Following extensive negotiations, the Council of the European Union (EU) formally adopted the Corporate Sustainability Due Diligence Directive (the CS3D) on 24 May 2024.  Once fully implemented, both EU and non-EU companies, as well as their ‘upstream’ and ‘downstream’ value chains (or “chain of activities”), will be subject to mandatory human rights and environmental oversight.  

Once implemented, CS3D will have important consequences for South African companies that form part of the chain of activities or that generate a large part of their net turnover in the EU.

CS3D requires affected companies to conduct risk-based due diligences of their human rights and environmental compliance.  Where actual or potential risks are identified, companies must address these risks and establish action plans to monitor, assess and mitigate those risks going forward. Companies must also assess and address the risks posed by their chain of activities, which can be either:

  • Upstream: the business partners that supply the company with the goods and services needed to conduct its business (minerals being a prime example); or
  • Downstream: the business partners that fulfil the company’s distribution and logistics functions.

South African companies will likely need to implement measures similar to those mandated by CS3D in the near future, as affected companies are likely to require contractual undertakings from their upstream and downstream business partners as part of their risk mitigation programs.

Local companies will be required to conduct due diligence audits and implement action plans that comply the UN Guiding Principles and, where the company subscribes to it, the UN Global Compact. Both standards require companies to assess their compliance with international human rights standards, employment law best practices, environmental compliance, and commitments to anti-bribery and corruption.  Human rights due diligence is an expansive concept and will require local companies to assess and address any risks in their own supply chains.

Affected companies must implement a climate transition plan containing a strategy for limiting global warming, in line with the Paris Accord, and attaining climate neutrality targets.

CS3D is intended to be implemented in phases, with larger companies being required to comply by 2027, and all other affected companies by 2029.  To achieve uniform application across the EU, EU member states have two years to bring their local legislation in line with CS3D.   

There are significant penalties for companies that intentionally or negligently breach human rights and environmental obligations:

  • Civil remedies will be available to affected rights holders.  These remedies may be extended to business partners in the chain of activities.
  • EU member states must create a supervisory authority to assess affected companies’ compliance with CS3D obligations and can order non-compliant companies to take remedial action, as well as impose fines of up to 5% of a company’s net worldwide annual turnover.

South African companies that are required to establish a Social and Ethics Committee are already obliged to give consideration to the UN Global Compact Principles.  This is an ideal opportunity for local companies doing business in the EU to implement human rights and environmental due diligence strategies before mandatory implementation is required.

Norton Rose Fulbright South Africa Inc assists clients in conducting human rights due diligences and welcomes any queries regarding CS3D.