Understanding the EU Corporate Sustainability Due Diligence Directive (CSDDD)

The CSDDD mandates certain large EU and non-EU companies to conduct risk-based due diligence. This means that in-scope companies will be required to identify, prevent, mitigate, bring to an end and, where needed, remediate the human rights and the environment impacts linked to their operations, those of their subsidiaries and to those of their business partners in their chain of activities.

In a recent webinar co-hosted by amfori, the German Partnership for Sustainable Textiles and in collaboration with the German Helpdesk on Business and Human Rights, our experts analysed the EU’s Corporate Sustainability Due Diligence Directive (CSDDD). 

If you couldn’t attend the webinar, don’t worry! Let’s explore who is in the scope of the Directive, when it takes effect, and what it entails.

Who are the companies in scope?

The reach of the CSDDD extends far and wide, directly impacting a wide range of companies operating within the EU. This encompasses both EU-based enterprises and non-EU organisations involved in EU markets.

• For EU companies, the rules will  apply to those meeting specific thresholds: a minimum of 1000 employees and a global turnover of more than €450 million. Different criteria apply to companies deriving turnover from franchise licensing agreements. Additionally, ultimate parent companies fall under these regulations if the thresholds are met within their corporate group.
• The CSDDD also applies to non-EU companies with a turnover of at least €450 million in the EU.

When Will It Take Effect?

At present, the CSDDD is progressing through the final stages of the legislative process. The final endorsement by the EU member states’ Council on 24th May is a pivotal milestone bringing a 4-year long process almost to an end. Following this vote, publication in the Official Journal of the EU will  pave the way for national transposition whereby Member States will be given two years to transpose the text into national law. The application of the rules will begin in stages, starting in 2027, all the way to 2029:

• From 2027 to EU companies with over 5000 employees and worldwide turnover higher than 1500 million euro; and non-EU companies with a EU turnover higher than 1500 million euro.
• From 2028 to EU companies with over 3000 employees and more than 900 million euro worldwide turnover; and non-EU companies with a EU turnover higher than 900 million euro.
• From 2029 to EU companies with over 1000 employees and worldwide turnover higher than 450 million euro; and non-EU companies with a EU turnover higher than 450 million euro.

However, companies are encouraged to get started promptly rather than waiting for the Directive’s formal entry into application especially if they are new to due diligence.

What will companies need to do?

Understanding Key Obligations: The blueprint for CSDDD is international frameworks on responsible business conduct, notably the UNGPs, the OECD MNE Guidelines and the ILO Tripartite MNE Declaration. It is no coincidence, therefore, that many of the notions embedded in CSDDD, from risk-based due diligence, prioritisation, all the way to stakeholder engagement and the role of collaborative initiatives find their root back in those standards.

To start with, companies will be required to establish robust risk management systems to identify, prevent and manage priority human rights and environmental risks throughout their own operations, those of their subsidiaries and business partners’ chain of activities. This involves, amongst others, risk assessment, prioritisation efforts, engaging with stakeholders, transparent communication, and effective monitoring mechanisms.

Enforcement: Authorities across the EU Member States will be responsible for monitoring compliance with the rules and for applying sanctions including fines based on a percentage of the company’s annual turnover, in instances of non-compliance.

Want to Learn More about CSDDD?

To deepen your understanding of CSDDD and gain a comprehensive overview of its implications, we invite you to watch the recording of our webinar, where you’ll also learn about industry tools and programs that can support aspects of your due diligence.