Corporate Sustainability Due Diligence Directive (CSDDD)

What is the Corporate Sustainability Due Diligence Directive (CSDDD)?‍

The Corporate Sustainability Due Diligence Directive (CSDDD, also CS3D) is a European supply chain law that was adopted in summer 2024. The CSDDD requires companies to consider their impacts on human rights and the environment in their supply and value chains.

The directive is part of the EU's comprehensive plan to promote sustainability, which also includes the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation.

What are the goals of the CSDDD?

The Corporate Sustainability Due Diligence Directive CSDDD aims to promote sustainable business practices within the EU by ensuring that companies take responsibility for the environmental and social impact of their business activities.

Further objectives of the Supply Chain Directive are

• Create a level playing field
• Increase transparency
• Respect human rights and environmental protection throughout the supply chain, e.g. through
  • Protection of biodiversity
  • Reduction of environmental pollution
  • Sustainable resource management
  • Adaptation to climate change
  • Reduction of greenhouse gas emissions

Who is affected by the Corporate Sustainability Due Diligence Directive (CSDDD)?

1. EU-based companies and their parent companies with more than 500 employees and a global annual turnover of more than 150 million euros.
2. Companies outside the EU are affected by the EU's Supply Chain Duty of Care Act if they achieve an annual net turnover of 300 million euros in the EU three years after the directive comes into force.‍
3. Companies with more than 250 employees and an annual turnover of over 40 million euros are subject to this regulation if at least EUR 20 million of this turnover is generated in sectors classified as high-risk. These sectors include
   • the manufacture and wholesale of textiles, clothing and shoes
   • Agriculture, including forestry and fisheries
   • food production
   • Trade in agricultural products
   • the extraction and wholesale of minerals
   • the manufacture of related products
   • the construction sector.

When should the Corporate Sustainability Due Diligence Directive (CSDDD) be implemented?

On April 24, 2024, the Corporate Sustainability Due Diligence Directive CSDDD was adopted by the EU Parliament. One month later, on May 24, 2024, the EU member states also approved the directive. Once the Supply Chain Directive is formally adopted, the member states have two years to transpose the CSDDD into their national law by 26 July 2026.

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When are which companies affected by the European Supply Chain Act?

• 3 years after the start of validity: EU companies and parent companies that employ more than 5,000 people and generate a turnover of 1.5 billion euros either worldwide or (in the case of non-EU companies) within the EU.
• 4 years after the start of validity: EU companies and parent companies that employ more than 3,000 employees and have a global turnover or (in the case of non-EU companies) a turnover in the EU of more than 900 million euros.
• 5 years after the start of validity: EU companies and parent companies with more than 1,000 employees and a global turnover or (for non-EU companies) a turnover in the EU of more than 450 million euros. In addition, franchise companies based in the EU with a turnover of more than 80 million euros, provided that at least 22.5 million euros come from license fees. For franchise companies outside the EU, the thresholds relate to turnover generated in the EU.

What do companies need to do to implement the Corporate Sustainability Due Diligence Directive (CSDDD)?

The Corporate Sustainability Due Diligence Directive requires companies that fall within its scope of application to take the following measures: 

1. Identify the significant adverse environmental and human rights impacts of its operations, subsidiaries and supply chains.
2. Mitigate the identified risks within its business and supply chain, supported by an action plan and timeframe to address the identified risks.
3. Introduction of grievance mechanisms to enable employees and stakeholders to report issues or concerns should they arise.
4. Align its business model and strategy with the 1.5°C target of the Paris Agreement.
5. Public reporting on their due diligence through a sustainability report or on their website.

What does the CSDDD mean for companies?

The introduction of the Corporate Sustainability Due Diligence Directive (CSDDD) underlines the growing importance of sustainability and social responsibility in the business context. Companies will need to adapt their internal processes to meet the requirements of the Directive and may need to re-evaluate their relationships with suppliers and other business partners . Compliance with the Corporate Sustainability Due Diligence Directive (CSDDD) can not only reduce the risk of legal sanctions, but also improve brand image and contribute to long-term business stability.

The CSDDD is an essential step towards a more sustainable and responsible economic model in the EU. The European supply chain law ensures that companies have the necessary processes in place to identify and manage their environmental and human rights impacts and promotes a culture of transparency and accountability.

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