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CSDDD: Corporate Sustainability Due Diligence Directive 

Preparing for Compliance with the EU Directive

Note: Further CSDDD developments – where the directive failed to receive final approval – were announced on 28th February 2024. You can read about what happened here.

The Corporate Sustainability Due Diligence Directive (CSDDD) is an upcoming European Union (EU) directive designed to enhance responsible business practices and ensure compliance with human rights, social, and environmental standards. In this article, we will delve into what the CSDDD entails, its current status and timeline, and how companies can prepare for its implementation. 

 

What is the CSDDD?  

The CSDDD is a proposed EU directive inspired by the French “loi de vigilance” and the German Supply Chain Sourcing Obligations Act (LkSG). Its primary objective is to address environmental impacts, including obligations relating to the protection of biodiversity, endangered species and the ozone layer, and human rights obligations along supply chains by requiring companies to identify, assess, and mitigate such risks. Large companies will be required to define a plan to ensure that the company’s business model and strategy are compatible with the transition to a sustainable economy and the limitation of global warming to 1.5 degrees celsius in accordance with the Paris Agreement. If climate change is identified as a major risk or impact of the company’s operations, the company should also include emissions reduction targets in its plan. 

The CSDDD proposal includes the provision for penalties of up to 5 percent of global sales for violations. 

 

What companies have to comply with CSDDD? 

Under the proposed directive, companies with more than 250 employees and a global turnover of over 40 million euros would be subject to the requirements. This contrasts with the previous draft, which set the limits at 500 employees and 150 million euros. To accommodate different company sizes, staggered transition periods of up to five years are suggested.  

 

CSDDD Status and Timeline 

As of 2023, the CSDDD has made significant progress in its legislative journey. On June 1st, the majority of Members of the European Parliament (MEPs) voted in favor of strengthening the original legislative proposal put forth by the EU Commission. This move signals a significant step toward shaping the directive’s final form. 

Right now, the CSDDD is in the trilogue stage, where representatives from the European Parliament, the European Commission, and the European Council negotiate to reach a consensus on the final version of the directive. While an exact CSDDD timeline cannot be determined, a decision in the EU trilogue is expected in the near future. Once agreed upon, the directive will proceed towards implementation, and companies will be required to comply with its provisions. 

 

How to Prepare for the CSDDD 

Given the significance of the CSDDD for companies operating within the EU, proactive preparation is crucial. Here are a few steps businesses can take to ready themselves for compliance: 

  • Assess Supply Chain Sustainability: Conduct a thorough analysis of your supply chain to identify potential risks related to child labor, slavery, labor exploitation, pollution, environmental degradation, and loss of biodiversity. Implement measures to mitigate these risks and ensure responsible sourcing practices. 
  • Enhance Transparency and Reporting: Establish transparent reporting mechanisms throughout your supply chain that cover procurement practices, working conditions, environmental impacts, and efforts to prevent human rights abuses. Regularly communicate and disclose this information to stakeholders such as investors, customers, and society. 
  • Align with Climate Goals: Develop a comprehensive plan that aligns your business model and corporate strategy with the transition to a sustainable economy and the goal of limiting global warming to 1.5 degrees Celsius, as outlined in the Paris Agreement. Consider setting emission reduction targets if climate change is identified as a material risk or impact of your corporate activities. 

 

Summary of the CSDDD directive 

The Corporate Sustainability Due Diligence Directive represents a significant step toward ensuring responsible and sustainable business practices within the EU and the EUs supply chains. With the CSDDD’s status progressing and its timeline advancing, companies must proactively prepare for compliance. By assessing supply chain sustainability, enhancing transparency and reporting, and aligning with climate goals, businesses can position themselves to meet the requirements of the CSDDD and contribute to a more sustainable future. 

If you want to learn more about European Sustainability reporting obligations, click here

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