Corporate Sustainability Due Diligence Directive

The Corporate Sustainability Due Diligence Directive (CSDDD) is a transformative EU legislation aimed at holding companies accountable for sustainability and ethical practices across their value chains. It requires large companies, both within and outside the EU, to identify and address adverse human rights and environmental impacts in their operations and value chains. The directive ensures that companies take steps to prevent, mitigate, and remedy any negative impacts, promoting transparency and accountability. Large companies are also required to develop climate transition plans as part of the directive.

The directive targets large EU companies and non-EU firms operating in the EU, defined as: -> EU companies with over 500 employees and €150 million in global turnover. -> Non-EU companies generating at least €150 million in the EU. -> Stricter thresholds (250+ employees and €40 million turnover) for companies in high-risk sectors like textiles, agriculture, or mining

Companies are required to: -> Identify Risks: Map their supply chains to uncover potential adverse impacts on human rights (e.g., child labor) and the environment (e.g., deforestation). -> Prevent and Mitigate: Implement strategies to address identified risks, such as contractual obligations for suppliers or investing in cleaner technologies. -> Monitor and Report: Continuously evaluate the effectiveness of their actions and provide transparent updates on progress​

Large firms must develop and adopt climate transition strategies, including: -> Aligning business activities with the Paris Agreement's goal of limiting global warming to 1.5°C. -> Incorporating specific measures to reduce greenhouse gas emissions​

National Supervisory Authorities: Each EU member state will establish enforcement mechanisms, with penalties for non-compliance.

Civil Liability: Victims of human rights or environmental harm may sue companies for damages if due diligence requirements are not met​

Failure to comply could result in significant penalties, including fines of up to 5% of global turnover and exclusion from public procurement processes within the EU.

*UPDATE: The European Commission's "Simplification Omnibus" package, introduced in February 2025, proposes significant changes to the Corporate Sustainability Due Duligence Directive (CSRD) to reduce administrative burdens and enhance competitiveness.

Key proposed changes: 1/ Adjusted Scope of Applicability -> EU Companies: Now applies to companies with over 1,000 employees and €450 million in global net turnover. -> Non-EU Companies: Applies to those generating €450 million in EU turnover. 2/ Extended Compliance Deadlines -> Transposition Deadline: Member States must incorporate the directive into national law by July 26, 2027. -> Application Timeline: Companies must comply by July 26, 2028, providing additional time for implementation. 3/ Refined Due Diligence Obligations -> Companies are no longer required to assess adverse impacts across complex value chains automatically. -> Full due diligence beyond direct partners is mandated only when plausible risks exist. 4/ Reduced Monitoring Frequency -> Due diligence assessments are now required at least once every five years, instead of annually, reducing administrative burdens. 5/ No Mandatory Termination of Business Relationships -> The obligation to terminate business relationships as a last resort has been removed, allowing for more flexible risk management. 6/ Limited Data Requests from SMEs -> Large companies can only request sustainability data from SMEs as specified in the Voluntary Standard for SMEs (VSME), unless additional information is necessary and cannot be obtained otherwise. 7/ Removal of EU-Wide Civil Liability Rules -> The harmonized civil liability framework has been removed, leaving the determination of liability conditions to national laws. 8/ Alignment with CSRD Climate Requirements -> Climate transition plan obligations are now aligned with the Corporate Sustainability Reporting Directive (CSRD), ensuring consistency across sustainability regulations.

🔗 EP, EC