The Corporate Sustainability Due Diligence Directive (CSDDD) is a legislative initiative by the European Union that imposes mandatory human rights and environmental due diligence practices on in-scope companies.
To comply, companies must identify, prevent, mitigate, and account for negative human rights and environmental impacts within their operations, subsidiaries, and value chains.
The CSDDD, also known as the CS3D establishes a standard for corporate due diligence on sustainability matters and introduces a legal liability framework concerning environmental and human rights violations within their supply chains.
The CSDDD is part of the EU Green Deal, which aims to make the EU economy more sustainable. It complements other directives such as the Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR).
The Commission proposed the draft of the CSDDD in February 2022. After prolonged negotiations and numerous amendments, a final watered-down version of the Directive was adopted by the European Parliament in April 2024 and is expecting approval by member states representatives next month.
Scope
The directive applies to both EU-based companies and non-EU companies operating within the EU.
The implementation of obligations under the CSDDD will be phased in gradually over a period of time. It will commence approximately three years after the directive enters into force (around 2027) and extend up to five years after (around 2029).
In the final negotiations (Feb-March 2024) of the Council Text, the reporting requirements were significantly decreased, resulting in fewer companies being directly impacted compared to earlier drafts. The high-risk sector approach, which put companies operating in industries prone to human rights or environmental conflicts in scope regardless of size was removed. It also excluded product disposal activities from the scope of the law and removed the requirement for companies to promote the implementation of climate transition plans through financial incentives.
Who is reporting
EU Companies with more than 1 000 employees (up from 500) and a net worldwide turnover exceeding EUR 450 million (up from EUR 150 million), or an ultimate parent company of a group meeting these thresholds.
Non-EU Companies with a net turnover surpassing EUR 450 million in the EU/EEA, or an ultimate parent company of a group meeting such criteria.
The CSDDD allows for compliance through group-level due diligence obligations, provided that essential information is shared between the parent and subsidiary, and the subsidiary adheres to the parent's due diligence policy, integrating it into its own policies.
Holding companies with no active operational or management roles can seek exemption and designate a subsidiary to fulfill CSDDD obligations.
Requirements
Companies falling under the scope of the CSDDD are mandated to:
Identify and mitigate principal adverse impacts on the environment and human rights within their operations and supply chains.
Establish grievance mechanisms for workers and stakeholders.
Align their business models and strategies with the 1.5°C target of the Paris Agreement, particularly for large companies.
Publicly report on their due diligence efforts through sustainability reports or websites.
Timeline
The Directive was adopted by the European Parliament in April 2024. Member states will now have two years to transpose the CSDDD into domestic law. Companies are expected to start applying the requirements by 2025 or 2026.
How can we help?
Whether you are a reporting company or a small company looking to start reporting sustainability to meet customer requirements, you can reach out to us.
Contact us at info@u-impact.com.