Corporate Sustainability Due Diligence - Getting Off to a Good Start

In an effort to promote sustainable and responsible business conduct within the EU, the Corporate Sustainability Due Diligence Directive ("CSDD") is on the table and making its way swiftly through the European legislative process. This proposed directive addresses companies' responsibilities regarding negative impacts on the environment and human rights resulting from or potentially resulting from their own activities, their subsidiaries, and their value chains.

The European Parliament approved this highly anticipated directive in early June. This means negotiations between the Parliament, the Council, and the Commission can begin, starting on June 8. While the parties hope to finalize the CSDD by the end of the year, they acknowledge that the timeline could be pushed back to early 2024. EU member states will then have two years to transpose the directive into national law.

Although this deadline may seem comfortably distant, it's time for companies to familiarize themselves with the CSDD and begin planning how to comply with these new sustainability due diligence obligations.
 

Which Companies Are Affected?

The proposal targets (very) large European and non-European companies operating within the single market:

  • EU-based companies with more than 250 employees and a global net turnover exceeding €40 million, and
    Non-European companies with a global net turnover of more than €150 million, provided at least €40 million of that turnover is generated in the EU.
  • Companies exceeding these thresholds represent only about 1% of all EU businesses. However, SMEs will also be affected if they have an established business relationship with a company subject to the directive, for example as a supplier or subcontractor within the value chain. These businesses will likely need to provide information and comply with certain standards so that the larger company can meet its due diligence obligations.
     

What Are Companies Required to Do?

Companies covered by the CSDD, and indirectly, businesses within their value chains, will need to take the following steps:

  • Develop, implement, and communicate a corporate due diligence policy regarding human rights and the environment;
  • Identify the most significant negative impacts on human rights and the environment within their operations, those of their subsidiaries, and throughout their value chains;
  • Take necessary measures to prevent, and if not possible, mitigate these impacts;
  • Monitor the effectiveness of their due diligence measures;
  • Produce an annual report reflecting their due diligence efforts.


Planning Ahead and Preparing

Even though the CSDD is still being developed, companies that fall within its scope, as well as those that do not, would be wise to proactively prepare for its requirements. Now is the time to assess the key environmental and human rights risks and negative impacts associated with your business activities. Review all subsidiaries and your entire value chain. This will provide an overview of the most important risks and impacts, enabling you to prioritize and address due diligence matters efficiently and swiftly.