The story of the profound redefinition of the content of Directive 2024/1760 of June 13, 2024 (known as “CSDDD” or “CS3D“) on companies’ duty of care for sustainability purposes, emblematically marks the retreat of the European legislature in pursuing the implementation of the Union’s priorities set out in the Commission’s December 11, 2019 communication entitled “Europe’s Green Deal.”

The first decisive step backwards was already seen in the approval of the current CS3D text. Although the agreement reached between the Council and the European Parliament[1] for the approval of the CSDDD was emphatically announced on December 14, 2023, the text agreed upon in the Trilogue turned out to be rather distant from the Proposal that the Commission submitted to the Parliament and the Council on February 23, 2022, and upon its publication on June 13, 2024 (with entry into force on July 25, 2024) the final text of the CSDDD was even more different in several significant points from the text already approved in the Trilogue.

The most attentive European political news[2] immediately pointed out the hostility of the governments of major European countries, notably Germany but then also other founding countries (Italy and France), which threatened until the last moment not to vote on the CSDDD.

Despite the significant changes that occurred in the transition from the text agreed upon in the Trilogue to the one that was then finally approved-especially in the area of corporate and directors’ liability, severe criticism from multiple sectors, governmental, institutional, representatives of organized interests[3] , even non-European stakeholders[4] , has continued to claim an alleged onerous compliance burden, prompting the Commission to revise the scope, the chronology of entry into force and the very content of the three pillars of the EU sustainability legislation: the CSRD, the Taxonomy and, for what is more properly concerned here, the CSDDD. National governments[5] have also alerted the Commission, demanding a postponement of the implementation of the CSRD and substantial changes to the CSDDD.

At the European Union level, in an effort to regain competitiveness for companies operating in the single market, a comprehensive program was drawn up aimed at closing the innovation gap with the most technologically advanced economies (the U.S. and China in particular) while ensuring the goals of decarbonization (“decarbonization and competitiveness”) and productive autonomy (“reducing excessive dependencies and increasing security”), and to this end, among other things, the need for a significant reduction in compliance has been envisaged, including with specific reference to CSRD and CSDDD[6] .   This is the effort and this is the program sealed in the Commission’s Communication on the so-called “Competitive Compass for the EU“[7] which, as far as simplification is concerned, translates into the adoption of several so-called Omnibus regulatory packages[8] of which the first is precisely the one concerning reporting on CSRD, CSDDD and Taxonomy.

The proposed changes in the Omnibus package with regard to CSDDD

The Omnibus package’s intent to simplify sustainability has resulted in the adoption of two key EU Commission proposals, 2025/0044 and 2025/0045, both dated February 26, 2025.

With regard to the CSDDD, Proposal 2025/0044 provides only for the postponement of the deadline for national transposition of the Directive, which is shifted by one year from July 26, 2026 to July 26, 2027. In addition, the obligations of the CSDDD will apply from July 26, 2028[9] for companies of Member State that in the last financial statements prior to July 26, 2028, had an average of more than 3,000.00 employees and net revenues at the global level exceeding 900,000,000 euros or for companies from third countries that had net revenues exceeding 900,000,000 euros (the number of employees being irrelevant for these companies). All other companies included in the scope of CS3D will be subject to the relevant obligations as of July 26, 2029.[10]

More significant, however, are the contents of Proposal 2025/0045, which affects the legislation in several aspects. The same postponement in Proposal 2025/0044 is justified because of the need to make substantive amendments to CS3D.

Article 4 of Proposal 2025/0045 contains, in particular, the changes regarding CSDDD.

First of all, the scope of the definition of “stakeholders” is narrowed, a limitation that, read in conjunction with the deletion of Article 29(3) on the legal standing of collective bodies representing collective interests, seems to significantly circumscribe their role. On the basis of the Commission’s proposed text, there is ample room for the national legislature to reduce the right of bring action by environmental associations or trade unions to only those cases in which the company’s actions-or its products or services-are directly detrimental to their interests.

