Corporate Sustainability Due Diligence Directive: A Complete Guide

Acronym:

The Corporate Sustainability Due Diligence Directive is known as CSDDD.

Approval and entry into force:

The proposal for the Directive was presented by the European Commission in February 2022. The European Parliament and the Council of the European Union reached a provisional agreement on the final text on December 14, 2023. The Directive was formally adopted on March 8, 2024 and will enter into force 20 days after its publication in the Official Journal of the European Union. Member States will have two years to transpose it into their national legislation.

Affected companies:

The CSDDD applies to all EU companies with:

• More than 500 employees and a net annual turnover of more than EUR 150 million.
• More than 250 employees and a net annual turnover of more than EUR 40 million and operating in sectors with high environmental or social impact, such as agriculture, mineral extraction, textiles or chemicals manufacturing.

Penalties for non-compliance:

Member States shall establish a system of penalties for non-compliance with the Directive, which may include:

• Fines of up to 4% of the company’s global annual turnover.
• Exclusion from participation in public tenders.
• Prohibition from receiving public funding.

Integration into the governance bodies:

Companies shall integrate sustainability due diligence into their governance bodies as follows:

• Appointing a member of the Board of Directors or management body responsible for sustainability due diligence.
• Adopting a due diligence policy that establishes the procedures for identifying, preventing and mitigating negative risks and impacts on human rights and the environment.
• Training employees on sustainability due diligence.

Identifying risks and impacts:

Companies shall identify risks and impacts on sustainability through:

• Assessment of their own activities and their value chains.
• Consultation with stakeholders, such as human rights organizations, environmental organizations and trade unions.
• Use of available tools and indicators for risk and impact assessment.

Prevention and mitigation of risks and impacts:

Companies shall take measures to prevent or mitigate the identified negative risks and impacts, such as:

• Establishing action plans to prevent or reduce negative risks and impacts.
• Collaborating with their suppliers so that they also implement sustainability due diligence measures.
• Divesting from companies that cause serious damage to human rights or the environment.

Remediation of damages:

Companies shall take measures to remedy the damage caused by their activities, such as:

• Compensating the victims of the damage.
• Restoring the damaged environment.

Monitoring the effectiveness of measures:

Companies shall monitor the effectiveness of their sustainability due diligence measures by:

• Conducting regular internal audits.
• Publishing reports on their due diligence measures and their results.

For further information:

Proposal for a Directive on Corporate Sustainability Due Diligence:

https://commission.europa.eu/publications/proposal-directive-corporate-sustainability-due-diligence-and-annex_en

Questions and Answers on Sustainability Due Diligence:

https://ec.europa.eu/commission/presscorner/detail/en/qanda_22_1146

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