CSDD directive on the final straight

Thursday 1 June 2023
Sustainability

I wrote about the directive itself and the tumultuous work on it late last year. It wasn't easy, as what its final wording was to be caused a lot of controversy and dispute. But it seems that the marathon of work has just reached the final straight. Today the European Parliament has finally approved its position. We are still waiting for the results of further negotiations, after which the directive will take its final shape and gain legal force. Then it will be implemented by all EU countries. This is usually assumed to take 18 months, and this will probably be the case in most cases. The directive imposes obligations on companies to identify, mitigate and prevent negative impacts on human rights and the environment in their operations and supply chains.

What does the adopted version of the directive assume?

The directive will require companies to do due diligence on human rights and any issues related to the environmental impact of their operations and those of their contractors. It assumes:

  • Integration of due diligence into management policies and systems

  • Identification and assessment of risks and impacts

  • Removal and mitigation of risks and impacts

  • Management of those risks

  • Implementation (if it does not already exist) of a grievance and complaint mechanism

  • Monitoring the effectiveness of due diligence measures

  • Preparation of an annual report reflecting due diligence measures.

Who is applicable?

  • Companies from European Union countries that have more than 500 employees and a global turnover of more than €150 million.

  • Companies outside the European Union that have generated a turnover of more than €150 million in the EU market.

  • Companies from European Union countries that have more than 250 employees and a global turnover of more than €40 million, 50% of which was generated in the high-risk sector.

  • Companies from outside the European Union that generated a turnover of more than €40 million in the EU market, 50% of which was generated in the high-risk sector.

High-impact sectors are those that produce or wholesale textiles, leather and related products, including food and beverages, agriculture, forestry and fishing, and mining.

What are the implications for businesses?

The CSDD aims to improve operations and supply chains by taking into account their impact on human rights and the environment. It significantly changes the previous pattern of operations by holding companies accountable for the impact of their operations on the above issues and recognizing their role in creating a sustainable future. The directive finally officially regulates these issues by law, thereby facilitating risk management, as well as fostering customer confidence, employee engagement, increasing financing opportunities, and attracting investors and sustainability-oriented talent. It is worth remembering that failure to comply with the provisions contained therein can result in significant financial and criminal consequences, as well as civil liability for damages caused by failure to respect human rights or to take due care of environmental issues.

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