The new European Corporate Sustainability Due Diligence Directive (CSDDD) and legal entities under public law

Implementation of the CSDDD

On 24 April 2024, the European Parliament adopted the adapted version of the proposed Corporate Sustainability Due Diligence Directive (CSDDD) after the European Council approved the text of the CSDDD on 15 March 2024 (see the article here). As the CSDDD is seen as an EU-wide "supply chain directive", particularly from the perspective of the Federal Ministry for Economic Affairs and Climate Protection (BMWK) (see the article here in German), the question arises in this context as to whether legal entities under public law, similar to the German Supply Chain Duty of Care Act - LkSG (see the article here in German) will fall within its scope of application.

Scope of application of the CSDDD

In addition to information on the number of employees (1,000) and the company turnover (EUR 450 million (net) worldwide), Article 2 (1) (Scope) of the CSDDD states that it applies to companies which are formed in accordance with the legislation of a Member State or, in accordance with Article 2 (2), to companies which are formed in accordance with the legislation of a third country.

Article 3 (Definitions) of the CSDDD contains the definition of an undertaking. According to the CSDDD, this is a legal entity that has been established in one of the legal forms listed in Annex I and Annex II of Directive 2013/34/EU or is categorised as a regulated financial and insurance undertaking. In this respect, Annex I of Directive 2013/34/EU lists the public limited company, the partnership limited by shares and the limited liability company for Germany. Annex II of Directive 2013/34/EU names the general partnership and the limited partnership for Germany.

For companies from third countries, these must be comparable to those in Annexes I and II of Directive 2013/34/EU.

Since legal entities under public law are not named in the wording of the CSDDD, they are likely to be excluded from the scope of the CSDDD.

Transposition of the European CSDDD Directive into the national law of the EU member states

It should be noted that, unlike regulations (e.g. the General Data Protection Regulation (GDPR)), European directives such as the CSDDD do not apply directly in the individual EU member states but must be transposed into national law by them. Directives are addressed to the member states themselves and oblige them to implement them within a certain period. In Germany, a European directive is usually implemented by passing a law that reflects the content of the directive. This can also take the form of adopting the wording of the entire directive or individual sections. In this respect, it is also possible to integrate the directive into existing legislation (this has been done, for example, in sales law with the so-called Sale of Goods Directive (WKRL) Directive 2019/771). Finally, in individual cases, implementation can also take place without any specific action on the part of the legislator if national law already complies with the requirements of the directive.

Regarding the transposition deadline, the EU member states must adopt and publish the necessary legal and administrative provisions in accordance with Article 30 (1) (Transposition) of the CSDDD no later than two years after the CSDDD comes into force. 

In comparison to the existing German LkSG, it should be noted that the CSDDD is stricter in many areas than the existing national LkSG, so that action by the German legislator will be necessary in this respect (see here in German).

As the legislator is also free to adopt stricter regulations when implementing EU directives than the transposed EU directive provides for, it remains to be seen how the CSDDD will be implemented in Germany. In this respect, it is possible that the legislator will implement the provisions of the CSDDD that go beyond the existing LkSG unchanged and retain the other national provisions, so that this may also be decisive for the inclusion of legal entities under public law in the scope of the above-mentioned directive.

Key takeaways

According to the wording of the CSDDD, legal entities under public law are not included in its scope of application. However, as the EU member states are permitted to include stricter regulations than those specified in the directive in their national regulations, it remains to be seen how the German legislator will organise the personal scope of application. It is likely that the regulations on the scope of application of the Supply Chain Due Diligence Act will remain in place, meaning that the CSDDD will also apply indirectly to legal entities under public law.