The EU's Corporate Sustainability Due Diligence Directive (CSDDD) officially came into force on July 25, 2024, twenty days after its publication in the EU Official Journal on July 5, 2024. This directive marks a significant advancement in the legislative framework for corporate responsibility within the EU.

Goal of CSDDD

This directive establishes a crucial corporate duty of due diligence. It emphasizes the company's responsibility to proactively identify and address potential and actual adverse impacts on human rights and the environment within its own operations and those of its subsidiaries and business partners. Additionally, large companies are mandated to put forward their best efforts in adopting and implementing a robust transition plan for climate change mitigation that aligns with the 2050 climate neutrality objective of the Paris Agreement and the intermediate targets delineated in the European Climate Law.

Scope & Timeline of CSDDD implementation

Member States must implement the CSDDD into national law by July 26, 2026. The new rules will apply to companies on a staggered timeline, giving them time to prepare:

  • By July 26, 2027:
    • EU companies with a global net turnover of €1.5 billion and at least 5,000 employees.
    • Non-EU companies with a net turnover of €1.5 billion within the EU.
  • By July 26, 2028:
    • EU companies with a global net turnover of €900 million and at least 3,000 employees.
    • Non-EU companies with a net turnover of €900 million within the EU.
  • By July 26, 2029:
    • EU companies with a global net turnover of €450 million and at least 1,000 employees.
    • Non-EU companies with a net turnover of €450 million within the EU.
    • EU Franchisors or Licensors with a global turnover of €80 million or with global royalties of €22.5 million.
    • Non-EU Franchisors or Licensors with a turnover of €80 million within the EU or EU royalties of €22.5 million.

The CSDDD's core obligations require in-scope companies to:

  • Integrate due diligence into their policies and risk management systems.
  • Identify and assess actual or potential adverse impacts and prioritize them where necessary.
  • Prevent and mitigate potential adverse impacts and address actual adverse impacts to minimise their extent.
  • Provide remediation for actual adverse impacts.
  • Engage meaningfully with stakeholders.
  • Establish and maintain a notification mechanism and a complaints procedure.
  • Monitor the effectiveness of due diligence policies and measures.
  • Publicly communicate on due diligence activities.
  • Adopt and put into effect a climate transition plan.

CSDDD role on combating climate change

Member States shall ensure that companies adopt and implement a transition plan for climate change mitigation. This plan should aim to align the company's business model and strategy with the transition to a sustainable economy, limit global warming to 1.5°C as per the Paris Agreement, and achieve climate neutrality by 2050, including addressing exposure to coal, oil, and gas activities.

The transition plan must include:

  • Time-bound Targets: Set targets for 2030 and every five years up to 2050 based on scientific evidence, including absolute emission reduction targets for Scope 1, 2, and 3 greenhouse gas emissions.
  • Decarbonization Levers: Describe planned actions to meet these targets, including changes to products or services and adoption of new technologies.
  • Investment and Funding: Explain and quantify the investments and funding required to implement the plan.
  • Roles and Responsibilities: Detail the roles of administrative, management, and supervisory bodies in relation to the plan.

Companies that will report their transition plan under the relevant sections of Directive 2013/34/EU would be considered compliant. Companies included in the transition plan of their parent undertaking under the same directive would also be deemed compliant. Member States must ensure that these transition plans are updated annually, including a progress report on achieving the set targets.

Also Read: The Role of Technology in Streamlining ESG Reporting: Trends and Best Practices

Consequences for non-compliance of CSDDD

The Corporate Sustainability Due Diligence Directive (CSDDD) will be enforced through administrative supervision and civil liability. At the European level, a European Network of Supervisory Authorities will be established, which includes designated authorities at the national level responsible for overseeing enforcement. Non-compliance with the CSDDD can lead to several consequences, enforced by national supervisory authorities of Member States. The supervisory authorities of Member States will be empowered to carry out investigations in cases of "substantiated concerns" and may require companies to provide information in connection with suspected non-compliance with the obligations set out in the directive.

Member States must establish and implement rules on penalties for breaches of national laws adopted under this Directive. Penalties must be effective, proportionate, and dissuasive. Penalties must be based on the company's net worldwide turnover, with a maximum limit of at least 5% of the previous financial year's turnover. For certain companies, penalties are calculated based on the ultimate parent company's consolidated turnover. Decisions on penalties must be published, publicly available for at least five years, and sent to the European Network of Supervisory Authorities

Complementary Roles of CSDDD and CSRD in Enhancing Corporate Accountability

CSDDD and CSRD are complementary EU regulations designed to enhance corporate accountability. The CSDDD mandates companies to conduct due diligence on their supply chains to identify and mitigate human rights and environmental risks, promoting responsible business conduct. Meanwhile, the CSRD requires companies to disclose detailed information about their sustainability practices and impacts, ensuring transparency.

Together, these directives foster sustainable business operations and increase corporate responsibility throughout the EU by integrating proactive risk management with comprehensive and standardized reporting.

For companies navigating the new EU Corporate Sustainability Due Diligence Directive, ecoPRISM is your trusted partner in ensuring compliance and fostering sustainable business practices. Our expert team provides comprehensive support and solutions tailored to meet the stringent requirements of the CSDDD, helping you integrate due diligence into your operations and achieve your sustainability goals.

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