On December 14, 2023, a pivotal moment unfolded as the European Parliament and Council concurred on the Corporate Sustainability Due Diligence Directive (CSDDD). This upcoming directive places comprehensive obligations on companies, mandating due diligence to address potential and actual adverse impacts on human rights and the environment. In this article, we  provide a brief analysis of the impending legislation based on the latest information.

This article was written by David Boekel ([email protected]) and Gidion Lont ([email protected]), Both David and Gidion have a strong focus on Sustainability Strategies where they enable businesses to develop and implement effective Sustainability strategies that drive sustainable growth and positive impact.

 

Decoding The Corporate Sustainability Due Diligence Directive

Scope and Applicability

The CSDDD targets large EU companies, specifically those with over 500 employees and a net worldwide turnover exceeding €150 million. Additionally, companies with more than 250 employees and over €40 million in turnover are also included, particularly if they operate in high-risk sectors. The directive also extends to non-EU companies with substantial EU turnover, with a clear list of affected companies to be published by the Commission.

Significantly, the CSDDD’s reach extends beyond a company’s own operations to encompass their business partners, impacting even smaller firms. While initially limited to their own operations and upstream supply chains, the financial sector is partly excluded from downstream operations, a notable victory for the Council. However, financial firms will indirectly face the implications of these rules as business partners of in-scope companies.

It's important to note that the CSDDD's sibling directive, the Corporate Sustainability Reporting Directive (CSRD), has a broader scope. Entities not covered by CSDDD may still need to conduct due diligence for CSRD compliance.

Comprehensive Duties: What Companies Must Do

Companies within the CSDDD's scope are required to rigorously carry out due diligence. This includes identifying, assessing, preventing, and mitigating negative impacts on human rights and the environment across their supplu chain. In certain cases, companies must sever ties with business partners if adverse impacts are irremediable. Additionally, companies must establish complaint mechanisms, communicate policies, and monitor effectiveness. There’s also a mandate to adopt climate change mitigation plans aligning with the Paris Agreement, with management incentives tied to their implementation.

Timeline for Implementation

Following the provisional agreement, formal endorsements by the Parliament and Council are awaited. Post-adoption, the directive will become effective 20 days after its publication in the Official Journal. Considering the scope, companies should start preparing now for compliance, while also monitoring sector-specific and national legislation.

How RSM Can Assist You

In today's globalized world, acknowledging and embracing the differences in ESG approaches across regions is not only a strategic advantage but also a moral imperative. By emphasizing these distinctions, countries and organizations can better adapt their ESG strategies to align with local needs and expectations.

At RSM, we are part of an international network that thrives on collaboration and knowledge sharing. Our ESG consultants frequently collaborate across borders to assist our clients, exchange ideas, and gain insights into the diverse landscapes our clients operate in. We cater specifically to medium-sized enterprises and family businesses, recognizing the unique needs and regulatory landscapes of each client, both domestically and internationally.