Preparing for Compliance: How Will CSDDD Impact Your Organization?
The European Directive on Corporate Sustainability Due Diligence (CSDDD) was published on February 23, 2022. This legislation proposes extensive new human rights and environmental due diligence requirements for over 13,000 European and 4,000 non-European companies that provide products or services in the European Union (EU). The proposed obligations require data analysis across multiple tiers of the supply chain, with possible fines for noncompliance.
Even though the CSDDD is not expected to go into national law until 2025, the expansive scope of the proposed provisions means that most companies will need to take action to ensure they are prepared to meet reporting requirements.
What does the CSDDD involve?
The CSDDD requires that businesses:
- Monitor environmental impacts across their supply chains
- Conduct due diligence to identify, prevent and account for human rights violations, according to the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises
- Implement new corporate director duties that will enhance companies’ accountability for sustainability issues
Who does it affect?
The CSDDD proposes to impose its provisions on all European companies that meet either of the following two criteria:
- More than 500 employees and €150 million annual revenue;
- More than 250 employees and €40 million annual revenue, with at least half coming from high-risk industries, such as garments, agrifood, mineral resources extraction, metals, construction materials, fuels, or chemicals.
Non-EU companies will be liable if they have a net turnover of at least €150 million or €40 million in the EU, depending on their sector. Small and medium enterprises (SMEs) are excluded from direct due diligence requirements but are indirectly affected by the proposal.
The due diligence requirements imposed cover potential and actual adverse impacts in the value chain across direct or indirect established business relationships. This means both upstream and downstream business relationships are affected, even without a contractual relationship.
The Proposal also redefines the Duty of Care of directors, extending their mandate to consider the consequences of their decisions for sustainability matters, including human rights, climate change, and environmental consequences. Such director-level decisions will be linked to senior management’s remuneration package. As a result, a failure to consider these sustainability measures could impact director remuneration.
In cases of non-compliance, fines may be issued to the company based on the company’s turnover.
Meeting the Directive’s Due Diligence Requirements
Companies that are aware of their supplier network’s sustainability management practices will be well-positioned to exercise supply chain due diligence and demonstrate compliance.
The SupplyShift platform provides organizations with tools and assessments that enable them to carry out the necessary due diligence and meet the requirements of the European Commission proposal.
Using the SupplyShift platform, companies can conduct robust risk assessments across their entire supply chain, from Tier 1 all the way down to source level. The data can then be harnessed to highlight potential environmental, ethical, and human rights impacts and investigate areas of concern through examination of supplier data. As actual or potential impacts are identified, integrated corrective actions can be triggered allowing companies to work collaboratively with their partners to address risks and improve performance.
Despite the vast amount of data and analysis that the CSDDD requires, the process can still be made simple for companies with the right tools in place.