CSDDD: Corporate Sustainability Due Diligence Directive

The Corporate Sustainability Due Diligence Directive (CSDDD) establishes a corporate duty to identify, prevent, mitigate, and account for adverse human rights and environmental impacts in a company's operations, its subsidiaries, and its chain of activities.

Scope: Who is Caught?

Following intense political negotiations that narrowed the scope, the directive applies to:

• EU Companies: With more than 1,000 employees and a net worldwide turnover of over €450 million.
• Non-EU Companies: Generating a net turnover of over €450 million in the EU, regardless of employee headcount.
• Franchises: Companies with franchising/licensing agreements in the EU generating over €22.5m royalties and €80m net turnover.

The Due Diligence Obligation

Companies must integrate due diligence into policies and risk management systems. The obligations cover the 'chain of activities' (upstream supply chain and downstream distribution/transport/storage, but excluding the usage of the product by consumers).

The required steps align closely with OECD guidelines:

1. Integrate due diligence into corporate policies.
2. Identify actual and potential adverse impacts (e.g., forced labor, child labor, pollution, biodiversity loss).
3. Prevent and mitigate potential impacts.
4. Bring to an end actual adverse impacts.
5. Establish and maintain a complaints procedure.
6. Monitor the effectiveness of the due diligence policy and measures.
7. Communicate publicly (aligned with CSRD reporting).

Climate Transition Plans

Distinct from the supply chain due diligence, companies must adopt and put into effect a transition plan for climate change mitigation. This plan must aim to ensure, through best efforts, that the business model and strategy are compatible with the transition to a sustainable economy and limiting global warming to 1.5°C in line with the Paris Agreement.

Civil Liability and Enforcement

The most consequential aspect of CSDDD is the introduction of civil liability. Companies can be sued in European courts by victims (including trade unions or NGOs acting on their behalf) for damages caused by the company's failure to prevent or halt adverse impacts.

Timeline

The directive applies progressively based on company size: starting in 2027 for companies with >5000 employees/€1.5bn turnover; 2028 for >3000 employees/€900m; and 2029 for all other companies in scope.