CSDDD: Companies cry ‘burden’ while paying out billions to shareholders

Publication

Jasper van Teeffelen

David Ollivier de Leth

25 February 2025

reading time 5 minutes

Key insights:

Companies that fall within the scope of the CSDDD are highly profitable: the average stock exchange-listed CSDDD company recorded a net profit of €695 million in 2023, of which on average €478 million was paid out to its shareholders through dividends and/or share buybacks.

In total, CSDDD companies paid out €2.9 trillion to their shareholders through dividends and share buybacks between 2014 and 2023. This represents two-thirds of their total net profits, which these companies could have also invested in research and innovation or responsible value chains.

Meanwhile, the financial cost of complying with the CSDDD – as estimated by the European Commission – would represent only 0.13 per cent of the average shareholder payouts made in 2023.

On 26 February, the European Commission will present its first ‘Omnibus proposal’, which will likely weaken(opens in new window) several EU laws on responsible business conduct and corporate accountability, including the Corporate Sustainability Due Diligence Directive (CSDDD). European Commission President Von der Leyen, heavily influenced by business lobby groups, insists these rules harm EU companies’ competitiveness and profitability.

In an analysis of 918 companies that will have to comply with the CSDDD, we found that these claims are misleading. These companies are not only highly profitable, they have increasingly paid exorbitant dividends to shareholders rather than investing in innovation or responsible value chains.

Kneecapping human rights laws

Competitiveness, competitiveness, competitiveness. European leaders talk about little else these days. Citing concerns about President Trump’s trade war, unfair competition from China, and losing the innovation race, leaders across Europe are pushing for a pro-industry policy agenda. In practice, this agenda is turning out to be a guise for deregulating the EU economy at the expense of human rights and the climate.

In November 2024, European Commission President Von der Leyen announced(opens in new window) an ‘Omnibus proposal’ to ‘streamline’ three key pieces of sustainability legislation, i.e. the CSDDD, the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy for sustainable activities. Von der Leyen claimed(opens in new window) these sustainability laws hinder the EU’s ability to compete against countries with less strict regulation, including the US and China, and create too many administrative burdens for companies. The announcement is part of a broader policy shift aimed at making the EU more industry-friendly by deregulating, heavily influenced by the report on EU competitiveness of former Italian prime minister Mario Draghi.

These claims stand in stark contrast to the financial reality of stock exchange-listed EU companies that currently fall within the scope of the CSDDD. We looked in detail at 918 European listed companies for which the required financial data was readily available. Our analysis shows that in the past ten years, their net profits and profit margins strongly increased. Two-thirds of these profits were paid to shareholders rather than invested in research and innovation.

A similar trend can be observed among the European firms in key energy transition sectors. Our recent research with Friends of the Earth Europe has shown, for example, how investment rates of energy companies have been declining between 2010 and 2024 while these companies have been increasing their shareholder payouts.

Weakening or abolishing sustainability laws serves as a distraction from real issues affecting companies’ competitiveness, including their excessive focus on generating short-term shareholder value.

Soaring profits for CSDDD companies

The companies that we analysed have become increasingly profitable between 2014 and 2023. In 2023 alone, they made a total profit of €633.7 billion, with total profits amounting to €4.4 trillion from 2014 to 2023. Their average annual profits more than doubled, rising from €342 million in 2014 to €695 million in 2023. Meanwhile, their average net profit margin (i.e. a company’s profitability relative to its revenues) grew by half, from 4.8 per cent in 2014 to 7.2 per cent in 2023.

These figures show that in the past decade, CSDDD companies have increased their profitability enormously, both in absolute and relative terms. The increased profit margin indicates that CSDDD companies have been able to extract much more profits from each euro of turnover they generate. Overall, the listed companies covered by the CSDDD are highly profitable companies that are not in financial distress or in need of rescue by the government.

Billions funnelled to shareholders

When a company records a profit, it can choose to retain that profit within the company, e.g. by investing in innovation, research, and development, or the sustainability of its operations. It can also choose to pay out part or all of its profit to its shareholders through dividend payments or by buying back its own shares. Over 90 per cent of the companies we examined paid shareholder dividends between 2014 and 2023, and 59 per cent bought back their own shares.

The average dividends a CSDDD company paid out in 2023 was €430 million, up 74 per cent from 2014.