Intra-Union regulatory harmonization is then recalibrated.

Indeed, in the current text of CS3D, a maximum level of harmonization is established that cannot be further tightened with reference only to the obligations in Article 8(1) and (2)-that is, the obligation to identify and assess actual and potential negative impacts-as per Article 10(1), which provides for the obligation of supervisory companies to prevent potential negative impacts, and as per Article 11(1), which relates to the obligation to stop actual negative impacts.

Proposal 2025/0045 now contemplates a maximum level of harmonization and thus essentially a prohibition to adopt more stringent provisions at the national level, not only for the mentioned obligation to map and assess possible negative impacts along the chain of activities nut also for the group clause in Article 6 for the purpose of fulfilling the due diligence obligation as well as for almost all the measures in Articles 10 and 11 for the purpose of preventing or halting negative impacts (potential or actual, respectively) and in Article 14 regarding the notification and complaint mechanism i.e., the procedure that ensures dialogue between the stakeholders and the company bound by the due diligence obligations.

One of the most relevant novelties of the simplification process initiated with the proposed Directive 2025/0045 is certainly the new scope  of application of the due diligence since the proposed amendment of the current Article 8(2)(b) restricts the assessment of potential and actual negative impacts only to direct business partners having to deepen this assessment only if a possible negative impact emerges or if the direct partner represents a mere fictitious subjective interposition with avoidance purposes, aimed at concealing illegal conduct of indirect partners.

The new Article 8 is intended, in accordance with the aim of reducing burdens on SMEs,  not only to circumscribe the company’s sphere of questioning to direct partners, but also to alleviate the disclosure requirements on them when they have fewer than 500 employees by providing in fact that when mapping risks, the company may not ask its direct business partners who are below this size threshold for additional information than those set forth in the  voluntary sustainability information set out in the prospective Article 29ca of Directive 2013/34, to be introduced through Article 2 of the same proposal 2025/45[11]

Another provision of the current CS3D text-which has attracted strong criticism-relates to the requirement for forced, mandatory termination of contracts with business partners in cases where this appears to be the only possible measure in order to prevent a potential negative impact or to mitigate or remedy actual negative impacts. Indeed, the concern of many companies relates to the very real possibility that a business partner may have to be eliminated from its chain of operations even though such partner is essential and not easily replaceable.  By amending Articles 10(6) and 11(7), the new CS3D would exclude the compulsory termination of the relationship with the business partner among the measures that the company is required to take[12] , (albeit as a last resort) envisaging as a remedy of last resort only the suspension of the contract/business relationship. Such suspension must be arranged after an appropriate balancing with the effects that the suspension itself would have so that contractual paralysis becomes possible only if the negative impact it would cause would be less severe than the continuation of the relationship.

With regard to consultation with stakeholders, Proposal 2025/0045 delimits the range of parties with whom the company must, for the purpose of implementing due diligence, engage in dialogue to only “relevant stakeholders.” The adjective seems to have been introduced in order to exclude the company’s obligation to interact with any entity. A clarification that seems superfluous given that the dialogue with stakeholders is aimed at mapping the risks of negative impacts, and therefore only when implementing due diligence will it be possible to verify the relevance of stakeholders’ findings. Further, based on the current text of Article 13, the company must take measures and procedures to establish dialogue with stakeholders, and the very fact that stakeholders have a right to a complaint in the event that their concerns are not given due consideration is evidence that no obligation exists to have to engage in indiscriminate dialogue with third parties.

The proposed amendments of CS3D provide also that stakeholders’ consultation would be excluded when deciding on the suspension of a business relationship, whenever this is necessary to prevent or remedy a potential or actual negative impact, respectively, both when developing quantitative and qualitative indices monitoring the activities required by the implementation of due diligence.

At to the monitoring of the due diligence activities, it is stipulated that, outside of cases of significant changes that may warrant a revision of planned measures or the emergence of new risks of negative impacts, monitoring of due diligence activities should no longer be carried out annually but every five years.

