EU Corporate Sustainability Due Diligence Directive (CSDDD)

The European Union (EU) has always been at the forefront of encouraging corporate responsibility and sustainability. Continuing this trend, the EU parliament approved the Corporate Sustainability Due Diligence Directive (CSDDD) in 24 April 2024. The directive aims to ensure that companies take proactive measures to respect human rights and mitigate environmental impacts within their operations and supply chains.

What is the CSDD Directive?

The CSDD Directive is a piece of legislation designed to enforce respect for human rights and the environment throughout the entire supply chain of businesses. Although several EU member countries have due diligence legislation in place, these laws are typically voluntary and often sector-specific or only address single aspects such as child labour. The CSDD Directive aims to bring a more comprehensive and mandatory approach to corporate sustainability in the region.

Who falls under the scope of the CSDDD?

The CSDDD will directly apply to both EU and non-EU companies.

For EU-based companies, the directive applies to those with more than 500 employees and a turnover exceeding €150M. Alternatively, companies with over 250 employees and a €40M turnover also fall under the directive, provided that 50% of their revenue comes from high-risk industries like fashion, minerals, or agriculture.

Non-EU companies operating within the EU also fall under the scope of the CSDDD. This includes third-country companies active in the EU that meet the turnover thresholds aligned with the above-mentioned groups, with the revenue being generated in the EU, irrespective of whether they have a branch or subsidiary in the region.

The financial sector has been excluded from CSDDD (for now at least), despite being included in the existing sectoral OECD guidance.

The European Union (EU) expects the Directive to directly impact around 13,000 companies within the EU and approximately 4,000 outside the EU.

What will companies need to do?

The CSDD Directive mandates that companies falling under its scope:

1. Identify the principal adverse impact on the environment and human rights resulting from their operations, subsidiaries, and supply chains.
2. Mitigate identified risks within their operations and supply chain, supported by an action plan and a timeline to address the identified risks.
3. Establish grievance mechanisms for workers and stakeholders to raise issues if they arise.
4. Align their business model and strategy with the 1.5°C target of the Paris Agreement, specifically for large companies.
5. Publicly report on their due diligence via a sustainability report or website.

What's next?

The EU Parliament approved the CSDDD on 24 April 2024. 

This vote concludes a four-year process of negotiations and debates, marking a major political breakthrough and a turning point for human rights and environmental due diligence. 

The CSDDD must be formally approved by the EU Ambassadors on May 15 and EU Ministers on May 23 before it can officially enter into force.

Once formally adopted, the CSDDD will be ready for publication in the EU Official Journal, and then Member States will have two years to transpose the CSDDD into domestic law. Previously, it was anticipated that the requirements would begin to apply to the most prominent companies by 2027 and be phased in for additional companies in the subsequent two years (2028 & 2029). However, the voting delays will likely extend this timeline.

Looking to stay ahead of the curve and ensure your company meets the requirements of the EU's CSDD Directive? Click here to book a demo with Plan A today and let us guide you towards a greener, more sustainable, and compliant future.