Navigating the Corporate Sustainability Due Diligence Directive (CSDDD): Discover the CSDDD’s impact on businesses and join our 5 September 2024 webinar for insights and compliance resources!
The Corporate Sustainability Due Diligence Directive (CSDDD) marks a transformative approach to corporate responsibility in the EU. Enacted to address environmental and human rights issues, this legislation will reshape how large businesses manage their due diligence across their operations and supply chains.
What's the CSDDD About?
The CSDDD requires substantial companies operating in the EU to embed due diligence practices aimed at mitigating and addressing adverse impacts on human rights and the environment. This obligation extends to their own activities, subsidiaries, and business partners, covering both upstream and downstream operations.
Who Needs to Comply?
The directive applies to:
Large EU Companies: Limited liability firms and partnerships.
Non-EU Companies: Those with net EU turnovers exceeding €450 million, provided this threshold is met over two consecutive years.
Compliance deadlines are phased based on company size:
Over 5,000 Employees: Three years from the directive’s entry into force.
Over 3,000 Employees: Four years.
Over 1,000 Employees: Five years.
Smaller companies will likely be impacted indirectly through their relationships with larger firms, although the directive does not directly target them.
Timeline and Implementation
After receiving approval from the EU Parliament in April 2024 and adoption by the EU Council in May 2024, the CSDDD is poised for publication. It will come into force 20 days post-publication, with Member States granted two years to integrate the directive into national laws.
Impact on Non-EU Companies
Non-EU firms should check if their net EU turnover exceeds the €450 million threshold. Those that do will be subject to the CSDDD directly. Even if not directly covered, these companies might face pressure to comply from their EU partners. A Swiss study highlights that many companies could be affected indirectly through their EU-based counterparts.
What Will Be Required?
Companies must:
Embed Due Diligence: Revise policies and contracts to include due diligence measures.
Assess and Mitigate Impacts: Identify and address negative impacts on human rights and the environment.
Improve Practices: Invest in strategies to mitigate adverse effects and integrate these into business plans.
Monitor and Report: Implement systems to track and report on due diligence efforts.
Transition Plans: Align practices with the Paris Agreement's climate goals.
Defining Adverse Impacts
The directive addresses:
Human Rights: Violations related to life, liberty, security, and fair working conditions.
Environmental: Issues like pollution, deforestation, and excessive resource consumption.
Consequences of Non-Compliance
Sanctions for non-compliance must be significant and proportionate, potentially reaching 5% of global turnover. Member States will also publicly name non-compliant companies, which could impact their reputation.
Preparing for Compliance
Steps to take:
Determine Scope: Verify if your business falls under the CSDDD.
Gather Data: Collect information on operations and supply chains.
Conduct Gap Analysis: Identify and address discrepancies between current practices and CSDDD requirements.
Allocate Resources: Ensure you have adequate resources to meet due diligence demands.
Focus on:
Impact Assessment
Mitigation Measures
Monitoring Tools
Communication
What About Smaller Companies, Including SMEs? Are They Exempt?
While the CSDDD primarily targets large firms, smaller companies and SMEs are not entirely exempt. They may still be indirectly affected by their involvement in larger companies' supply chains. The term “chain of activities” includes many upstream and some downstream elements, meaning SMEs working with larger firms must be aware of how their operations align with CSDDD requirements.
What’s Next?
Engage with partners early to establish compliance terms. Although the EU Commission will issue guidance on model clauses, companies can begin negotiations ahead of its publication. For those also covered by the Corporate Sustainability Reporting Directive (CSRD), coordination will help streamline efforts and prevent overlap.
Join Our Webinar
Register for our live webinar on 5 September 2024 to navigate these changes effectively. We’ll provide expert insights and practical strategies for compliance.
Additional Resources
Recorded Webinar: Available for download.
Slides & Briefing Note: Access our detailed 20+ page briefing note and presentation slides.
Audio Version: Listen to a summary of the directive.
Conclusion
The CSDDD represents a crucial development in corporate accountability. Early preparation and proactive engagement will ensure your business is well-positioned to meet these new standards.
Comments