The Corporate Sustainability Due Diligence Directive has been adopted

'Sustainability' goes beyond just climate, and the role that businesses can play in protecting both the environment and supporting broader issues such as human rights has caught the attention of politicians, investors, consumers, and other stakeholders.

The Corporate Sustainability Due Diligence Directive (CSDDD) sets a rigorous standard for human rights and environmental due diligence for companies operating in the European Union (EU). Despite a bumpy negotiation process, the CSDDD has now conclusively been adopted by the EU, and EU member states will have two years to transpose the directive into national legislation.

The main goal of the CSDDD is to mandate companies operating within the EU to practice human rights and environmental due diligence. The directive aims to promote greater protection of human rights and the environment, while also minimising negative impacts on global value chains.

By implementing a unified approach across the EU, the directive intends to provide businesses, customers, and victims with more clarity about expected behavior and potential liability.

To comply with the directive, companies need to integrate responsible business practices into their daily operations, actively identifying and addressing risks on human rights and the environment. Due diligence is required in relation to companies’ own operations, subsidiaries, and business partners (taking a value chain approach), regardless of whether the impacts occur within or outside of the European Union.

The CSDDD includes comprehensive requirements for due diligence, with a risk-based approach, that are aligned with well-recognised international frameworks such as the OECD Guidelines for Multinational Enterprises (OECD Guidelines) and the UN Guiding Principles on Business and Human Rights (UNGPs). Companies are required to:

• Embed responsible business conduct into policies and management systems.
• Identify, assess and prioritise actual or potential adverse impacts on human rights or the environment.
• Prevent, mitigate, or bring to an end adverse impacts and provide remediation where necessary.
• Meaningfully engage with stakeholders and implement robust complaint mechanisms.
• Monitor the effectiveness of measures taken and communicate publicly on due diligence.

To comply with the rules, companies must exercise human rights and environmental due diligence in relation to their own operations, those of their subsidiaries, and their direct and indirect business partners. This applies regardless of whether impacts occur within or outside the European Union. Due diligence related to product disposal and indirect downstream business partners are, however, exempted from the scope of application.

Alongside these requirements, the CSDDD requires companies to adopt and implement a climate transition plan that is in line with the Paris Agreement. 

The CSDDD includes an adaption scheme for in-scope companies (which applies from the moment the CSDDD entries into force), which is as follows:

• Companies with more than 5000 employees and 1500 million turnover in the previous two consecutive financial years will have 3 years to comply with the CSDDD;
• Companies with more than 3000 employees and 900 million turnover in the previous two consecutive financial years will have 4 years to comply with the CSDDD; and
• Companies with more than 1000 employees and 450 million turnover in the previous two consecutive financial years will have 5 years to comply with the CSDDD.

Further, also falling under the Directive’s purview are

• non-EU companies operating within the EU and meeting the turnover threshold of EUR 450 million (generated within the EU); and
• companies that have a franchising or licensing agreement with a third-party company in the EU in return for royalties exceeding EUR 22,5 million, provided their worldwide net turnover also exceeds EUR 80 million. 

The European Parliament passed the Corporate Sustainability Due Diligence Directive (CSDDD) in a vote on 24 April 2024. This means that the CSDDD has now passed all the EU legislative phases, and EU member states will have two years to transpose the directive into national legislation.

After adoption EU Member states will have two years to transpose the directive into national law (2024-2026) after which the provisions will start to apply from 2027-2029 depending on the size of the company.