The Corporate Sustainability Due Diligence Directive (CSDDD)

The proposal will help companies address the adverse impacts of their actions within the EU and outside. Developing and implementing prevention action plans, obtaining contractual assurances from their direct business partners, and subsequently verifying compliance will be necessary. The CSDDD and the CSRD are closely interrelated. They also complement the SFDR and the Taxonomy Regulation.

This harmonized legal framework within the EU protects human rights, increases trust in businesses, improves risk management and adaptability, and helps companies be more transparent about their negative impacts on the environment.

Corporate Due Diligence Duty:

It is the company's responsibility to identify, stop, prevent, mitigate and account for negative human rights and environmental impacts in its own operations, subsidiaries, and value chains. As part of the Paris Agreement, certain large companies also need a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C.

The necessary steps for companies are:

• integrate due diligence into their policies (Article 5);
• identify actual or potential adverse human rights and environmental impacts (Article 6);
• prevent or mitigate potential impacts (Article 7);
• bring to an end or minimize actual impacts (Article 8);
• establish and maintain a complaints procedure (Article 9);
• monitor the effectiveness of the due diligence policy and measures (Article 10);
• publicly communicate on due diligence (Article 11).

Scope (Article 2):

• Group 1: 500+ employees and net EUR 150 million+ turnover worldwide. (~ 9.400 companies affected)
• Group 2: 250+ employees and net EUR 40+ million turnover worldwide, provided at least 50% of this turnover was generated in a high-impact sector.  (e.g. textiles, agriculture, extraction of minerals). For this group, the rules start to apply two years later than for group 1. (~ 3.400 companies affected)
• Group 3: non-EU companies that generate a net turnover of more than EUR 150 million in the EU in the last financial year.
• Group 4: non-EU companies that generate a net turnover of more than EUR 40 million in the EU, provided at least 50% of worldwide turnover was generated in a high-impact sector.
• SMEs: Micro companies and SMEs are not concerned by the proposed rules. However, the proposal provides supporting measures for SMEs, which could be indirectly affected.

Enforcement (Article 17-21):

• Administrative supervision: the member states have to designate the supervising authority and choose appropriate sanctions (including fines). On EU level, there will be a European Network of Supervisory Authorities bringing together national representatives.
• Civil liability: the member states have to make sure that the victims of their failure to comply are properly compensated.

We don't know what the final Corporate Sustainability Due Diligence Directive will look like or when it will be implemented. What is clear, however, is that at some point in the near future, companies will need to implement human rights and environmental due diligence to all the entities in their organization – plus their supply chain. Moreover, they will need to demonstrate to external stakeholders that they have done so. As member states await the final version of the EU's Corporate Sustainability Due Diligence Directive, they are poised to implement their own versions of the Directive on a national level.