Following the recent approval of the CSDR Directive on corporate sustainability reporting, the EU has just approved on 24 April the new and ambitious Directive on Corporate Sustainability Due Diligence (also known as CSDDD). This regulation aims to make companies increase their corporate responsibility from the point of view of human rights and the environment. To this end, it is estimated that more than 5,000 companies, not only in the European Union, will have to comply with new obligations and requirements.
Which companies will be affected by CSDDD?
The implementation of the CSDDD will affect:
- Large European Union (EU) companies with more than 1,000 employees and more than 450 million annual turnover worldwide. However, implementation will be gradual:
- 2027: companies with more than 5,000 employees and a turnover of more than 1.5 billion euros.
- 2028: companies with more than 3,000 employees and a turnover of more than 900 million euros.
- 2029: companies with more than 1,000 employees and a turnover of more than 450 million euros.
- Non-EU companies with activities in the EU with a turnover of more than €450 million in the territory of the EU. Implementation will also be gradual:
- 2027: companies with a turnover of more than EUR 1.5 billion.
- 2028: companies with a turnover of more than 900 million euros.
- 2029: companies with a turnover of more than EUR 450 million.
Obligations of companies
Companies affected by the CSDD must comply with these standards for human rights and environmental due diligence:
- Develop a due diligence policy containing a description of the company’s approach, a code of conduct and a description of the processes in place to implement it. Companies should also monitor the effectiveness of their strategy and the measures taken.
- Determine the actual or potential negative effects of its activity, that of its subsidiaries and that of its chain of activities on human rights and the environment. Prevent and mitigate them through the application of the due diligence policy.
- Establish and maintain a complaints procedure.
- Communicate publicly on an annual basis on due diligence.
- Adopt and implement a climate transition plan in line with the Paris Agreement, with the objective of mitigating climate change and limiting global warming to a maximum of 1.5°C.
In order to comply with all these regulations, companies will have to collect qualitative and quantitative information through independent reports.
How the Sustainability Diligence Directive affects the value chain
In addition, large companies will also have to carry out at least annual assessments of their subsidiaries and value chains. The regulation adopts the term «chain of activities», which covers both upstream and, in part, downstream business partners. That is:
- The activities of upstream business partners related to the production of goods or the provision of services. This includes the design, extraction, procurement, manufacture, transport, storage and supply of raw materials, products or parts of products and the development of the product or service.
- The activities of the company’s downstream business partners related to distribution, transport and storage of the product.
Significant financial penalties
Non-compliance with the CSDD will lead to both administrative and civil sanctions. Supervisory authorities will be in charge of monitoring compliance and will be able to impose fines of up to 5% of the worldwide net turnover of companies that violate the rules.
In conclusion, the new Corporate Sustainability Due Diligence Directive (CSDDD) significantly increases due diligence obligations. Confianz’s legal team can help companies to ensure proper compliance.