Decisive interventions are also envisaged on the part of the CS3D governing the liability of companies that violate due diligence obligations and the penalties that can be imposed in these same cases by the sector authority. The parameterization of penalties to turnover[13] is eliminated, and it is simply stipulated that maximum penalties must not be so small or rigidly predetermined as to impair the discretion of the industry authority in taking into account the principles of proportionality and other criteria for commensuration of the financial penalty or to undermine the dissuasiveness and effectiveness of the penalties.

Remarkable and profound are the changes intended to be made to Article 29 of CS3D and thus to the company’s tort liability regime for breach of due diligence obligations. The spirit of the proposed amendment is to erase the autonomous liability regime created by CS3D by replacing it with as many different liability regimes as there are Member States of the EU that will implement it in such a way abandoning any intention of harmonization and deferring to different national traditions[14]. This ends up betraying one of the fundamental reasons that had led to the adoption of the CS3D, that is, the existence in different European countries of different regulations at the national level potentially producing intra-EU competitive distortions .[15]

In particular, the elimination[16] of the obligation of Member States to endow trade unions and NGOs that protect human rights or the environment with standing to protect collective interests is envisaged, with the concrete possibility that these entities could take legal action only in the rare instances where their rights are directly affected.

The most significant change, however, as far as the liability regime is concerned, is the proposed repeal of Article 29(7), a provision that usefully provides that liability arising from breach of CS3D obligations is a rule of necessary application[17].  One can easily guess the consequent legal chaos if not the outright hollowing out of liability of the companies for breach of due diligence that would result from this proposed repeal.

It suffices only to mention that by virtue of Article 4, Reg. (EC) No. 864/2007 of the European Parliament and of the Council of July 11, 2007, on the law applicable to non-contractual obligations (so-called “Rome II Regulation”), the law applicable to torts is that of the state in which the damage occurs, regardless of where the tort is performed or where intermediate damage is produced. Since violations of the CS3D regulation and the related damage can be expected to occur normally outside the EU (precisely where this liability should mostly help), and since CS3D is the first and only regulation, to the best of our knowledge, to translate into law UN- and OECD-issued due diligence obligations, it would follow that this liability would almost never operate since it is not contemplated in other jurisdictions.  It is true that in this case various supplementary criteria of the Rome II Regulation might come into play, such as that of paragraph 3 of the aforementioned Article 4 or Article 7 regarding environmental damage (but only in that ambit) or the reference to Article 17 on the rules of conduct to be observed by the damaging party, but it is also true that these are interpretative solutions that are easily disputed, questionable, and such as to favor litigious outcomes. The significant uncertainty on the related issue of the competent forum, because of the likely concurrent liability of several claimants scattered along global value chains and of the number of jurisdictions which are likely to be involved along with that of the injured party, as well as the related problems of different regimes on the acquisition of evidence, will likely cause insurmountable difficulties in engaging in litigation of this kind, already complex and costly in itself.

The illustrated planned changes to the CS3D liability regime, seem to belie the Commission’s intention to “simplify and streamline the regulatory framework” and “increase legal certainty“[18] serving rather, at least in the area of civil liability for breach of due diligence, the purpose of complicating the regulatory framework with the not-so-hidden aim of rendering it completely inoperative and ineffective.[19]

The article in Italian is available on Diritto bancario here.

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[1] Council Press Release 1026/23; JURI press release Ref: 20231205IPR15689. Text: ST 5893/1/24 REV 1

