FAQs: The EU Corporate Sustainability Due Diligence Directive

Updated 22 November, 2024

In April of 2024 the European Parliament officially finalized its Corporate Sustainability Due Diligence Directive (CSDDD), sometimes referred to as CS3D, which was then approved in May 2024.  The proposal was originally introduced by the European Commission in February 2022.

Among other things, the CSDDD obligates EU member states to implement due diligence measures with the primary aim of requiring companies to ‘identify, end, prevent, mitigate, and account for, adverse human rights and environmental impacts’ in their own operations (including the operations of their subsidiaries), as well as their extended value chains and third parties.

 

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What is the European Corporate Sustainability Due Diligence Directive?

CSDDD imposes new due diligence requirements concerning human rights and environmental impacts on certain EU and non-EU based companies. CSDDD accomplishes this objective primarily by requiring member states to ensure that companies integrate sustainability-oriented considerations into the corporate policies of all affected companies.

Pursuant to Article 5 of the CSDDD, such due diligence policies must include a description of the company’s overall approach to due diligence; a code of conduct setting forth the rules and principles to be followed by the company’s employees and its various subsidiaries.

Also required is a description of the processes put in place to “implement due diligence”—including, but not limited to, the identification of measures taken to “verify compliance with the code of conduct and to extend its application to established business relationships.” Article 5 further requires that such due diligence policies be reviewed and updated by covered organizations on an annual basis.

What Companies are Affected By the CSDDD?

The CSDDD applies to a wide range of entities, including EU and non-EU companies, categorized into distinct groups based on criteria such as size and turnover, while protecting the environment and promoting sustainable investment.

For example, Group 1 of EU Companies include organizations with more than 5,000 employees, and those with more than EUR 1.5B in net turnover worldwide within the past financial year.

These groupings include both EU and Non-EU organizations, and include requirements for those with less employees, and less worldwide turnover.

For a full list of who is subject to the Directive, check out our guide.

What are Some Requirements of the CSDDD?

The Directive outlines a set of requirements for accountable companies, these include:

• Embedding due diligence practices into organizational policies and risk management systems to ensure comprehensive coverage of sustainability considerations.
• Conducting thorough assessments to identify potential or actual adverse impacts within the company’s operations, subsidiaries, and related chain of activity involving business partners.
• Collaboration with stakeholders to develop an action plan with clearly defined timelines aimed at preventing and/or mitigating potential impacts effectively.
• Immediate or gradual measures to minimize impacts where instant cessation is not feasible.
• Qualitative and quantitative indicators to measure progress, track improvement, and evaluate the effectiveness of mitigation efforts.
• A transition plan for climate change mitigation.
• Establishment and maintenance of a notification mechanism and complaints procedure.
• Transparent and public communication on the organization’s due diligence efforts.

What Is the CSDDD Implementation Timeline?

2027:

Three years after the enforcement of the Directive Group I will be expected to be compliant with its requirements.

2028:

Companies in Group II are granted an additional year before they are held accountable to the Directive’s requirements.

2029:

Companies in Group III and IV will be granted a five-year timeline within which they will need to become compliant with the Directive.

What Is the Current State of the CSDDD?

Earlier this year, the European Union finalized the Corporate Sustainability Due Diligence Directive (CSDDD) draft proposal stirring up significant debate among corporations and EU member states around the stringency of the requirements on organizations in scope.

Following amendments to the Directive, it was approved by the European Parliament on April 24th, 2024 and formally approved by the European Council in May of 2024, marking a significant step towards the enforcement of new environmental and human rights standards.

What Should Businesses Be Doing Now?

The CSDDD a strong indicator that companies will soon be subject to more stringent due diligence requirements respecting human rights and environmental considerations than they have historically been accustomed to.

This evolution of sustainability concerns into a concrete set of due diligence requirements is likely a sign of things to come outside of the EU as well. Thus, both EU and non-EU companies should take heed of these developments and ensure that their organizations are poised to adopt more robust due diligence parameters.

For list of due diligence best practices, check out our CSDDD Guide!