On December 14, the EU's trilogue negotiations on the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) yielded a provisional agreement between the EU Council and Parliament. The CSDDD is set to impose comprehensive due diligence obligations on companies to identify and mitigate negative environmental and human rights impacts throughout their value chain.
Some businesses in the EU have already built a solid foundation for CSDDD compliance. This is particularly true for German companies within the scope of the “LkSG” Supply Chain Act and French ones that have been subject to the Devoir de Vigilance (Duty of Care) law since 2017. But what does the upcoming directive mean for the vast majority of EU companies that are still in the early stages of their supply chain due diligence journey or have yet to start?
Scope of the CSDDD: Who must comply?
-
Large EU companies: Affects EU companies with over 500 employees and a global net turnover of more than €150 million.
-
Medium-sized companies: Includes companies with over 250 employees and a turnover of more than €40 million, especially in high-risk sectors.
-
Non-EU companies: Applies to non-EU companies with a net turnover of €300 million in the union.
-
Indirect impact: Although primarily aimed at large companies, the Directive also affects smaller companies indirectly through their links to larger trading partners.
-
Financial sector inclusion: Excluded for now, with a review clause for possible inclusion later on.
Requirements and Obligations for Companies
Due diligence requirements: Identify, assess, prevent, mitigate and remediate adverse human rights and environmental impacts.
Terminating harmful business relationships: Terminate relationships with partners that cause negative impacts if they cannot be resolved.
Additional responsibilities: Establish a grievance mechanism and effective communication of due diligence obligations.
Climate change transition plan: Develop and implement a climate change mitigation plan in accordance with the Paris Agreement.
Public Procurement Features
The agreement stipulates that compliance with the CSDDD can be used as a criterion for the award of public contracts.
Enforcement and Liability
-
The EU can conduct inspections, investigations and impose penalties, including fines of up to 5% of worldwide turnover.
-
Penalties for non-compliance include fines and injunctions, with an emphasis on stakeholder engagement in the due diligence process. Affected individuals and organizations can make claims for damages within a five-year period.
Next Steps
The tentative agreement made on December 14 is awaiting formal approval and acceptance. Implementation will follow 20 days after publication in the Official Journal. Companies should prepare for compliance now and monitor sector-specific and national legislation.
Building Your Compliance Approach
EcoVadis' Sustainability Intelligence, Ratings, Scorecards and Improvement platform form the supply chain risk due diligence and reporting foundation for thousands of value chain partners.
-
Hear how DHL Group, Brenntag and Merck comply with confidence.
-
Contact us for a consultation or demo.
We will continue to keep you updated.
About the Author
Follow on Twitter Follow on Linkedin Visit Website More Content by EcoVadis EN