[2]in “The European Morning Post” by D.Carretta and C. Spillmann of Feb. 5, 2024: “Germany Threatens Deal on Due Diligence in Value Chains – The new Corporate Sustainability Due Diligence Directive (CSDD) is supposed to require companies to manage risks related to human rights compliance and environmental impacts that could be generated in the activities they carry out and in the value chains in which they participate globally. But the agreement that had been reached at the “trialogue” between Council and European Parliament negotiators could blow up because of Germany’s decision not to support it, thus blowing up the new rules. The final go-ahead for the text was expected on Feb. 9 during the ambassadors’ meeting at Coreper. But on Thursday, Fdp liberal ministers announced Germany’s abstention because of their opposition to the directive, which has been criticized by businesses for the additional burdens placed on them. Without Berlin’s “yes” vote, there is a real risk that a blocking minority will form inside the Council. This is not the first time Germany has called into question an agreement reached at the trialogue. It had already happened on zero-emission vehicle standards.” See also Philip Blenkinsop, “EU stalls supply chain law after German, Italian objections,” REUTERS (Feb. 9, 2024), https://www.reuters.com/markets/europe/eu-postpones-decision-proposed-supply-chain-due-diligince-law-2024-02-09/

[3] FBF (Federation of French Banks), Confindustria and its counterparts BDI (German) and MEDEF (French), Business Europe.

[4] American Chamber of Commerce.

[5] Letter from former German Chancellor Scholz dated January 2, 2025.

[6] In this sense, the report signed by Mario Draghi, “The future of European Competitiveness,” https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en and then the “Budapest Declaration on the New European Competitiveness Deal” whose point 4 reads as follows: “Launching a simplification revolution, ensuring a clear, simple and smart regulatory framework for businesses and drastically reducing administrative, regulatory and reporting burdens, in particular for SMEs. We must adopt an enabling mindset based on trust, allowing business to flourish without excessive regulation. Key objectives to be implemented by the Commission without delay include making concrete proposals on reducing reporting requirements by at least 25 percent in the first half of 2025, and including red-tape and competitiveness impact assessments in its proposals.”

[7]h ttps://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52025DC0030&qid=1739192778009

[8] “Simplification Omnibus packages.

[9] Except for the due diligence reporting requirements of the current CS3D Article 16.

[10] Again, this is subject to reporting requirements that slip to July 29, 2030.

[11] The Commission, according to the same Article 29ca, as envisioned in Article 2 of the Proposal 2025/0045, shall provide by delegated act new sustainability reporting principles for voluntary use.

[12] Although it appears to allow the possibility of refusing a contract renewal (“refrains from entering into new or extending existing, relations with a business partner in connection with which, or in the chain of activities of which, the impact has arisen,” a provision common to Articles 10(7) and 11(7), as modified by Proposal 2025/0045)

[13] Currently, Article 27(4) of the CSDD stipulates that financial penalties must be pegged to the company’s global net turnover and that in their maximum, such financial penalties cannot be less than 5 percent of global net turnover. The repeal of the pegging of financial penalties to turnover does not imply a prohibition in this regard. On the contrary, the Commission, as explicated in recital (27) of Proposal 2025/0045, would almost seem to say that the discretion and also economic proportionality of sanctions under the current Article 27(2) CSDDD makes it unnecessary to refer to turnover as the basis for calculating the pecuniary sanction which could hardly be proportionate without taking turnover into account as a reference.

[14] See amendments to Article 29 (1), (2), (4), (5) and (7).

[15] See recital (31) of the CSDDD which states that, subject to stricter disciplines on limited points, as well: ” It is essential to establish a Union framework for a responsible and sustainable approach to global value chains, given the importance of companies as a pillar in the construction of a sustainable society and economy. The emergence of binding law in several Member States has given rise to the need for a level playing field for companies in order to avoid fragmentation and to provide legal certainty for businesses operating in the internal market..”

[16] By repealing paragraph (d) of Article 29(3).

[17] Although it should be mentioned that recital (28) of Proposal 2025/0045 expressly provides that the national legislature is free to declare CS3D legislation to be of necessary application when the applicable law is that of a third state that is not a member of the EU.

[18] As stated in the Explanatory Memorandum of the Proposal 2025/0045.

[19] Somehow, the intent to de-emphasize the liability of companies for breach of due diligence emerges from reading recital (28) which states, “To limit possible litigation risks linked to the harmonised civil liability regime of Directive (EU) 2024/1760, the specific, Union-wide liability regime currently provided for in Article 29(1) of that Directive should be removed.”