The impact of the European CSDDD directive on European companies: A comprehensive guide

CSDDD

What is the CSDDD?

The CSDDD (Corporate Sustainability Due Diligence Directive) is a proposal by the European Commission aimed at introducing legislation on corporate due diligence at the European level. Inspired by the principles of due diligence already implemented in some European countries such as France, as well as international standards and some existing recommendations, the CSDDD aims to regulate companies’ obligations regarding social, ethical, and environmental responsibility throughout their supply chain. The text is still under discussion in the European Parliament and is expected to make a large number of companies subject to new obligations, such as ensuring the respect of human and environmental rights within their subsidiaries and among their suppliers.

Principles of the CSDDD

Due diligence refers to “the process of identifying and assessing; ceasing, mitigating, and preventing; monitoring and overseeing; communicating and accounting for risks and impacts on the environment and human rights” (ECCJ & CORE, 2020). This legislation is based on two pillars: firstly, “the duty of responsible diligence,” which involves identifying, preventing, minimizing, and remedying impacts on the environment and human rights; and secondly, “the duty of reparation” in case of absence or inadequacy of the precautions taken. It is essential to emphasize that fulfilling the first duty does not exempt the company from the second. These principles are outlined in three chapters: the rights of victims, the protection of victims, and access to justice.

Practically, this directive requires companies to identify risks related to their activities in these different areas and take measures to prevent them. This includes integrating suppliers and subcontractors into this process, as well as transparently publishing information related to their social and environmental responsibility efforts.

In other words, the CSDDD directive aims to preserve several essential aspects:

  • The environment and climate: It aims to minimize environmental damage, promote sustainable practices, and combat climate change.
  • Fundamental freedoms and human rights: It ensures that companies respect workers’ rights, notably by avoiding child labor and forced labor.
  • Health and safety of individuals: It encourages the application of rigorous safety standards to protect people.

To achieve these objectives, the CSDDD encourages large companies to:

  • Identify the risks related to their activities in these areas.
  • Include their suppliers and subcontractors in their sustainable development approach.
  • Design preventive measures to avoid these risks and monitor their implementation.
  • Publish all this information transparently and responsibly.
  • Companies concerned by the CSDDD

The current text stipulates that the obligation to exercise due diligence throughout the value chain would apply to EU companies and those operating within its territory, meeting the criteria of the two following categories:

  • Those employing a minimum of 500 people and generating an annual turnover of more than 150 million euros; and
  • Those employing a minimum of 250 people and generating an annual turnover of more than 40 million euros in the three identified high-risk sectors (textile, agriculture, and minerals).

This scope is limited as it exempts 99% of European companies from these obligations.

Implementation of the directive

The entry into force of the text related to the due diligence directive, CSDDD, depends on the progress of the European legislative process, which involves several stages and key actors. One of these stages is the trilogues, a negotiation mechanism that brings together the European Commission, the Council of the European Union, and the European Parliament.

According to a press release published by the European Council on December 14, 2023, the Council and the European Parliament reached a provisional agreement that establishes the scope of the directive, clarifies the responsibilities of companies that do not comply with their obligations, defines more precisely the various sanctions, and completes the list of rights and prohibitions that companies must respect (Council of the EU, 2023).

The different levels of evolution across Europe

Different European countries are moving towards their own binding national legislation. However, not all are at the same stage of their journey. To report on these advancements, ECCJ (2022) has mapped this evolution at the continental level, categorizing countries according to three levels of advancement: those that have adopted a law (France, Germany, the Netherlands, and Norway), those where a political process is underway (Austria, Belgium, Finland, Luxembourg, the Netherlands, and Spain), and those where there are actions by civil society (Ireland, England, Sweden, Denmark, Poland, the Czech Republic, Italy, and Switzerland) (ECCJ, 2022).

The European Commission also records these different advancements in its directive proposal. In Germany, the “Supply Chain Due Diligence Act” dating from 2021, and in France, the “Duty of Vigilance Law” of 2017 are texts concerning due diligence in its entirety. The Netherlands, for their part, already have a more targeted law, the “Child Labor Due Diligence Act” dating from 2019, which therefore concerns only one aspect. Finally, Norway has a “Transparency Act on Corporate and Human Rights and Decent Working Conditions” (ECCJ, 2024).