The European Union (EU) Parliament formally approved the Corporate Sustainability Due Diligence Directive (CSDDD) on 24th April 2024. This vote concludes a four-year process of negotiations and debates. The directive aims to ensure businesses take proactive measures to respect human rights and mitigate environmental impacts within their global operations and supply chains.
What is the CSDDD?
CSDDD or CS3D is the latest piece of legislation passed by the EU. The legislation is designed to enforce respect for human rights and the environment throughout the entire supply chain of businesses. CSDDD aims to bring a more comprehensive and mandatory approach to corporate sustainability.
It is an important piece of EU legislation that could have a significant financial implication for businesses. Compliance will mandate companies to identify, prevent, mitigate and account for adverse human rights and environmental impacts in their own operations, subsidiaries and supply chains. Failure to comply can result in fines of up to 5% of a company's global net revenue.
Additionally, the legislation introduces civil liability, allowing victims to claim compensation from companies for damages caused by human rights or environmental violations.
The legislation is mandatory and set to take effect by 2025 or 2026, it applies to both EU and non-EU companies operating in the EU, particularly targeting those in high-risk industries such as fashion, minerals, and agriculture.
Compliance requirements
It is estimated that CSDDD will apply to approximately 13,000 companies in the EU and 4,000 outside of the EU.
Broadly, Businesses are required to:
- Identify the principal adverse impact on the environment and human rights resulting from their operations, subsidiaries, and supply chains.
- Mitigate identified risks within their operations and supply chain, supported by an action plan and a timeline to address the identified risks.
- Establish grievance mechanisms for workers and stakeholders to raise issues if they arise.
- Align their business model and strategy with the 1.5°C target of the Paris Agreement, specifically for large companies.
- Publicly report on their due diligence via a sustainability report or website.
Who does the SCDDA apply to?
The CSDDD will directly apply to both EU and non-EU companies:
EU companies:
- Companies with 500 or more employees and €150M turnover
- Companies with 250 or more employees and €40M turnover, if 50% comes from high-risk industries (such as fashion, minerals or agriculture)
Non-EU companies operating in the EU:
- Third-country companies active in the EU with turnover thresholds aligned with Group 1 and 2, generated in the EU (regardless of whether they have a branch or a subsidiary in the EU)
The financial sector has been excluded from CSDDD (for now at least), despite being included in the existing sectoral OECD guidance.
Risk Mitigation - it will take time - so start now
To ensure compliance with CSDDD, businesses need to implement an effective solution to achieve full transparency of their entire value chain to uncover and rectify human rights or environmental violations. Ensure you have a supply chain transparency solution in place to get visibility of your n-tier supply chain and start to gather robust data and evidence now. It will take time to gain this visibility and data, so the sooner you start the less risk to your brand.
With the right solution, compliance and compliance reporting can quickly become second nature. Segura provides the transparency you need by mapping your suppliers and the relationships within your supply chain to n-tier. Segura captures supplier audits, CAPs, certification data, environmental data and audits providing businesses with evidence-based reporting and due diligence they need to comply with legislation.
"There will be a lot more legislation and reporting requirements coming through. We partnered with Segura because we know they can help us stay ahead of the game"
Are you looking to stay ahead of the game and ensure your company meets the requirements of the EU's CSDDD? Click here to book a free no-obligation review of what Segura can bring to your business today and let us guide you towards a transparent, more sustainable, and compliant future.
Advice for suppliers affected by the Corporate Sustainability Due Diligence Directive (CSDDD)
If you supply businesses that are required to comply with CSDDD, you are very likely to receive more requests for information relating to this;
Be prepared: Read about the CSDDD and note what it asks of your customers. Get an understanding of what information your customers will need from you, why and when.
Be compliant: Make sure that you are up to date and compliant with all labour, health and safety, and environmental legislation. Make sure the relevant information is ready to share with customers, to help them comply with the new law.
About Segura
Segura is the leading fashion supply chain traceability solution, empowering fashion retailers and brands to deliver ethical, sustainable and efficient multi-tier supply chains.
Segura provides n-tier mapping, transparency, traceability, visualisation, compliance and reporting. Segura sits in the centre of your supply chain management structure creating a central repository for all your supply chain, ESG-related data and evidence, including from third-party data sources.
With all supply chain traceability data stored on a single platform, our customers get the right evidence in the right place to back up claims and meet regulatory compliance.
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