The EU Corporate Sustainability Due Diligence Directive (CSDDD) obliges companies to identify and address the negative impacts of their operations. This Directive aims to promote responsible corporate behavior and to support sustainable business practices across the European Union.
On May 24, 2024, the Council of the European Union approved Directive 2024/1760, the EU Corporate Sustainability Due Diligence Directive (CSDDD). The Directive’s principal goal is to encourage sustainable and responsible corporate practices within companies and throughout their global value chains. Accordingly, the CSDDD mandates companies to identify and mitigate adverse human rights and environmental impacts caused by their actions within Europe and globally.
The EU must promote sustainable corporate behavior to support a fair transition to a sustainable economy. Various stakeholders, including citizens, civil society representatives, corporations, and business associations, have called for mandatory due diligence rules. A significant majority of businesses support EU action on corporate sustainability due diligence.
Despite some companies recognizing the need to act and taking measures to address their adverse impacts on human rights and the environment, progress remains slow and inconsistent. Furthermore, the complex nature of value chains makes it difficult for companies to obtain reliable information about their business partners’ operations. Additionally, fragmented national corporate sustainability-related regulations hinder the widespread adoption of good practices. Also, individual measures by Member States are insufficient to support companies in achieving sustainability goals.
Therefore, CSDDD establishes a unified legal framework across the Single Market, ensuring fairness and competitiveness. These rules promote innovation, provide legal certainty, guide businesses towards responsible practices, and set a global standard for environmental and human rights due diligence.
The CSDDD focuses on ensuring companies take responsibility for their environmental and human rights impacts by implementing effective strategies and actions. On the other hand, the Corporate Sustainability Reporting Directive (CSRD) requires companies to transparently report on their sustainability practices, including environmental, social, and governance (ESG) factors. In short, while CSDDD is about taking action, CSRD focuses on reporting those actions.
CSDDD has numerous benefits for companies, including the following:
CSDDD applies to the following companies:
The Directive excludes micro companies and Small and Medium Enterprises (SMEs). Nevertheless, it includes support and protective measures for SMEs since the legislation may affect these companies as partners within supply chains.
The Directive enters into force 20 days after publication in the Official Journal of the European Union. Member states have two years (until 2026) to adopt the regulations and administrative procedures necessary to comply with CSDDD.
On the other hand, the Directive application timeline for companies depends on their size and annual turnover as follows:
Company’s Size | Company’s Annual Turnover | Effective Year |
|---|---|---|
> 5,000 Employees | € 1,500 million | 2027 |
> 3,000 Employees | € 900 million | 2028 |
> 1,000 Employees | € 450 million | 2029 |
CSDDD imposes a corporate due diligence obligation on in-scope corporations. The Directive requires companies to identify and assess actual and potential negative impacts of their operations, subsidiaries, and value chains (business partners) on human rights and the environment. Businesses must avoid, mitigate, eliminate, and remediate these adverse impacts. Furthermore, CSDDD requires large companies to create and carry out a Climate Change Mitigation Transition Plan to the best of their ability. This plan must align with the 2050 climate neutrality goal of the Paris Agreement and meet the intermediate targets set by the European Climate Law.
CSDD establishes a framework for enforcement. It mandates that EU Member States designate supervisory authorities to oversee compliance with its obligations. Accordingly, these authorities can demand information from businesses, conduct investigations, issue injunctive orders, cease infringements, and impose penalties, including fines of up to 5% of companies’ global net turnover. They can also take interim measures if there is an imminent risk of severe and irreparable harm.
Moreover, the European Commission establishes a Network of Supervisory Authorities to ensure a coordinated approach among national bodies.
In addition, CSDDD provides civil remedies. Member States must ensure victims receive compensation for damages resulting from a company’s intentional or negligent failure to perform due diligence. Notably, companies aren’t liable for damages caused only by their business partners unless the company and its partner or subsidiary both contributed to the damage.
Do you want to know more about your company’s obligations towards CSDDD? Contact Enviropass!
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