The European Corporate Sustainability Due Diligence Directive (CSDDD) firmly embeds human rights and environmental aspects in corporate governance systems. It thus ensures responsible business conduct across global value chains. As it is a directive, member states have to transpose the CSDDD into national law. Existing supply chain legislation, for example in Germany and France, will need to be adjusted accordingly. Based on its legislative proposal, the European Commission estimates that approx. 17,000 companies will be directly affected by the CSDDD.
IntegrityNext is ideally placed to support you on your CSDDD journey. We have a strong track record of helping companies meet the due diligence requirements of 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 core aspects 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 sound systems and processes for sustainable supply chain management well in advance. We can help you 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 such as those laid down in the German, Swiss and Norwegian supply chain acts
Key obligations under the CSDDD
In February 2022, the European Commission put forward a legislative proposal that intends to establish human rights and environmental due diligence rules for companies operating in the EU. By and large, the provisions resemble those of existing regulatory regimes in markets such as Germany or Norway.
They aim to ensure that affected companies identify, prevent, mitigate and/or cease adverse impacts in their own operations and with respect to business partners, particularly in supply chains. The main due diligence requirements are:
- 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
Distinguishing features of the CSDDD
The overall ambition of the CSDDD goes beyond the requirements of comparable legislation that exists today.
Scope of application
The CSDDD is set to affect smaller companies than most national due diligence laws, a minimum threshold of 500 employees is likely.
The CSDDD covers a much wider range of risk areas than most national due diligence laws, particularly in the environmental domain.
Unlike other initiatives, the CSDDD calls for corporate alignment with the 1.5°C goal of the Paris Agreement.
The CSDDD is likely to include a civil liability clause, as a minimum for cases in which companies directly contribute to harmful impacts.
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. 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 of the CSDDD 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 directive 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 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 January 2024). 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.