Research finds ‘substantially’ fewer firms in scope of CS3D than previously estimated  

The number of companies required to directly implement the EU’s new sustainability due diligence law may have been significantly overstated, according to new research. 

The European Commission has previously stated that around 7,000 firms are in scope of the Corporate Sustainability Due Diligence Directive (CS3D) – 6,000 based in the EU and 900 with headquarters outside the bloc.  

But, after accounting for corporate group structures, a Dutch NGO has concluded that these numbers are significantly lower.   

If both a parent company and a subsidiary fall under CS3D, the parent can fulfil most of the subsidiary’s obligations. The subsidiary would still have certain duties, such as integrating its parent’s due diligence policies and seeking to mitigate harms, but they would be limited. 

European companies with more than 1,000 employees and more than €450m in turnover are currently captured by CS3D. Non-European firms making €450m in the EU are also covered. 

The Centre for Research on Multinational Corporations, known as SOMO, agreed with the Commission’s 7,000 estimate for companies that meet those thresholds. But, it argued, in practice, compliance falls to just 4,280 corporate groups (3,400 in the EU) when wider groups are considered. 

The research noted that several groups in scope of CS3D have more than 10 subsidiaries that also meet the thresholds of the due diligence law. 

SOMO previously estimated that less than 0.1% of EU companies would be covered by CS3D. It said its latest research indicates this figure would be even lower “in practice”.   

“Claims about the CSDDD having an enormous impact on the EU economy simply do not match the reality of the extremely small number of companies that will be within the scope of the law,” it wrote.  

The rollout of CS3D, which requires the development of a transition plan and the introduction of sustainability due diligence policies, is phased according to size, with EU firms with more than 5,000 staff and €1.5bn in global turnover going first. 

By 2027, 31% (1,341) of companies in scope will have to comply with CS3D, SOMO said, followed by 18% in 2028. The remainder have until 2029.  

There are currently discussions about delaying or reducing the scope of CS3D further as part of an EU ‘omnibus’ package.  

SOMO’s new datahub is built on data from Moody’s and the London Stock Exchange Group, among others.