The Corporate Sustainability Due Diligence Directive (CSDDD)

Contents

• What is CSDDD?
• Who does it apply to?
• What is required?

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What is the Corporate Sustainability Due Diligence Directive (CSDDD)?

The Corporate Sustainability Due Diligence Directive (CSDDD) is a European Union directive that forms part of the EU’s wider plans for a more sustainable future and introduces legal obligations on businesses to respect human rights and the environment. It requires certain companies to conduct a risk-based human rights and environmental due diligence (HREDD) in their operations and across their global chains of activities, holding companies accountable through public reporting on their efforts. It also includes obligations on companies regarding climate change and empowers victims of corporate abuse to sue companies in EU national courts for failures to prevent, mitigate or bring to an end adverse impacts.

The final CSDDD text was published in the EU’s Official Journal on 5^th July 2024, and the Directive went into effect on 25^th July 2024. Member states will have two years to implement the regulations and administrative procedures to comply with this legislation. 

Who does it apply to?

The CSDDD will affect EU companies of more than 1,000 employees with a global turnover of more than €450 million. The timeline for compliance will depend on the size of the companies following this timeline:  

• 3 years from the entry into force of the directive for companies with more than 5,000 employees and €1,500 million turnover globally 
• 4 years from the entry into force for companies with more than 3,000 employees and €900 million turnover globally 
• 5 years from the entry into force of the directive for companies with more than 1,000 employees and €450 million turnover globally 

It will also affect non-EU companies with a turnover in the EU of more than €450 million. The timeline for compliance will depend on the size of the companies following this timeline: 

• 3 years from the entry into force of the directive for companies with more than €1,500 million turnover in the EU 
• 4 years from the entry into force for companies with more than €900 million turnover in the EU 
• 5 years from the entry into force of the directive for companies with more than €450 million turnover in the EU 

It will also affect EU and non-EU franchisors and licensors that meet certain thresholds: 

• 5 years from the entry into force of the directive for EU franchisors and licensors earning royalties of more than €22.5 million globally and generating more than €80 million globally 
• 5 years from the entry into force of the directive for non-EU franchisors and licensors earning royalties of more than €22.5 million in the EU and generating more than €80 million in the EU 

The CSDDD is a significant step forward in the EU’s efforts to promote corporate sustainability. It is the international due diligence law most aligned with the international United Nations (UN) and Organization for Economic Cooperation and Development (OECD) standards on human rights in business. The directive requires companies that meet the threshold to take responsibility for their impact on human rights and the environment, and it gives stakeholders a stronger voice in holding companies accountable.  

Over the next two years, Member States will take the important step to ensure strong national legislation aligned with CSDDD. It will be paramount for them to ensure sufficient resources are allocated to enforcement and assurance of effective implementation, holding companies accountable to action and transparency. 

What is required from companies?

The CSDDD combines human rights and environmental due diligence with civil liability and administrative enforcement. Companies will need to:  

1. Commit: Integrate due diligence into a company’s policies and risk management.
2. Assess: Identify, assess and prioritise actual and potential adverse impacts.
3. Prevent: Prevent or mitigate potential adverse impacts.
4. Bring to an end actual adverse impacts.
5. Remedy: Provide remediation where necessary.
6. Stakeholder engagement: Meaningfully engage with stakeholders.
7. Grievance mechanisms: Implement a robust notification/complaints mechanism.
8. Monitor: Monitor the effectiveness of measures taken.
9. Communicate: Publicly communicate on due diligence.
10. Combat climate change: Adopt and implement a transition plan for climate change mitigation.  

These steps are required for companies across their “chains of activities”, beginning with their own operations, their upstream production of goods or the provision of services and the downstream distribution, transport, or storage of products. 

The CSDDD also requires companies to adopt and put into effect a climate transition plan to demonstrate how their business model and strategy includes science-based, time-bound targets covering Scope 1, 2 and 3 GHG emissions for 2030 – and every five years after until 2050. The obligation to design and put into effect a transition plan builds on the Corporate Sustainability Reporting Directive (CSRD). 

Finally, the CSDDD establishes legal recourse for communities and workers – also known as rights-holders – to better hold companies into account. This includes stakeholder engagement, improving access to justice for civil liberty claims, and whistle-blower protections for company employees. 

The CSDDD is a significant challenge for businesses, but it is also an opportunity to demonstrate their commitment to corporate sustainability. Additional more specific due diligence obligations have also been introduced recently. These include the EU Conflict Minerals Regulation, the EU Deforestation Regulation, and the EU Battery Regulation.   

By conducting holistic due diligence – as required by the CSDDD – to better understand their impact on human rights and the environment, companies can streamline procedures and resources to ensure compliance with CSDDD as well as other due diligence regulations.