EU's New Corporate Sustainability Due Diligence Directive

Impending Enforcement of the Corporate Sustainability Due Diligence Directive in the EU
On December 14, 2023, a pivotal agreement was reached between the Council of the EU and the European Parliament on the Corporate Sustainability Due Diligence Directive (CSDDD), signaling its imminent formal adoption and entry into force by the year's end. The CSDDD is set to transform the landscape of corporate due diligence in the EU, particularly concerning human rights and environmental standards, mirroring the provisions already established by the German Supply Chain Act.

Highlights of the CSDDD
1. Wide Reach: The directive impacts around 13,000 EU-based companies and an additional 4,000 companies outside the EU.

2. Enhanced Climate Focus: Firms are mandated to develop business strategies that adhere to sustainability and limit global warming to 1.5 degrees Celsius, in line with the holistic climate approach of the CSDDD.

3. Comprehensive Due Diligence: The directive's obligations extend beyond the supply chain to encompass the entire value chain, including upstream (manufacturing activities) and downstream (distribution, transportation, and disposal) processes.

4. Accountability Measures: The CSDDD establishes a civil liability regime, enabling victims to seek compensation for human rights or environmental violations through European courts. Additionally, companies may face fines up to 5% of their annual group turnover for non-compliance.

Detailed Provisions of the CSDDD

• Scope of Application: The directive applies to a broad range of businesses, both within the EU and from third countries, subject to specific employee and turnover thresholds.

• Value Chain Responsibilities: Companies are obliged to conduct due diligence across their entire value chain, addressing issues like labor exploitation, environmental degradation, and pollution.

• Civil Liability and Sanctions: Affected parties can file claims against companies for damages related to human rights and environmental violations. National authorities can impose substantial fines for breaches of due diligence obligations.

Read also about other EU directive in article: France Leads EU in Adopting Corporate Sustainability Reporting Directive

Compliance Mechanisms
Companies must establish risk management systems to conduct regular risk analyses and implement prevention and remediation mechanisms. This includes internal complaint procedures for disclosing risks and violations related to human rights and the environment. With the finalization of negotiations on the CSDDD, its official adoption by the Council of the EU and the European Parliament is imminent. Member States will then have two years to incorporate the directive into their national laws.

For further information or assistance in understanding and navigating these regulatory changes, feel free to reach out for support and guidance.

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