As sustainability moves from a corporate buzzword to a regulatory obligation, the EU Corporate Sustainability Due Diligence Directive (CSDDD) is making waves across the business landscape. Companies are now being called to actively address the environmental and human rights impacts of their operations, extending well beyond their own walls and into their entire supply chains. For many corporates, this marks a fundamental shift in how they must approach compliance and sustainability.
In this blog, we break down what you need to know about the CSDDD and how you can begin preparing for compliance. We also show how STRIVE by STX can support your company every step of the way, ensuring you meet regulatory requirements and strengthen your sustainability credentials.
What is the CSDDD and Why Does It Matter?
The Corporate Sustainability Due Diligence Directive (CSDDD) is a landmark regulation from the European Union, aimed at holding businesses accountable for both human rights and environmental protection through a comprehensive approach to corporate sustainability. It expands the scope of the corporate due diligence regulations that were already existing in France (Loi Vigilance) and Germany (Lieferkettensorgfaltspflichtengesetz or LkSG) and therefore harmonizes regulations on the topic within the EU.
But what really sets this directive apart? It requires companies to take a hard look at the entire value chain—from their own operations to those of their subsidiaries and suppliers (up and downstream) —and assess the impact they are having on people and the planet. While the directive's scope was reduced during its final negotiations, it remains a significant step forward in promoting corporate responsibility across industries.
Key timelines:
- The directive came into force on 25 July 2024.
- EU Member States are expected to transpose it into national law by 26 July 2026.
- The rules will apply to companies in stages from 2027 (with disclosures due for financial years commencing on or after 1 January 2028) until 2029, with guidelines provided by January 2027 to assist corporates with compliance.
Who Falls Under the CSDDD’s Scope?
The CSDDD targets large corporations across the EU and beyond, which satisfy the relevant criteria above for two consecutive financial years:
- EU-based companies with more than 1,000 employees and over EUR 450 million in global turnover.
- Non-EU companies that generate more than EUR 450 million in turnover within the EU.
It is expected to cover around 6,000 large EU companies and 4,000 non-EU companies.
Moreover, even companies outside the immediate scope of the directive, such as those within the value chains of regulated corporates, will likely feel the effects. This could take the form of increased information requests related to sustainability practices and tougher contractual requirements.
While the directive was originally slated to cover more businesses, the narrowed scope shouldn’t be underestimated. The CSDDD is still expected to have a profound impact on corporate behavior across multiple sectors.
What Are the Main Obligations of CSDDD for Corporates?
Under the CSDDD, companies must take proactive steps to identify and address potential and actual risks related to human rights abuses and environmental harm. Here’s a breakdown of the key responsibilities:
- Integration into Policies: integrate human rights and environmental considerations into your corporate policies and decision-making processes.
- Risk Identification: Assess the risks your operations, subsidiaries and supply chains pose to human rights and the environment.
- Prevent, Mitigate and Remediate: Develop strategies to prevent or mitigate these risks and engage with suppliers to ensure they are compliant. If adverse impacts do occur, companies are obligated to bring them to an end or minimize their effect.
- Climate Transition Plan: Create a science-based climate transition plan, aligned with the Paris Agreement's goal to limit global warming to 1.5 °C, covering Scope 1, 2 and 3 GHG emissions. The plan must set out actions to achieve time-bound targets related to climate change for 2030 and in five-year steps up to 2050.
- Public Reporting: Communicate openly and transparently about your due diligence efforts, ensuring stakeholders and regulatory bodies are kept in the loop.
- Complaint Mechanisms: Establish a system for addressing grievances related to your company’s impacts.
The reporting obligation under the CSDDD aligns with the Corporate Sustainability Reporting Directive (CSRD), meaning that there is no double reporting obligation, though regular updates and execution remain critical.
Consequences of Non-Compliance of CSDDD
Companies that fail to comply with the CSDDD could face serious repercussions, including:
- Financial Penalties: Non-compliance can result in administrative fines levied by national authorities, with the maximum level not less than 5% of the company’s net worldwide annual turnover.
- Civil Liability: Corporates can be held jointly accountable for damages if they fail to address human rights or environmental breaches within their supply chains.
- Reputation Risks: In today’s market, where consumers, investors and regulators increasingly prioritize ethical business practices, a failure to comply could lead to lasting reputaional damage to your brand.
Compliance isn’t just about avoiding penalties; it’s also about protecting your company’s reputation and standing in the marketplace.
How Can Corporates Prepare for the CSDDD?
Now is the time to act. Corporates should start laying the groundwork for compliance by taking a holistic approach to sustainability and due diligence. Here are the steps you can take:
- Conduct a Comprehensive Risk Assessment: Identify areas within your value chain that may be prone to human rights or environmental violations.
- Engage with Suppliers: Work closely with suppliers to ensure they are aligned with sustainability practices, offering them support where needed.
- Develop a Climate Transition Plan: Create a robust transition plan that includes time-bound, science-based targets for reducing GHG emissions. Regularly update this plan to reflect progress toward your goals.
- Build Transparent Reporting Systems: Implement systems that allow for clear communication of your due diligence efforts to stakeholders and regulatory bodies.
How STRIVE by STX Can Help You Navigate the CSDDD
Navigating the complexities of the EU Corporate Sustainability Due Diligence Directive doesn’t have to be overwhelming. At STRIVE by STX, we provide tailored solutions designed to help your business meet regulatory requirements on climate while driving meaningful sustainability outcomes. From helping you engaging with your suppliers to guiding you through the creation and implementation of climate transition plans, we’re here to support your compliance journey.
As the CSDDD continues to reshape the corporate sustainability landscape, staying ahead of the curve is crucial. Reach out to STRIVE by STX today to learn more about how we can help your company thrive in this new era of sustainability regulation.
