10 things to know about the Corporate Sustainability Due Diligence Directive

As a company director operating in the EU, you must get up to speed on the Corporate Sustainability Due Diligence Directive – the CSDDD.

It’s no secret that ‘sustainability‘ goes beyond climate change and that businesses can contribute to environmental protection and human rights issues.

Under the EU’s Corporate Sustainability Due Diligence directive, companies must identify and mitigate their [actual and potential] environmental and human rights impacts.

Read more: Prepare for the CSDD directive by taking a Diploma in ESG.

1: Under the Corporate Sustainability Due Diligence Directive, EU and non-EU companies operating within the EU must consider their environmental and social impact and their suppliers’ impact.

2: EU member states have two years to transpose the CSDD directive into national legislation.

3: The directive will initially affect EU-incorporated firms with 500+ employees and a turnover of more than €150 million within the last financial year; and companies with 250+ employees with a net turnover of more than €40 million in the previous financial year if at least 50 per cent of this was generated in a high-impact sector. High-impact sectors include textiles, clothing, mineral extraction, agriculture, forestry, fishing or metal manufacturing.

4: Organisations must identify and prevent environmental and human rights risks through due diligence. They should assess their operations’ and supply chain’s environmental and human rights impacts.

5: Firms should mitigate any risks discovered during due diligence. Policies and procedures must be developed and implemented to address identified risks and engage with suppliers to resolve any issues.

6: Organisations must be open about their due diligence procedures to lower their environmental and human rights risks. This could involve releasing a yearly sustainability report.

7: Organisations need to establish effective reporting channels for employees and stakeholders to report issues and for those issues to be addressed and followed up on. This could entail establishing a hotline or email address for reporting and a procedure for looking into and responding to such concerns.

8: Your company’s suppliers and third parties are frequently a significant internal and external source of risk, which is why thorough screening and auditing systems are crucial. To identify and prevent threats to the environment and human rights, organisations are required under the CSDD directive to perform due diligence on their suppliers and business partners.

9: In the event of supply chain disruptions – whether from contractual violations, failures to preserve ethical business practices or delays in manufacturing or delivery – it is imperative to prepare and manage business continuity.

10: The CSDD directive has measures for enforcement, fines, and other punishments for non-compliance. Failure to manage environmental and human rights concerns in operations and supply chains can lead to legal action through national supervisory authorities, reputational harm, business loss, and diminished brand value.

The European Commission presented the CSDD proposal in February 2022, and it is currently pending approval from the European Parliament and Council.

This is a procedure that can take up to a year.

Following this, member states have up to two years to implement the directive into national law.

Given these dates, the CSDD directive, like the CSRD, is anticipated to become required around 2025-2026.

These dates, however, cannot be verified unless the proposal is approved by the European Parliament and Council.

The Corporate Sustainability, Due Diligence Directive, will affect businesses around the world.

In essence, the CSDD directive is there to challenge businesses that have poor environmental, social and governance (ESG) practices.

In the coming years, laws and regulations governing business responsibility are projected to become more stringent due to climate change and a volatile geopolitical environment.

Whether or not your company operates in the EU, businesses and board members worldwide will likely experience pressure from their various regulators, governments, and customers to accept responsibility for their activities as a company and fully understand their ESG obligations.