The Corporate Sustainability Due Diligence Directive (CSDDD) is a European Union legislation aimed at promoting sustainable business practices throughout their supply chains. The directive sets forth requirements for companies to identify, prevent, mitigate, and account for actual and potential adverse impacts on human rights and the environment linked to their operations, products, or services.
Key aspects & penalties
The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) officially came into effect on July 25, 2024. Member States have two years from the CSDDD’s entry into force on 25 July 2024 to transpose the CSDDD into national law.
The CSDDD requires companies to integrate due diligence into their policies, identify and evaluate human rights and environmental impacts, and implement measures to mitigate these risks.
Companies must also establish complaint mechanisms, monitor the effectiveness of their due diligence measures, and publicly communicate their efforts.
The CSDDD has wide-reaching scope, impacting both EU and non-EU companies with significant operations in the EU market. Companies with more than 5,000 employees and €1.5 billion in turnover must comply by 2027, while smaller firms have a later deadline.
For enforcement, Member States must impose penalties, including fines up to 5% of a company’s net worldwide turnover, and introduce a civil liability scheme for non-compliance.
Phased application timeline
- July 2027: Companies with more than 5,000 employees and €1.5 billion in net turnover must comply.
- July 2028: Rules apply to companies with over 3,000 employees and €900 million in net turnover.
- July 2029: Compliance required for companies with over 1,000 employees and €450 million in net turnover.
Key features of the CSDDD
- Scope and Applicability:
- Large Companies: Initially targets large companies, defined as those with more than 5,000 employees and a net turnover of over €1.5 billion. These companies are required to comply by 2027.
- Smaller Companies: Firms with fewer employees and lower turnover thresholds have extended deadlines for compliance.
- Due Diligence Obligations:
- Companies must implement due diligence processes, including identifying and assessing potential adverse impacts on human rights and the environment across their value chains.
- They are required to take appropriate measures to prevent, mitigate, or cease these impacts.
- Reporting and Accountability:
- Companies must integrate due diligence into their policies and risk management systems.
- They need to set up complaint mechanisms for affected parties and stakeholders.
- Companies are required to monitor and report on the effectiveness of their due diligence efforts.
- Enforcement and Penalties:
- National authorities will oversee compliance and can impose penalties for non-compliance. These penalties may include fines, civil liability for damages, or other sanctions.
- The directive allows for fines of up to 5% of a company’s net turnover for non-compliance.
- Transposition into National Law:
- EU Member States have two years to transpose the directive into their national legislation, establishing the necessary legal and regulatory frameworks for enforcement.
The CSDDD aims to ensure that companies contribute positively to sustainable development by adhering to international human rights and environmental standards, thereby promoting ethical business practices across global supply chains.
