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The European CSDDD is set to become the most extensive piece of due diligence legislation yet. It firmly embeds human rights and environmental aspects in companies’ governance systems and aims to promote responsible business conduct in global value chains. Affected companies will be required to identify, prevent, mitigate and/or cease adverse impacts in their own operations and with respect to business partners.
IntegrityNext is ideally placed to support you on your CSDDD journey. We have a strong track record of helping companies meet due diligence requirements laid down in the German Supply Chain Act, the Swiss Supply Chain Act and the Norwegian Transparency Act, among others. Benefit from a systematic and efficient approach to ESG risk management and our easy-to-use platform which already fulfills many of the upcoming CSDDD obligations today.
How IntegrityNext can help
At IntegrityNext, we keep a close eye on ESG policy developments to make sure we can provide our customers with timely, efficient and targeted solutions. While the jury is still out on the final scope of the CSDDD, supply chains - as a key lever for sustainable development - are set to play a pivotal role.
In view of the directive's complexity, it is advisable to set up key systems and processes for sustainable supply chain management well in advance. We can help you to get started today and prepare for what is to come. Some of the benefits of our services include:
Comprehensive ESG risk analysis and management for your supply chain
Extensive data collection for your supply chain
Efficient implementation of follow-up measures
GRI-aligned and soon also CSRD-compatible reporting for your supply chain
Seamless integration into your IT systems
Extensive coverage of legislative due diligence obligations
Key obligations under the CSDDD
In an effort to establish human rights and environmental due diligence rules across the EU, the European Commission put forward a legislative proposal in February 2022 which centers on the following elements:
Due diligence obligations
- Integrating due diligence into corporate policies
- Identifying actual and potential adverse impacts
- Preventing and mitigating potential adverse impacts and ending actual adverse impacts
- Establishing and maintaining a complaints procedure
- Monitoring the effectiveness of due diligence policies and measures
- Public communication on due diligence
Climate change mitigation
Mandatory development of a business plan to ensure compatibility with the transition to a sustainable economy and the 1.5°C goal of the Paris Agreement.
In addition to sanctions, civil liability procedures in case of non-compliance with the CSDDD’s obligations are to be established.
The Commission estimates that, based on its recommended applicability criteria, nearly 13,000 companies will be affected in the EU and approximately 4,000 beyond its borders. These figures are still subject to change.
Relevant CSDDD topics
The CSDDD will cover a wide range of topics and risk areas which are derived from widely recognized international agreements and conventions. Companies should adhere to the rights and prohibitions laid down in these frameworks to avoid adverse human rights and environmental impacts.
Human and labor rights
Review of the status quo
For more details on the state of play of the CSDDD, please see our dedicated white paper. It outlines the positions of the three EU institutions involved in the legislative process on the planned scope of application, director duties, variable compensation, value chain scope, and civil liability, among others. It also sheds light on differences between the CSDDD and the German Supply Chain Act and provides a succinct outlook on future challenges.
Many technical details have yet to be decided, but gaining an in-depth understanding of the status quo and ongoing discussions can be highly beneficial for any company that wishes to get a head start and brace itself for the CSDDD as soon as possible. Critical questions that still need to be addressed relate to the following:
- Scope of application
- Oversight duties of directors
- Linkage of directors’ variable compensation to due diligence obligations
- Value chain scope
- Civil liability
- Climate change-related provisions
The CSDDD will likely be more demanding than most national due diligence regimes currently in place across the globe.
The Corporate Sustainability Due Diligence Directive – Shedding light on the state of play
Download our white paper to learn about the latest developments of the CSDDD (as of the end of August 2023). Companies should closely monitor legislative discussions so they can prepare for the European rules accordingly and get a head start over their peers.
Following the European Commission’s legislative proposal, the Council of the EU and the European Parliament adopted their positions in December 2022 and June 2023, respectively. The three EU institutions subsequently commenced so-called trilogue negotiations to thrash out a final deal by the end of 2023 or, at the very latest, ahead of the upcoming EU Parliament elections in June 2024. The member states then have two years to transpose the directive into national law.
The CSDDD developments are closely watched by companies and regulators around the world as they are likely to have ripple effects far beyond EU borders. Companies should also be aware that the CSDDD is closely intertwined with and complements other European policy initiatives such as the regulations on deforestation-free products, forced labor and conflict minerals. In particular, there will be significant links to the EU’s Corporate Sustainability Reporting Directive (CSRD):
The CSRD requires companies to set up processes for ESG data collection and provides critical inputs for obligations under the CSDDD.
The CSRD helps companies comply with the CSDDD’s disclosure obligations under Article 4.
Climate change mitigation
The CSRD demands the disclosure of transition plans which demonstrate compatibility with the 1.5 °C goal of the Paris Agreement.