Real progress in human rights and environmental protection requires holding businesses to account for their impacts. To address persistent challenges in global value chains, the European Union has approved the Corporate Sustainability Due Diligence Directive (CSDDD). This groundbreaking legislation directly addresses human rights violations, environmental degradation, and climate change impacts within corporate value chains.
As sustainability challenges grow more complex and interconnected, the CSDDD emerges as a crucial tool for ensuring businesses take concrete action to address their impact on both people and planet. The directive marks a decisive shift from voluntary commitments to mandatory obligations, applying directly to approximately 6,000 EU companies and 900 non-EU businesses operating in the European market, and likely affecting thousands of suppliers within these companies’ supply chains .
What is the CSDDD?
The Corporate Sustainability Due Diligence Directive (CSDDD) is a legally binding EU legislation that requires companies to identify and address human rights and environmental impacts throughout their value chains. It aims to transform how businesses manage their social and environmental responsibilities by establishing mandatory due diligence requirements for companies operating in or with the EU market.
By establishing comprehensive due diligence requirements, the directive ensures companies take concrete action to prevent and mitigate adverse impacts on people and the environment. The CSDDD final text includes the following requirements:
- Identification and management of negative impacts on human rights and the environment across supply chains
• Integration of human rights due diligence into management processes and corporate policies - Establishment of and/or ensuring that grievance mechanisms are available and accessible to all stakeholders along the entire value chain
- Evaluation of effectiveness through a risk-based approach at least every 12 months
- Annual reporting on human rights and environmental risks (in alignment with the Corporate Sustainability Reporting Directive, or ‘CSRD’)
- Adoption and implementation of a transition plan for climate change mitigation.
The directive includes strong enforcement mechanisms to ensure compliance. Companies can face sanctions and civil liability, with a requirement to compensate victims for damages resulting from failure to comply with their due diligence obligations.
CSDDD Scope and Timeline
On May 15th 2024, the directive was accepted by the EU Council, and following regular procedure, was published in the EU Official Journal on July 5th 2024, officially establishing it as EU law. This marked the beginning of a comprehensive implementation timeline that will affect thousands of companies across Europe and beyond.
The directive will apply to all EU companies with at least 1000 employees and EUR 540 million turnover as well as all non-EU companies with at least EUR 450 million turnover in the EU. However, implementation will follow a strategically phased approach to allow companies adequate time to adapt their operations while ensuring steady progress toward improved sustainability practices.
Implementation will apply as follows:
- 2025-2026: Member States transpose the directive into national law
- 2027: The directive applies to EU companies with over 5000 employees and EUR 1500 million turnover & to non-EU companies with a EUR 1500 million turnover in the EU
- 2028: The directive applies to EU companies with over 3000 employees and EUR 900 million turnover & to non-EU companies with a EUR 900 million turnover in the EU
- 2029: The directive applies to all other companies in scope (all EU companies with at least 1000 employees and EUR 540 million turnover as well as all non-EU companies with at least EUR 450 million turnover in the EU)
While Small and Medium-sized Enterprises (SMEs) are not directly within the scope of the directive, they may be indirectly affected if they operate as contractors or subcontractors to companies falling under any of the above groups.
Organizations falling within the directive’s scope should begin preparation well in advance of their respective compliance deadlines.
CSDDD Requirements and Obligations
The directive establishes comprehensive due diligence obligations that require companies to actively identify, prevent, mitigate, and account for adverse human rights and environmental impacts in their operations, subsidiaries, and value chains.
Core Human Rights and Environmental Due Diligence (HREDD) Requirements
Companies must implement the following key measures:
1. Due Diligence Integration
- Integrate HREDD into all corporate policies and risk management systems
- Develop HREDD policies in consultation with key stakeholders and rightsholders
- Establish a code of conduct describing rules and principles to be followed
- Update policies at least every 24 months
2. Monitoring and Oversight
- Regular assessment of measures’ effectiveness
- Documentation of all HREDD processes
- Verification of business partner compliance
- Periodic reviews and updates of policies
- Map operations to identify areas where adverse impacts are most likely to occur
- Conduct in-depth assessments of high-risk areas
- Review impacts at least every 12 months and after significant changes
- Consider both actual and potential adverse impacts
3. Prevention and Mitigation
- Develop and implement prevention action plans with clear timelines
- Obtain contractual assurances from business partners
- Make necessary investments and operational adjustments
- Adapt business practices including purchasing policies
- Provide support to SME business partners where needed
- Collaborate with peers and other stakeholders.
4. Remediation Process
- Establish complaints procedures and notification mechanisms
- Enable access to grievance mechanisms
- Ensure protection of those raising concerns
- Provide remediation when adverse impacts occur
- Develop corrective action plans when needed
- Cooperate with remediation processes
5. Stakeholder Engagement
- Enable meaningful engagement with affected stakeholders
- Publicly communicate on HREDD actions
CSDDD and Other Frameworks
While several sustainability frameworks and directives exist within the EU legislative landscape, in this section we highlight how the CSDDD relates to two key additional legislative frameworks developed by the EU: the Corporate Sustainability Reporting Directive (CSRD) and the EU Forced Labour Ban.
The Corporate Sustainability Reporting Directive
While the Corporate Sustainability Reporting Directive (CSRD) focuses exclusively on reporting, and particularly human rights and environmental impacts, CSDDD goes further by requiring companies to have HREDD policies and practices in place:
- CSRD emphasizes reporting and transparency
- CSDDD demands active prevention and mitigation
- Different scope and implementation timelines
- Complementary but distinct obligations
EU Forced Labour Ban
While the EU Forced Labour Ban focuses exclusively on products produced (in part, or as a whole) through forced labour, and bans these from entering the EU market, the CSDDD focuses on companies’ actions to ensure forced labour and other human rights and environmental impacts are identified and addressed throughout their supply chain.
Benefits and Impacts of CSDDD
While compliance with the CSDDD requires significant effort and resources, it also presents substantial opportunities for both businesses and society. The directive’s implementation promises to deliver wide-ranging benefits that extend far beyond mere regulatory compliance. Understanding these benefits can help organizations approach implementation more strategically and maximize the value they derive from their compliance efforts.
Business Benefits
Companies implementing CSDDD can expect:
- Enhanced risk management capabilities
- Improved stakeholder relationships
- Better access to sustainable finance
- Strengthened competitive position
- Increased operational resilience
- Future-proofed business models
Societal Benefits
The directive contributes to broader societal goals:
- Stronger protection of human rights and the environment
- Enhanced environmental preservation
- Increased corporate accountability
- More sustainable global value chains
- Improved stakeholder engagement
- Climate change mitigation.
Conclusion: A New Era in Corporate Sustainability
The CSDDD represents a paradigm shift in corporate sustainability governance, marking a transition from voluntary initiatives to mandatory due diligence. As businesses prepare for implementation, understanding the requirements and timeline is crucial for successful compliance. The directive not only establishes new obligations but also creates opportunities for companies to strengthen their sustainability practices and competitive position in the global market.
Organizations should start preparing now by assessing their current practices, identifying gaps, and developing comprehensive implementation strategies. Early preparation will be key to ensuring smooth compliance and maximizing the benefits of this transformative legislation.
Work with Partner Africa’s experienced team in responsible business practices. Contact us for Responsible Business Advisory if your company requires assistance in preparing for CSDDD compliance.
