CSDDD is the EU directive which requires businesses operating within the market to have corporate due diligence across their entire value chain. It is currently going through the legislative process and is expected to be adopted in 2024 as a delegated act across the union. It’s a new legal instrument which will have significant impacts on many businesses based in or operating inside the EU. Whilst many businesses have taken great care to implement corporate due diligence, most will require significant support to adopt this directive.
We are working with clients who are already preparing to adopt CSDDD and we are providing this CSDDD FAQ to share our experiences. We will continue to provide updates over time as more information about the directive is developed.
FAQ's
Policy
What is CSDDD?
The Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) is an EU directive currently working it’s way through the EU legislative process. It is a policy, aligned to the European Green Deal, designed to ensure large businesses operating within the EU apply consistent due diligence processes to their own operations and their value chain. The intent is to prevent, mitigate and account for adverse human rights and environmental impacts.
What is the main purpose of CSDDD?
Aligned to the EU Green Deal, the objective of CSDDD is to provide a consistent approach to corporate due diligence across businesses operating within the EU market. Introducing this ensure companies have advanced levels of respect for human rights and environmental protection. The directive also requires businesses to have a transition plan for their business model, aligned to the Paris climate agreement, which includes appropriate due diligence to prevent future impacts.
Which companies are in scope for CSDDD?
There are generally four groups of companies who are affected by CSDDD.
Group 1: EU registered companies with over 500 employees and EU 150 million net turnover
Group 2: EU companies which do not meet the criteria in group 1, but where 50% of turnover is generated within high impact sectors and have 250 employees or more and have a turnover of over EU 40 million with at least 50% being generated in high impact areas.
Group 3: Non EU companies meeting the thresholds aligned to the turnover of groups 1 and 2.
SME’s: SME’s are not directly impacted by the directive however may be indirectly affected which the directive has accounted for and has plans to implement supportive measures.
What are the benefits of complying with CSDDD?
CSDDD aims to level the playing field and provide legal certainty on what is expected of companies, helping to form alignment towards transitioning to a more sustainable economy. There will be increasingly less fragmentation of EU policies, with the overarching benefits providing greater risk management and resilience against changing market conditions. It will also support greater access to finance for those businesses which have a clear transition plan, a core element of the directive
What are high-impact sectors?
The directive defines high-impact sectors as:
- The manufacture of textiles, leather and related products (including footwear), and the wholesale trade of textiles, clothing and footwear;
- Agriculture, forestry, fisheries (including aquaculture), the manufacture of food products, and the wholesale trade of agricultural raw materials, live animals, wood, food, and beverages;
- The extraction of mineral resources regardless from where they are extracted (including crude petroleum, natural gas, coal, lignite, metals and metal ores, as well as all other, non-metallic minerals and quarry products), the manufacture of basic metal products, other non-metallic mineral products and fabricated metal products (except machinery and equipment), and the wholesale trade of mineral resources, basic and intermediate mineral products (including metals and metal ores, construction materials, fuels, chemicals and other intermediate products).
Approach
How do CSRD and CSDDD align?
Both CSRD and CSDDD are set within the wider EU Green Deal policy landscape. They have been developed to ensure their complementarity and this close correlation means they are each driving transparency and accountability within supply chains. There are purposeful synergies between the two to support implementation and a more cohesive reporting framework. Both directives require that business models and strategy align with a transition to a more sustainable economy and the 1.5 degree warming limit determined within the Paris Agreement.
What are the main requirements of CSDDD?
There are 6 main requirements to satisfy CSDDD obligations. These can be summarised as:
1. Integrate due diligence into policies and management systems
2. Identify and assess adverse impacts
3. Prevent, cease or minimise actual or potential impacts
4. Assess the effectiveness of due diligence
5. Communicate your approach and progress
6. Provide remediation for impacts
How will CSDDD be enforced?
CSDDD will be supervised by member states within the EU and each state is required to assign a relevant authority as supervisor. Companies will be surpervised by the member state where they are registered, or in the case on non-EU companies, where they have a subsidiary or, where they generate the most amount of revenue in the case where a company does not have a single subsidiary within the EU.
These state authorities will have the power to inspect and, where required the powers to order activities to cease of a company in violation of the directive. The authority will also have powers to impose sanctions, including fines up to 5% of net turnover of the company.
Updates
This list of CSDDD FAQ’s is frequently updated. As the directive comes into force and experience grows, we will continue to answer questions we are coming across in the work we do with our clients. If you have any questions you’d like us to answer, or would like us to help you to adopt CSDDD, then drop us a mail to hello@jordisk.com.
