EU Corporate Sustainability Due Diligence Directive (CSDDD)

The Corporate Sustainability Due Diligence Directive (Directive 2024/1760), effective as of 24th July 2024, is set to reshape how businesses operate globally. 

If your business has ties to the EU, the clock is ticking. The CSDDD is to be transposed into law by EU member states by 26th July 2026. 

As part of this new regulation, companies will be required to proactively identify, prevent, and mitigate any adverse human rights or environmental impacts across its entire operations and supply chain. 

This comprehensive guide will walk you through the critical aspects of the CSDDD. We'll delve into its scope, the specific requirements for businesses and the implementation timeline. Plus we detail 6 steps you can take now to be ready for CSDDD. By understanding these key elements, you'll be well-equipped to navigate this new landscape and ensure your business remains compliant.


What is the CSDDD?

The CSDDD is new European Union legislation designed to enforce respect for human rights and the environment throughout the entire supply chain of businesses.

The CSDDD aims to bring a comprehensive and mandatory approach to corporate sustainability.

This important legislation 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. This includes all upstream business partners, as well as downstream partners involved in distribution, transport, and storage. Failure to comply can result in fines of up to 5% of a company's global net revenue.

The legislation also introduces civil liability, allowing victims to claim compensation from companies for damages caused by human rights or environmental violations.

Additionally, it requires the implementation of a climate transition plan to ensure business practices align with climate change targets, specifically the Paris Agreement's objective to limit global warming to 1.5°C.


CSDDD Scope - Which Companies does it apply to?

The CSDDD will directly apply to both EU and non-EU companies  that operate within the European Union. This includes:

  • EU companies with more than 1,000 employees and a turnover exceeding €450 million globally. 
  • Non-EU companies with turnover exceeding €450 million in the EU 
  • EU companies involved in franchising or licensing agreements, generating royalties of over €22.5 million, if their turnover surpasses €80 million globally
  • Non-EU companies involved in franchising or licensing agreements within the EU, generating royalties of over €22.5 million, if their turnover surpasses €80 million in the EU.

Special provisions apply to parent companies and certain exemptions are available under specific conditions.

The final version of the CSDDD includes fewer companies than initially proposed. The earlier draft had a “high risk sector approach” covering companies with 250 or more employees and a €40 million turnover—if at least 50% of their revenue came from high-risk sectors like fashion, minerals, or agriculture. This rule has been removed from the final version. However, the revised CSDDD includes a review clause, allowing for the potential to revisit and incorporate the "high-risk" sector approach in the future.

The financial sector is not exempt from the CSDDD but its obligations are currently more limited. Financial firms are required to apply the directive to their own operations and upstream supply chains. They must also adopt a plan to ensure their business model aligns with the Paris Agreement. There is a review clause that allows for a potential future expansion of the CSDDD's scope for the financial sector, pending an impact assessment by the European Commission.

CSDDD Implementation Timeline

The CSDDD has a phased timeline for compliance, beginning in 2027. Here are the key dates: 

  • By 26th July 2027 - Companies with over 5,000 employees and a global turnover exceeding €1.5 billion must comply.
  • By 26th July 2028 - firms with more than 3,000 employees and a turnover above €900 million must meet the directive’s requirements. 
  • By 26th July 2029, all remaining companies under the directive, including those with over 1,000 employees and worldwide turnover higher than €450 million, will have to comply.
  • Non-EU companies operating within the EU with similar turnover thresholds must also adhere to these timelines.

What Are the CSDDD Requirements for Companies?

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.
  • Integrate due diligence into corporate policies to ensure human rights and environmental risks are considered at every level.
  • Mitigate identified risks within their operations and supply chain, supported by an action plan and a timeline to address the risks.
  • Engage with stakeholders during the due diligence process, involving them in identifying and addressing risks.
  • Establish grievance mechanisms for workers and stakeholders to raise issues if they arise, ensuring accessible channels for reporting concerns.
  • Monitor due diligence activities to ensure ongoing compliance and effectiveness of risk mitigation efforts.
  • Align their business model and strategy with the 1.5°C target of the Paris Agreement, specifically for large companies, and adopt a transition plan to meet climate goals.
  • Publicly report on their due diligence via a sustainability report or website.

 

How will the CSDDD be enforced?

Administrative Supervision: EU member states will be responsible for overseeing compliance with the CSDDD. These authorities will monitor companies' due diligence efforts and can conduct investigations if necessary.

Financial Penalties: Companies that fail to meet their obligations under the CSDDD will face penalties imposed by member states. These penalties may vary depending on the severity of non-compliance.

Risk Mitigation - it will take time - so start now

Here are six steps companies can start now to prepare for CSDDD compliance: 

  1. Integrate Due Diligence into Policies and Processes

Update existing policies such as revising codes of conduct, supplier contracts, and internal policies to align with CSDDD requirements.   Establish due diligence procedures by creating clear procedures for risk assessment, mitigation, monitoring, and reporting. Finally develop a grievance mechanism by setting up a system for stakeholders to raise concerns about potential violations.  

  1. Map Your Supply Chain

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 to get visibility of your n-tier supply chain and 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. We at Segura provide the necessary transparency 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.

  1. Engage with Business Partners

Inform your suppliers and other business partners about the CSDDD and your expectations regarding their compliance.  Offer guidance and resources to help your partners meet the required standards. Work together to address identified risks and improve sustainability performance.

  1. Enhance Transparency and Reporting

Implement systems to gather information on your due diligence activities and the effectiveness of your efforts.  Publish a detailed report on your due diligence processes, identified risks, and actions taken.  

  1. Invest in Training

Educate staff on the CSDDD, their roles in ensuring compliance, and how to identify and report potential violations.  

  1. Develop a Climate Change Transition Plan

Analyse your company's contribution to climate change.  Establish ambitious, time-bound targets to reduce greenhouse gas emissions in line with the Paris Agreement.  Develop and implement strategies to achieve your emission reduction goals

"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"

Ethical Trade Manager, River Island

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.

Further Reading:

Directive (EU) 2024/1760 on Corporate Sustainability Due Diligence

Directive on Corporate Sustainability Due Diligence - Frequently asked questions

 


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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