CSDDD is an EU directive that aims to strengthen the protection of the environment and human rights.
With an ever-increasing focus on sustainability and environmental responsibility in business, companies are increasingly subject to stricter ESG reporting requirements. One of the latest initiatives is the Corporate Sustainability Due Diligence Directive, CSDDD for short. Approved by the European Commission in March 2024 and now awaiting final approval by the European Parliament, this directive is expected to have significant implications for companies both inside and outside the EU.
What is CSDDD?
The CSDDD is an EU directive that aims to strengthen the protection of the environment and human rights both within the EU and globally. It imposes obligations on companies to address actual and potential negative impacts on human rights and the environment, both in their own operations, their subsidiaries and their supply chain.
The directive was first adopted by the European Commission in February 2022. After a series of negotiations and amendments, it was finally approved in March 2024 and is now awaiting final approval from the European Parliament. It is expected that companies should be ready to comply with the directive by 2027, with larger companies likely to be the first to have to comply.
How will CSDDD affect businesses?
The CSDDD will require companies to identify, prevent, mitigate and report negative impacts on human rights and the environment, both internally and in their supply chain. This means that companies must integrate due diligence into their strategy and take human rights, climate change and environmental impacts of their decisions into account.
Furthermore, major companies will be required to align their business strategies with the Paris Agreement goal of limiting global warming to 1.5°C, which involves developing plans to reach net zero emissions.
While the CSDD may seem like a burden, it also offers businesses a number of opportunities, including improved trust from customers and employees, better risk management and easier access to finance. In addition, the directive establishes a more harmonized legal framework in the EU, which can make it easier for businesses to navigate legislation.
Which companies are covered by CSDDD?
Companies with over 1,000 employees and a net worldwide turnover of over €450 million based in the EU will be required to comply with the CSDDD. In addition, companies based outside the EU may also be required to comply if they have significant activities within the EU borders.
Penalties for not complying with CSDDD
The CSDDD will be enforced through administrative sanctions and civil liability. EU Member States will have supervisory authorities to enforce the directive and impose fines and compliance orders. In addition, non-compliance with the CSDDD can have financial consequences for companies, including fines of up to 5% of the company's net turnover and loss of the ability to receive public contracts.
What is the next step?
The CSDDD has been approved by the European Commission and is now awaiting approval from the European Parliament. Once officially adopted, Member States will have two years to implement the directive into their national legislation.
Companies should start preparing for CSDDD compliance now to avoid possible penalties and to take advantage of the opportunities that the directive also brings. Preparing for the CSDDD can be a complex process, especially when it comes to assessing supply chain impact. Automated tools like Climaider's ESG platform can help companies make this process more efficient and cost-effective.
