Corporate Sustainability Due Diligence Directive

On 24 May 2024, the European Council formally adopted the Corporate Sustainability Due Diligence Directive (the “CSDDD”).

The CSDDD must be transposed by Member States into national law by 26 July 2026 and these new rules will become applicable to companies according to the timeline set out in Article 37 of the CSDDD, in order to provide them some time to be prepared until the new rules will be take effect.

What is the scope of CSDDD?

In accordance with Article 1 (a) of the CSDDD adopted aiming to set the rules for:

(a) the obligations for companies regarding actual and potential human rights adverse impacts and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies;

(b) the liability for violations of the obligations as referred to in point (a); and

(c) the obligation for companies to adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, compatibility of the business model and of the strategy of the company with the transition to a sustainable economy and with the limiting of global warming.

The CSDDD thus covers a wide range of human rights, environmental and climate issues.

Which companies are within scope?

The CSDDD will apply to:

EU companies (companies established under the laws of a Member State) that had above 1,000 employees and above EUR 450 million ‘net worldwide turnover’ in the last financial year; and

Non-EU companies (companies established outside of the EU) that generated a ‘net turnover in the Union’ of more than EUR 450 million in the financial year preceding the last financial year.

The CSDDD will only apply to those EU and non-EU companies which satisfy the relevant criteria above for two consecutive financial years.

The CSDDD also extends to EU and non-EU “ultimate parent companies” of groups of EU and/or non-EU companies – which, taken together as a group, meet the above thresholds.

Steps to be taken by the companies:

In scope-companies shall set plans to manage actual and potential adverse impacts. They shall control:

the activities of a company’s upstream business partners related to the production of goods or the provision of services by the company (including the design, extraction, sourcing, manufacture, transport, storage and supply of raw materials, products or part of the products and development of the product or the service); and

the activities of a company’s downstream business partners related to the distribution, transport and storage of the product – where the business partners carry out those activities for the company or on behalf of the company.

The main idea of the CSDDD is for the companies to take the appropriate measures in order to be capable to identify adverse impacts, companies should take appropriate measures to map their own operations, those of their subsidiaries and, where related to their chains of activities, those of their business partners. Most specifically among other steps based to the CSDDD the respective companies shall:

1.  Adopt a ‘risk-based’ approach to human rights and environmental  due diligence;
2. Integrate due diligence into all relevant policies and risk management systems;
3. Identify and assess actual or potential adverse impacts and prioritise potential and actual adverse impacts;
4. Prevent and (where not possible or immediately possible) mitigate potential adverse impacts and bring actual adverse impacts to an end and minimise their extent;
5. Establish and maintain a notification mechanism and complaints procedure;
6. Monitor the effectiveness of due diligence policy and measures; and
7. Adopt and put into effect a climate transition plan.

The adoption of CSDDD is an alert for the companies (even the companies below the thresholds should be prepared how to handle their in-scope business partners) to reassess their chain of operations and evaluate possible changes in their business practices in order to comply with the new rules imposed by this significant milestone in the legislative process.

Author: Melissa Chatzikyriakou

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