FAQs: The EU’s Corporate Sustainability Due Diligence Directive (CSDDD)

Post Date
18 March 2024
Author
David Fatscher
Read Time
4 minutes
  • ESG advisory

On Friday the 15th of March, a revised text of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) was endorsed by the European Council, so can now move forward to become formally adopted, subject to approval by the European Parliament and sign off by the European Commission. This new text was the subject of much negotiation and, as a result, the thresholds which determine which companies are in scope - and when - were adjusted (effectively meaning fewer will now fall under CSDDD, and there is a phased approach to those that do). However, even if your company is now no longer directly impacted by the Directive, your supply chain partners may continue to be – so, under CSDDD, you will be expected to maintain policies and put in place due diligence systems. 

What is the aim of CSDDD?

The aim of CSDDD is to establish obligations requiring businesses to identify, prevent - or at least mitigate - and finally terminate adverse impacts on human rights (such as forced labour, and inadequate workplace health and safety) and the environment (greenhouse gas emissions, biodiversity loss, waste disposal), concerning their own operations, those of their subsidiaries, and those carried out by their business partners.

How might it impact EU companies (and non-EU companies with EU operations)?

The Directive sets out thresholds (such as ‘employee numbers’ and ‘turnover in the EU’) that determine its applicability both for EU and non-EU companies. If a company falls within the scope of CSDDD, then the Directive requires the development of a due diligence policy, setting out the company’s approach to due diligence on adverse human rights and environmental impacts for which it, its subsidiaries, and its supply chain partners would be responsible. The Directive will then ensure that the company is held to account for its impact across all tiers of the supply chain, which is a departure for companies that historically have focused on the impact of their top supply chain tiers via the lens of spend.

What are the proposed thresholds that determine which companies are impacted by CSDDD, and when they are impacted?

The latest proposed Directive applies to companies meeting one of the following criteria:

  • EU companies with more than 1,000 employees and a global turnover of €450 million+
  • Non-EU companies with a turnover of €450 million+ generated in the EU market (the European Commission will publish a list of non-EU companies that fall under the scope of the Directive)

This applicability of CSDDD for in scope companies will be phased in as follows:

  • Companies with more than 5,000 employees and a turnover of €1,500 million+ will be impacted 3 years from entry into force
  • Companies with more than 3,000 employees and a turnover of €900 million+ will be impacted 4 years from entry into force
  • Companies with more than 1,000 employees and a turnover of €450 million+ will be impacted 5 years from entry into force

Have EU member states not already got such regulations in place?

Yes, some member states previously passed laws that address many of the risk areas that fall under CSDDD (for example, the Duty of Vigilance Act in France, and the Supply Chain Act in Germany) and there are also EU-wide sector- and issue-specific efforts that require forms of due diligence. However, the aim of CSDDD is to provide some harmonisation of due diligence laws to ensure the EU’s operation as a single market.

CSDDD should also be seen in the context of the UN Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises. The Directive has been developed in line with these initiatives, which both have global applicability and adoption, demonstrating that stakeholders are increasingly demanding companies to put in place credible measures to address supply chain risks.

How will CSDDD operate alongside the EU’s Corporate Sustainability Reporting Directive (CSRD)?

CSDDD demands that companies have robust systems for acting on and managing human rights and environmental due diligence. This is especially relevant if they fall under the scope of the CSRD as that Directive (effective from 2024) recommends companies conduct due diligence to assess and address material impacts for disclosure (but note that the applicability thresholds of CSDDD and CSRD are not the same).

If you require support in understanding the ‘if’, ‘how’ and ‘when’ of CSDDD, please get in touch with us today. We will continue to provide updates to these CSDDD FAQs as the Directive moves forward.

References

https://media.licdn.com/dms/document/media/D4E1FAQFYmc4_haAuyA/feedshare-document-pdf-analyzed/0/1710431679412?e=1711584000&v=beta&t=P4gZonQDN43v5Yicsbc7t3pxZboEPkEYj1uCJ92SEPE

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