The European Union, aware of the need for sustainable development, has adopted the Corporate Sustainability Due Diligence Directive (CSDD).
This directive seeks to promote sustainable and responsible corporate behaviour along global value chains by establishing a legal framework that obliges companies to identify, prevent, eliminate or mitigate adverse impacts of their activities on human rights and the environment.
The CSDD (also known as CS3D or CSDDD) is a milestone in EU regulation, which seeks to protect human rights, such as child labour and worker exploitation, and the environment, such as pollution and biodiversity loss.
In addition, this directive provides companies with greater legal certainty and a level playing field, while offering consumers and investors greater transparency.
In this article, we will explore in depth the CSDD, its objectives, its implementation timeline, the due diligence requirements it establishes, its impact on companies and its role in promoting sustainability.
Join us on this journey to understand how the CSDDD is redefining sustainability in the European Union.
What is CSDD?
The Corporate Sustainability Due Diligence Directive (CSDD) is a crucial EU initiative designed to promote sustainability in the business environment.
But what are its objectives and how does it affect businesses? Join us on this journey to find out more.
What are the objectives of the CSDD?
The CSDD aims to ensure that companies operate in a sustainable and responsible manner. This directive, rooted in sustainability, seeks to protect the environment, ensure social justice and promote a stronger and more sustainable economy.
The CSDD promotes responsible corporate governance, requiring companies to consider the social and environmental impact of their operations. The directive promotes transparency and encourages companies to be more proactive in identifying and mitigating sustainability risks.
Which companies are affected by the CSDD?
The Directive will apply to large companies in the EU, defined as those with more than 500 employees and anoverall turnover exceeding EUR 150 million.
In addition, other companies operating in specific high-impact sectors will also be subject to the Directive, provided they have more than 250 employees and an overall turnover exceeding of more than EUR 40 million.
High impact sectors according to the Directive include: textiles (including footwear), agriculture, fisheries, food production, animal trading, timber, food or beverages; mining, trading and/or brokering of minerals (from metals to natural gas); and manufacture of metal or other mineral products (excluding machinery or equipment).
More specifically, the Directive will apply to:
- EU-based companies with more than 500 employees and a worldwide net turnover of more than EUR 150 million, or with more than 250 employees and a worldwide net turnover of more than EUR 40 million (in the last fiscal year) if at least 50% of their turnover comes from identified high-impact sectors.
- Companies established outside the EU with a net turnover in the EU of more than EUR 150 million (in the financial year preceding the last financial year), or with a net turnover in the EU of more than EUR 40 million (in the financial year preceding the last financial year) if at least 50% of their turnover comes from identified high impact sectors.
The CSDDD will first be implemented in companies in the first group with a turnover of more than EUR 150 million, either European or operating in Europe, within two years of its implementation.
The second group of companies will be affected after four years, provided that at least 50% of their turnover comes from identified high impact sectors.
An important milestone in EU regulation
The CS3D represents an important milestone in EU legislation. It is one of the first laws of its kind to require sustainability due diligence at the corporate level.
The directive is a clear signal of the EU’s commitment to sustainability and responsible development. It represents a major change in the way businesses operate, and it is vital that companies understand and adapt to this new regulatory environment.
The CSDD implementation timeline
The implementation of the Corporate Sustainability Due Diligence Directive (CSDD) is an evolving process, here are the key dates.
When will the CSDD enter into force?
The CSDD was adopted and entered the EU’s statute book in 2022, but its effective implementation has been planned along a staggered timetable to allow companies to adapt to its requirements.
This transition period also provides time for the training and preparation necessary to comply with the corporate sustainability due diligence required by the CSDD.
Full implementation of the CSDD, according to the timeline of the directive, is expected by the end of 2024. However, some of the directive’s provisions came into force earlier, allowing companies to start adapting to new regulations and sustainability expectations.
Breaking down CSDD due diligence
Due diligence, a key component of the CSDD, is a systemic and proactive approach that companies should take to identify, prevent, mitigate and account for their negative impacts on society and the environment.
What are the requirements of the EU Corporate Sustainability Due Diligence Directive?
CS3D sets out a number of key requirements for companies. These include:
- The establishment of a due diligence policy,
- identifying and assessing sustainability-related risks in their operations and supply chains,
- and the implementation of actions to mitigate and prevent these risks.
In addition, companies are obliged to conduct regular monitoring, publicly report on their actions and provide access to remedies for affected stakeholders.
Preparing for CSDDD requirements
In order to prepare your company for the directive, you will have to follow several steps:
- First, companies need to fully understand the expectations of the Directive and how these apply to their operations and supply chains.
- They should then carry out a risk assessment to identify any existing sustainability issues.
- Based on the results of this assessment, companies can develop and implement an action plan to mitigate these risks.
Preparedness may also involve training employees and improving existing management systems to ensure effective compliance.
The role of the supply chain in CS3D
This directive places a strong emphasis on supply chain management. Companies are responsible not only for their own operations, but also for the impacts that their suppliers may have on society and the environment.
This means that they must actively monitor the practices of their suppliers and work with them to improve any problems identified.
The supply chain plays a crucial role in CSDD, as this is often where the greatest risks and opportunities for improving sustainability can be found.
The impact of the Directive on business
The CSDD brings with it significant changes and new responsibilities for companies in the European Union. However, these changes can also translate into significant opportunities and benefits.
How will the CSDD benefit business?
At first glance, the requirements of the Directive may seem like an additional burden for companies. However, there are tangible benefits to adopting robust due diligence and focusing on sustainability.
Firstly, CSDD-compliant companies will be better prepared to manage socio-environmental risks and can avoid future problems, such as litigation or reputational damage.
In addition, the implementation of sustainability measures can result in long-term cost savings, such as reduced energy consumption.
Finally, companies that demonstrate a commitment to sustainability and social responsibility can attract more customers, investors and talent, as these factors are increasingly important to today’s consumers and professionals.
CSDDD and value chain management in the enterprise
The Directive encourages companies to take a more holistic and responsible approach to the management of their value chain.
This means taking a broader view of your operations, from the origin of raw materials to the final impact of your products or services.
Effective supply chain management and consideration of environmental and social impacts along the supply chain can help companies proactively identify and address problems, thereby improving their resilience and competitiveness.
The importance of due diligence in corporate sustainability
The CSDD highlights due diligence as an integral part of corporate sustainability.
It is not just about complying with the law, but about taking responsibility for the impact that business has on society and the environment.
By making due diligence a central component of their operations, companies can ensure that they are taking meaningful steps to improve their sustainability, which can result in benefits for both the company and society at large.
Conclusion: Moving towards a sustainable future
The CSDD is a crucial step in the EU’s journey towards sustainability and corporate responsibility.
Companies face new responsibilities and challenges, but also new opportunities. Due diligence and value chain management become key aspects for companies’ success in this new landscape.
CS3D promotes the creation of more resilient and competitive companies that are aware of their impact on society and the environment.
This focus on sustainability can translate into benefits for both business and society at large.
Sustainability and corporate responsibility are no longer just “nice things to do”, but are becoming essential requirements for doing business in the 21st century.
Implementing CSDD may seem daunting, but companies do not have to do it alone. There are tools and resources available to help them adapt to these new requirements and take advantage of the opportunities they present.
Now is the time to act and prepare for the future. If you are looking for a solution to help you navigate the world of CSDD and other sustainability regulations, we invite you to get to know our platform.
Our software will help you manage your sustainability data and optimise your efforts, facilitating your transition to a more responsible and sustainable business.