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Search within Corporate Sustainability Due Diligence Directive (CSDDD) Compliance & Assurance Services
The CSDDD establishes a corporate due diligence duty. The core elements concern identifying, ending, preventing, mitigating and accounting for negative human rights and environmental impacts in the company‘s operations, subsidiaries and value chains.
Organizations based in the EU must comply if they have:
Organizations based outside the EU may also need to comply if they do significant business in the EU.
The proposed rules do not concern micro companies and small and medium-sized enterprises (SMEs). However, the directive provides supporting and protective measures for SMEs that could be indirectly affected as value chain business partners.
Organizations must act to prevent or mitigate any potential impacts they identify and end or minimize any real impacts. If an organization fails to comply and damages occur, it might be liable and face financial penalties.
Directors are incentivized to contribute to sustainability and climate change mitigation goals. The directive also introduces duties for the directors of the EU companies covered. These include setting up and overseeing the implementation of due diligence processes and integrating due diligence into the corporate strategy.
In addition, when fulfilling their duty of acting in the company’s best interests, directors must consider the human rights, climate change and environmental consequences of their decisions.
There are six steps mirroring those in the Organisation for Economic Cooperation and Development (OECD) Due Diligence Guidance for Responsible Business Conduct:
For step 3, businesses must verify that their direct and indirect business partners comply with the steps and actions in their contractual assurances. Organizations can utilize an independent third party or industry initiative to carry out the verification.
If organizations see potential and/or real adverse impacts in their value chains, they are encouraged to engage with their value chains to prevent and mitigate potential adverse impacts and/or minimize and end real adverse impacts.
Organizations are discouraged from terminating business relationships when adverse impacts materialize unless it is only temporary or a last resort.
Besides the business benefits above, the directive will support citizens and developing countries.
For citizens:
For developing countries:
The CSDDD will be implemented in phases and will impact larger companies first:
Administrative supervision:
Member states must designate national supervisors to ensure enforcement and monitor correct implementation. They can investigate and sanction infringing companies, if required. Sanctions will be effective, proportionate and dissuasive, and based on an organization’s turnover.
At the European level, the European Commission will set up a European Network of Supervisory Authorities to unite representatives from national bodies to ensure a coordinated approach.
Civil liability:
Member states will ensure victims receive compensation for damages caused by intentional and negligent failure to conduct due diligence.
Organizations are liable for damages if they fail to prevent potential and/or actual adverse impacts, or adverse impacts that occurred as a result, which led to damages. Affected persons can bring forward action and claim compensation.
At European level, supervisory authorities will ensure coordinated enforcement. They can initiate investigations and inspections if there is sufficient indication of company breaches. Administrative sanctions could be enforced, with fines of at least 5% of the company’s global net turnover in the last financial year.
Businesses will have to bear:
Many stakeholder groups, including civil society representatives, EU citizens, businesses and business associations, have been calling for mandatory due diligence rules. 70% of the businesses who responded to a public consultation sent a clear message – EU action on corporate sustainability due diligence is needed.
Businesses play a key role in creating a sustainable and fair economy and society. A third of companies recognize the need to address the adverse effects of their actions on human rights or the environment, but progress is slow and uneven.
Increasingly complex and global supply chains make it challenging for companies to get reliable information on suppliers’ operations. Fragmented national rules on corporate, sustainability-related due diligence obligations further slow the take-up of good practices. Stand-alone measures by some member states are not enough to help companies exploit their full potential and act sustainably.