Corporate Sustainability Due Diligence Directive

Please note that the European Commission has released the EU Sustainability Simplification Omnibus Package (“The EU Omnibus Proposal”), which may affect the information below. Among the potential changes are adjustments to the regulation’s scope, compliance timeline, and some requirements. The following information will be updated accordingly, and a summary of key changes can be found at the end of this article.

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

The Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) 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 to develop climate transition plans.

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 United Nations (UN) and Organization for Economic Cooperation and Development (OECD) guidelines on human rights and business.  

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. The recent EU Omnibus Proposal has set the implementation date for the CSDDD for the first wave of companies as 26^th July 2028, with all other in-scope companies required to comply from 26^th July 2029.

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. 

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. It will also affect non-EU companies with a turnover in the EU of more than €450 million. In addition, the CSDDD will apply to EU and non-EU franchisors and licensors that earn royalties exceeding €22.5 million (globally for EU entities and in the EU market for non-EU entities) and generate a net turnover of more than €80 million (globally for EU entities and in the EU market for non-EU entities).

What is required from companies?

Companies in scope of CSDDD 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. According to the EU Omnibus Proposal, the initial value chain mapping and impact assessment must consider all company activities and supply chains beyond Tier 1. However, the obligation to conduct in-depth assessment of adverse impacts is now limited to Tier 1 unless the company has plausible information indicating that adverse impacts have arisen or may arise in Tier 2+.

The CSDDD also requires companies to develop a climate transition plan (CTP) 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. While the development of CTPs is required, the recent Omnibus Proposal removed the requirement to implement CTPs, instead introducing a new requirement to include actions that have been implemented or planned.

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 Batteries 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.

Summary of Recent Updates

On 26^th February 2025, the European Commission announced a new package of proposals aimed at streamlining sustainability regulations, still subject to legislative approval.

Key changes and updates to the CSDDD under the EU Omnibus Proposal include:

• Postponement: The transposition deadline and first phase of CSDDD application, reserved for the largest in-scope companies, has been postponed for one year, now set for 26^th July 2028.
• Release of Additional Guidance: The European Commission’s deadline for publishing guidelines has been moved up to July 2026, allowing companies to better align their due diligence processes with CSDDD requirements.
• Assessment Scope: In-depth assessment of adverse impacts is now limited to Tier 1 supplier only, unless there is substantiated knowledge of adverse impacts in Tier 2+ supply chains.
• Assessment Frequency: The frequency ofperiodic assessment and monitoring has been reduced from annual to every 5 years, with ad hoc assessments where necessary.
• Terminating Business Relationships: The obligation to terminate business relationships as a last resort has been removed.
• Data Requests from SMEs: Large companies can only request SME data specified in the in the CSRD voluntary sustainability reporting standards (VSME voluntary standard), unless extra data is necessary for compliance.
• Climate Transition Plans: The implementation of climate transition plans (CTPs) is no longer required in the CSDDD, although the requirement to develop CTPs still stands.
• Civil Liability: The harmonised EU conditions for civil liability have been removed, reverting to national legal systems to set civil liability conditions.

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