Corporations often use share buybacks to reward their shareholders. That means companies buy back their own shares to increase stock prices and dividends per share for the remaining shares. An important added benefit is that shareholders will not be taxed on the income they generate from buybacks, as opposed to dividends.

In 2023, the average CSDDD company with a share buyback scheme spent €353 million on repurchasing its own stock. Overall, a CSDDD company paid out €478 million on average to its shareholders in 2023.

In total, the CSDDD companies spent a total of €2.2 trillion on dividends and another €735 billion on share buybacks in the past decade. This amounts to 66 per cent of their total net profits. They could have spent this money on research and innovation or preventing human rights abuses and environmental damages.

Cost of CSDDD compliance is a pittance in comparison

The European Commission has estimated(opens in new window) that the average costs for complying with the CSDDD will range between €52,200 for large companies to €643,000 for very large companies (>€5 billion turnover). An impact study(opens in new window) that was commissioned by the Dutch government has estimated that the annual recurring costs for large companies covered by the CSDDD will amount to €463,000.

Even when using the highest estimate (€643,000), annual compliance costs would still only represent 0.01 per cent of the average CSDDD company’s annual turnover and 0.09 per cent of its net profit in 2023. The compliance costs only represent 0.13 per cent of the average payout companies covered by the CSDDD made to their shareholders in 2023.

In other words, by spending just a tiny fraction of what they pay out to shareholders, companies can cover the estimated costs for complying with the CSDDD. What this means for the European Commission’s “competitiveness agenda” is that complying with CSDDD is by no means the factor that would impact EU firms’ competitiveness. What is actually harming their competitiveness is their massive payouts to shareholders instead of investing in innovation, research and development, and sustainability.

The EU must not cave to corporate pressure to deregulate

Under the guise of ‘competitiveness’, ‘simplification’, and ‘saving the EU economy’, the European Commission has embarked on an unprecedented pro-business deregulatory agenda, aiming to reverse much of the progress achieved under the previous Von der Leyen Commission.

Our analysis shows that the companies covered by the CSDDD are extremely profitable companies that have increasingly prioritised shareholder payouts over investing in innovation that enables them to remain competitive.

These corporations’ claims about the supposed cost of complying with sustainability legislation and the need for public funding for innovation stand in no proportion to the mind-boggling shareholder payouts they make.

Rather than tackling the root causes of EU competitiveness issues, the Commission has opted for an extremely harmful attack on adopted sustainability laws. While claiming to act in the interest of the EU economy, the Commission’s proposals for deregulation, in fact, serve no other purpose than letting powerful and wealthy companies continue to not take responsibility for human rights, the environment, and climate change.

Instead of paying favours to large multinational enterprises, Von der Leyen’s European Commission should focus on promoting business conduct and innovation that serves people and the planet, not profits. Rather than attempting to imitate the reckless deregulation crusade of US President Donald Trump and Elon Musk, the EU should set a clear standard for responsible business conduct and corporate accountability.

Europe should start doing so by recognising its moral obligation to right the wrongs of centuries of colonialism and capitalist destruction of the planet. An effective CSDDD can be an important step in the right direction as part of a larger set of actions to end neo-colonial EU practices, including European climate reparations to the Global South.

Secondly, the European Commission should ensure that European corporations operate in the interest of society rather than serving as an ATM for their (often American) shareholders. It is well documented how excessive profits and shareholder payouts create ‘hollow firms’, undermine investment, and stifle innovation.

SOMO, therefore, calls upon the European Commission to:

Protect the CSDDD, CSRD and EU Taxonomy
Ensure full implementation of the CSDDD, CSRD and Taxonomy legislation and avoid backtracking on agreed-upon legal texts.

Limit shareholder payouts
Introduce a ban on share buybacks to ensure companies invest their profits in innovation and responsible business conduct instead of rewarding shareholders.

About this research

The figures in this article are based on data extracted from the financial database LSEG Workstream in February 2025. The analysis focuses on 918 listed corporate groups that meet the CSDDD threshold criteria (i.e. revenues exceeding €450 million and at least 1000 employees) and for which data is readily available in LSEG Workstream. Although generally reliable, the datasets used have limitations and occasionally present inaccuracies. Insufficient data is available for privately owned companies, which is why they were not included in this analysis. All ratios in this article were weighted to the revenues of the analysed companies.

SOMO’s CSDDD Datahub shows that the CSDDD – under the current threshold – will cover approximately 3,400 corporate groups in the EU. Corporate groups that do not report at a consolidated level are not included in this figure.