible business and may directly or indirectly affect a number of Norwegian companies.

CS3D was originally proposed by the European Commission on February 23, 2022. This directive is closely linked to the Corporate Sustainability Reporting Directive ("CSRD", Directive 2022/2464/EU), which requires transparency on CS3D-related topics. Implementation of the CSRD into Norwegian law is planned by 5 July 2024, as stated in our March 2024 newsletter.

The directive, which has now been officially approved by the Council, has a narrower scope compared to the Commission's original proposal. As described in our April 2024 ESG Alert, the thresholds for the application of the directive have been increased to 1,000 employees and a global turnover of €450 million for EU companies, and to €450 million EU turnover for non-EU companies. CS3D is expected to affect only 0.5 % of European companies, representing around 5,400 companies, compared to around 9,000 companies covered by the Norwegian Transparency Act.

CS3D introduces two main obligations: companies must conduct risk-based human rights and environmental due diligence, and they must adopt and implement a climate transition plan. This plan is to ensure that the business model and strategy are compatible with the transition to a sustainable economy and with the goal of limiting global warming to 1.5°C, in line with the Paris Agreement. Failure to comply with obligations may be sanctioned by fines and civil liability.

After signing the CS3D by the President of the European Parliament and the President of the Council, the directive will be published in the Official Journal of the European Union. It takes effect on the twentieth day after publication. EU member states will be obliged to transpose the directive into their national law within two years of its entry into force. In Norway, due to the consideration of CS3D as relevant to the European Economic Area (EEA), alignment with the Norwegian Transparency Act is likely to be necessary after the implementation of the Directive. The scope of the directive will be gradually expanded and will not be fully applied until five years after its entry into force. (More on consilium.europa.eu)