Global implications of due diligence acts
Hot Topic | August 2024
An approved EU-wide directive joins the global landscape of due diligence acts.
More governments are introducing acts aiming to prevent and mitigate environmental and social risks within company value chains. Our Hot Topic takes a deep dive into one such directive – the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which entered into force in July 2024.
Applicability
- The European Commission’s CSDDD applies to companies that meet certain employee, revenue and/or royalty thresholds.
Relevant dates
| Compliance with non-reporting related due diligence obligations | Reporting on due diligence obligations |
EU companies with net global turnover > €1.5B and > 5,000 average employees | July 26, 2027 | 2029 |
Non-EU companies with net turnover > €1.5B in the EU | Juy 26, 2027 | 2029 |
Other EU companies with net global turnover > €900M and > 3,000 average employees | July 26, 2028 | 2030 |
Other Non-EU companies with net turnover > €900M in the EU | July 26, 2028 | 2030 |
All other companies within scope | July 26, 2029 | 2030 |
Key impacts
Due diligence obligations cover the value chain
- The CSDDD introduces due diligence obligations for companies related to actual and potential adverse human rights and environmental impacts - with respect to their own operations, the operations of their subsidiaries, and operations carried out by direct and indirect business partners throughout their value chain. For example, companies are required to integrate due diligence into all relevant policies, establish a complaints procedure, adopt and put into effect a transition plan for climate change mitigation, and report annually.
Scoping applies to both EU and non-EU companies
- Non-EU companies (or groups) are in scope (irrespective of whether they have subsidiaries or branches in the EU) if, for two consecutive financial years (the financial year preceding the last and the financial year prior to that), they had:
- > €450M net turnover in the EU; or
- > €80M net turnover in the EU and > €22.5M royalties in the EU from franchising or licensing agreements in the EU.
A transition plan must be adopted, put into effect and updated
- To contribute to combating climate change, companies must adopt, put into effect and update, at least every 12 months, a transition plan for climate change mitigation that is compatible with the transition to a sustainable economy and the limiting of global warming to 1.5 degrees Celsius in line with the Paris Agreement and the EU’s climate neutrality objective.
Obligations complement other EU legislation – particularly the CSRD
- The CSDDD reporting obligation can be covered by reporting under the Corporate Sustainability Reporting Directive (CSRD), and the CSDDD’s obligation to adopt a transition plan complements the CSRD’s transition plan reporting obligation.
Noncompliance penalties will be effective, proportionate and dissuasive
- To be established by the Member States, this will include maximum pecuniary penalties of at least 5% of global net turnover and the possibility for civil liability.
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Sustainability in the EU - Global implications of due diligence acts
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