Corporate governance is changing fast, with new rules emphasising responsible and sustainable business practices. One major update is the Corporate Sustainability Due Diligence Directive (CSDDD). Officially published in the Official Journal of the European Union on 5 July and entering into force on 25 July 2024, the CSDDD aims to anchor human rights and environmental considerations into companies' everyday operations. For businesses, especially those with complex supply chains, understanding and following the CSDDD is crucial not only to avoid penalties but also to become leaders in sustainability.

What is the CSDDD?

The CSDDD requires large European and foreign companies operating in the EU with at least 1000 employees and at least EUR 450 million turnover (net) to meet strict environmental and human rights standards throughout their supply chains. This directive significantly broadened the scope and depth of corporate responsibility from previous regulations.

Key Points and Benefits

The CSDDD introduces several important requirements:

Risk Assessment and Management:

• Companies must check their supply chains for human rights violations and environmental harm.
• They need to prioritise these risks based on how serious and likely they are, then take action to address them

Access to Justice:

• Victims of human rights violations in the supply chains of European companies can now sue the companies if they have failed to prevent the harm.

Harmonised Legal Framework:

• The directive provides a unified legal structure across the EU, ensuring legal certainty and a level playing field for businesses.
• This consistency builds customer trust and employee commitment, promoting better risk management.

Challenges and Criticism

Despite its benefits, the CSDDD has faced criticism. Some of the remarks referred to:

Reduced Scope: The final directive applies only to larger companies with at least 1,000 employees and a turnover of 450 million euros, reducing the number of companies affected. It is estimated that these changes will reduce the total number of EU companies covered by the CSDDD by at least 65% – from around 16,000 to less than 5,500 companies.

Extended Implementation Period: Companies have three to four years to comply, depending on their size, which delays the directive’s full impact. As a result of this staged approach, companies with 1,000 to 3,000 employees will only have to be compliant by July 2029.

Sector Exemptions: High-risk sectors like agriculture and textiles are not subject to lower employee thresholds, which could overlook significant environmental impacts.

Preparing for Compliance

As also for the European Deforestation Regulation (EUDR), a strategic approach to navigate CSDDD is essential. Here’s how businesses can prepare:

Set Up Processes Early: Establish robust systems for due diligence, including mapping supply chains in detail and understanding key processes.

Engage with Suppliers: Maintain regular communication with upstream and downstream suppliers to ensure compliance and address any issues promptly.

Collect Comprehensive Data: Gather and document supply chain data with high granularity and derived from primary sources to support transparency and traceability.

Risk Analysis: Continuously identify and assess risks associated with your supply chains, implementing measures to mitigate them effectively.

Conclusion

The CSDDD represents a significant shift towards greater corporate accountability and sustainability. For companies, this directive is not just a regulatory challenge but an opportunity to build stronger, more resilient supply chains. By adopting a transparent and traceable approach, businesses can enhance their sustainability credentials, improve stakeholder trust, and ultimately achieve long-term resilience.

The Seedtrace platform supports you in sourcing information directly from the origin and collaborating with all actors along the chain. You will benefit from sustainability-driven supply chain management. The seamless circulation of primary data throughout the supply chain is built in.

Sources: 
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202401760

https://trustnet.trade/blogs/die-endgueltige-csddd-wichtige-aenderungen-und-auswirkungen

https://www.twobirds.com/de/insights/2024/germany/weg-frei-fuer-die-corporate-sustainability-due-diligence-directive-csddd