The Corporate Sustainability Due Diligence Directive (CSDDD, or CS3D) has been officially adopted by the Council of the European Union, marking the final stage in the decision-making process. The directive will impact companies with over 1000 employees and a turnover exceeding €450 million. 

What is the CSDDD?

CSDDD is a directive that requires large companies to identify and address adverse human right violations and environmental damage associated with their value chains. This includes addressing issues such as forced labor, labor exploitation, and child labor, as well as environmental issues such as emissions, deforestation, and water use. The directive concerns not only the companies’ operations, but also the activities in the upstream production of goods or the provision of services, to the downstream distribution, transport, or storage of products. 

“CSDDD is a key piece in the just transition to a more sustainable economy. It evens the playing field for large companies by bringing clarity on the obligations for addressing adverse impacts on human rights and the environment in large parts of the value chain. With being a large company also comes great responsibility and with the new directive companies can lead the way in the right direction”, says Christopher Larsson, Sustainability Advisor at KPMG.

How does it affect companies?

The directive focuses on obligations of means, which entails that companies should take suitable actions to meet due diligence objectives by effectively dealing with negative impacts, in a way that matches the severity and likelihood of these impacts. In other words, companies need to implement a risk-based system to identify and prevent or provide remedy for adverse human right and environmental violations.  

If negative impacts on human rights or the environment are detected, companies should take action such as preventing and minimizing the negative impact, e.g., paying compensation to those affected, developing, and implementing corrective action plans, and making necessary investments in infrastructure. 

Failure to implement a due diligence process according to the directive can lead to fines where the maximum limit of the fine shall be not less than 5 % of the global turnover, as well as risk of civil claims.  

In addition, companies in scope will have to adopt and put into effect climate transition plan with the objective, on best effort basis, compatibility of the business model and of the strategy of the company with the transition to a sustainable economy and in line with the Paris Agreement. 

The next step in the process is publication of the directive in EU's official journal in the following weeks, and the law will enter into force on the 20th day. Then, EU countries have two years to implement the law into national legislation. The Commission is also expected to release a set of guidelines to help companies on how to conduct due diligence. 

The directive sets a gradual phase-in for application based on companies’ size and turnover following this timeline after entry into force of the directive: 

  • 3 years for companies with more than 5 000 employees and €1 500 million in turnover  
  • 4 years for companies with more than 3 000 employees and €900 million in turnover  
  • 5 years for companies with more than 1 000 employees and €450 million in turnover 

Read the Counsil of the EU's press release about the directive. 

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