CSDDD: Will your company be required to comply with this and when?

After a two-and-a-half-year legislative journey, the CSDDD has been formally adopted and will introduce mandatory human rights and environmental due diligence requirements for large EU and non-EU companies operating in the EU.

The purpose of CSDDD is to ensure that companies contribute to sustainable development and to the sustainability transition in economies and societies, by identifying and addressing negative human rights and environmental impacts in their own operations and throughout supply chains.

It will apply to companies that meet one of the following criteria for two consecutive years:

• Companies established under the laws of an EU Member State that had over 1,000 employees and over EUR 450 million net worldwide turnover in the last financial year
• Companies established outside the EU that generated a net turnover in the Union of more than EUR 450 million in the financial year preceding the last financial year.

The CSDDD also extends to ultimate parents of groups of EU and/or non-EU companies that meet these thresholds.

The new rules will become applicable to businesses on a staggered timeline (largest to smallest business, then franchisor/licensor) between July 2027 and July 2029.

Requirements for companies within scope

In-scope companies must take various measures to address actual and potential negative impacts of their/their supply chain partners’ activities on human rights and environmental issues. Captured activities include:

• The activities of a company’s former business partners related to the production of goods or the provision of services by the company (including the design, extraction, purchase, manufacture, transportation, storage and delivery of raw materials, products or parts of the products and development of the product or service).
• The activities of a company’s downstream business partners related to distribution, transportation and storage.

The CSDDD sets out certain basic due diligence obligations to identify, assess, prevent, mitigate, stop and/or remedy adverse effects; as well as obligations to conduct meaningful stakeholder engagement, monitoring and public communications. Importantly, it will also require companies to adopt and implement a climate change plan. (See our review for practical knowledge of climate change planning.)

Companies are not expected to guarantee that adverse effects will not occur, nor that they will always be prevented. However, appropriate actions they can be expected to take include:

• Develop and implement prevention plans.
• Seeking contractual assurances from business partners, accompanied by measures to verify compliance.
• Make necessary financial or non-financial investments, adjustments or upgrades to operational processes and infrastructures.
• Changing business plans, strategies and operations, including purchasing, design and distribution practices.
• Provide targeted and proportionate support to supply chain partners.
• Provides sanitation.
• If necessary, terminate business relationships.

CSDDD: Compliance and Impact

Member States’ regulatory authorities will be responsible for compliance. They can order non-compliant companies to stop their behavior or to take action to bring them into compliance. Or they can impose significant fines and/or withdraw and prohibit the release, making available on the market and export of products.

Companies may also be subject to civil liability for damages if they intentionally or negligently fail to prevent, minimize or mitigate adverse impacts (although civil liability will be excluded if the damage is caused only by business partners in the supply chain).

Member States may also establish conditions under which trade unions, civil society organizations and national human rights institutions could introduce collective redress mechanisms under the CSDDD on behalf of victims.

It is also worth noting that compliance with the CSDDD is likely to qualify as a criterion for awarding public contracts and concessions. It would affect bid/tender applications and processes and would mean that any non-compliance could constitute a breach of such contract or concession terms.

So there is no doubt that the administrative impact of the CSDDD will be significant. But compliance will enable companies to make a very tangible contribution to positive global change for human rights and the environment.

How we can help with sustainability due diligence and reporting

Running a successful sustainability due diligence strategy is critical for companies today – in terms of CSR, ESG, commerciality, risk management and increasingly compliance. Our cross-sector and multidisciplinary sustainability and supply chain specialists can work with companies at every stage of their journey to create, implement and deliver an effective sustainability due diligence strategy.

We can help you with:

• Internal and upstream/downstream supply chain audits, contract reviews and contract negotiations/renegotiations and/or terminations.
• Develop and implement sustainability and due diligence policies and procedures.
• Keeps you updated and informed about sustainability-related legal and regulatory developments.
• Provide tailored training to staff at all levels.
• Helps you secure “green financing” or investments based on sustainability criteria.
• Deliver low carbon, sustainable and other “green” projects.
• Assist with measurement and reporting of energy, carbon dioxide, climate and human rights risks.
• Design and implement effective transition planning strategies and reporting.
• Provides comprehensive, interdisciplinary advice and transaction assistance.
• Risk management and dispute resolution strategies if/when durability or expiry. due diligence issues, concerns or investigations arise.

Please contact James Crayton or Ben Sheppard for tailored advice, assistance or training on CSDDD and sustainability/due diligence reporting in general.