The European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) came into effect on July 25, 2024, establishing a comprehensive framework for companies to manage human rights and environmental risks in their supply chains. Member states are required to implement the CSDDD into national laws by July 26, 2026. 

In Germany, many companies are already aligning with the German National Supply Chain Act (LkSG), which overlaps with the CSDDD. However, the CSDDD imposes stricter standards, prompting companies to adapt their compliance procedures over the next two years. The German government is considering suspending the LkSG until the CSDDD is fully implemented to reduce bureaucracy temporarily. 

The CSDDD particularly impacts industries such as manufacturing, textiles, food and beverage, agriculture, forestry, fishery, and material extraction. It emphasizes climate protection, aiming to support the European Green Deal and the Paris Agreement goals. The directive mandates integrating ESG and climate risk factors into business practices, crucial for achieving climate neutrality by 2050. 

The directive’s applicability will be phased in, starting in 2027 with companies having over 5,000 employees and €1.5 billion in turnover. By 2029, it will apply to companies with 1,000 employees and €450 million in turnover. Third-country companies with significant EU operations are also included. 

Companies must implement a due diligence process aligned with the OECD’s guidelines, covering policy integration, risk assessment, impact mitigation, and public communication. They must adopt a transition plan compatible with the 1.5-degree Celsius global warming limit. Both upstream and downstream business activities are covered, extending beyond the LkSG’s scope. 

Compliance oversight will be managed by national supervisory authorities, with the Federal Office of Economics and Export Control (BAFA) expected to oversee in Germany. Penalties for non-compliance will be turnover-based, up to 5% of global annual turnover, with provisions for civil liability and public naming of noncompliant companies. 

Sources: 

https://www.skadden.com/insights/publications/2024/07/corporate-sustainability-due-diligence-directive 

https://www.amfori.org/en/news/understanding-the-european-directive-on-corporate-sustainability-due-diligence-directive-csddd