First Things First: What is the CSDDD?

The Corporate Sustainability Due Diligence Directive (CSDDD) is a comprehensive piece of legislation designed to enforce respect for human rights and the environment across entire supply chains. Unlike previous sector-specific or voluntary due diligence laws in some EU member countries, the CSDDD establishes mandatory requirements for a broad range of companies, ensuring a unified approach to corporate sustainability in the EU.

‍

Who is Affected?

The CSDDD applies to both EU-based and non-EU companies operating within the EU. Specifically, it targets:

‍

• EU companies with more than 500 employees and a turnover exceeding €150 million.
• EU companies with over 250 employees and a turnover over €40 million, if 50% of their revenue comes from high-risk industries like fashion, minerals, or agriculture.
• Non-EU companies meeting the same turnover thresholds, with revenue generated in the EU.

‍

Approximately 13,000 EU companies and 4,000 non-EU companies are expected to fall under the directive’s scope. Notably, the financial sector is currently excluded from the CSDDD, despite existing sectoral guidelines from the OECD (Organisation for Economic Co-operation and Development).

‍

What must Companies Do?

Under the CSDDD, companies are required to:

‍

1. Identify Adverse Impacts: Recognize significant environmental and human rights impacts within their operations, subsidiaries, and supply chains.
2. Mitigate Risks: Implement an action plan and timeline to address identified risks.
3. Establish Grievance Mechanisms: Provide channels for workers and stakeholders to raise concerns.
4. Align with Climate Goals: Ensure business strategies are in line with the 1.5°C target of the Paris Agreement, particularly for larger companies.
5. Public Reporting: Report on their due diligence efforts through sustainability reports or website disclosures.

‍

Implementation Timeline

Following the formal adoption of the CSDDD, EU member states will have two years to transpose the directive into national law. The application of requirements will be phased in:

‍

• By 2027 for companies with over 5,000 employees and a €1.5 billion turnover.
• By 2028 for companies with over 3,000 employees and a €900 million turnover.
• By 2029 for companies with over 1,000 employees and a €450 million turnover.

‍

Enforcement and Monitoring

National supervisory authorities will enforce compliance through several measures:

‍

• Investigations and Inspections: Authorities can investigate and inspect companies suspected of non-compliance.
• Administrative Sanctions: Non-compliant companies may face fines up to 5% of their annual global turnover.
• Civil Liability: Individuals and organizations can file claims for compensation if adversely impacted by a company's failure to meet the directive’s requirements.

‍

Looking Ahead

The CSDDD represents a significant step towards embedding responsible business practices across the EU. It aims to harmonize due diligence standards, creating a level playing field for all companies operating in the EU market. As member states work to transpose the directive into national law, businesses should begin preparing to meet these new requirements and contribute to a more sustainable and responsible global economy.

‍

For more insights and updates on how the CSDDD and other regulations impact your business, follow our LinkedIn and Twitter pages or subscribe to our newsletter! 💚🌍

‍