On July 5, 2024, the Corporate Sustainability Due Diligence Directive (CSDDD) was published in the Official Journal of the EU, marking a significant step in the regulatory landscape for ESG compliance. The CSDDD mandates human rights and environmental due diligence for in-scope companies, aiming to embed responsible business conduct into their processes and policies. 

Originally proposed in February 2022, the CSDDD seeks to establish a comprehensive due diligence framework across the EU, affecting both EU and non-EU companies with substantial operations in the EU market. This directive complements existing due diligence legislation such as Germany’s Supply Chain Act and Norway’s Transparency Act, as well as EU regulations on deforestation, conflict minerals, and forced labor. 

The CSDDD applies to a broad range of companies. For EU companies, it includes those with more than 1,000 employees and over €450 million in worldwide turnover. Non-EU companies are included if they have more than €450 million turnover within the EU. For franchised EU companies, the threshold is more than 1,000 employees and over €80 million turnover, generating royalties exceeding €22.5 million. 

The directive requires companies to identify, prevent, and mitigate adverse human rights and environmental impacts linked to their operations, including upstream and certain downstream activities. Companies must integrate due diligence into their policies, assess potential adverse impacts, implement preventive measures, establish complaint mechanisms, and monitor the effectiveness of their actions. They must also publicly communicate their efforts. 

Non-compliance will result in penalties, including fines up to 5% of a company’s net worldwide turnover. The CSDDD introduces a civil liability scheme for companies failing to meet due diligence obligations. 

The CSDDD will affect both in-scope companies and their supply chains, as companies will likely pressure their suppliers to comply with the directive’s requirements. Member States have two years from the directive’s entry into force on July 25, 2024, to transpose the CSDDD into national law. 

Sources: 

https://www.lw.com/en/insights/eu-adopts-corporate-sustainability-due-diligence-directive#:~:text=On%205%20July%202024%2C%20the,due%20diligence%20processes%20and%20policies. 

https://www.jdsupra.com/legalnews/eu-adopts-corporate-sustainability-due-1881769/