CSDDD: EU Directive on sustainable supply chains – requirements, development and economic significance

What is the CSDDD?

The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU directive that requires companies to identify, assess and address human rights and environmental risks throughout their value chains. It came into force on 25 July 2024 and aims to promote sustainable and responsible business conduct. ​

Historical development of the CSDDD

The CSDDD builds on existing national initiatives, such as the German Supply Chain Due Diligence Act (LkSG) and the French ‘Loi de vigilance’. In December 2023, the EU Member States agreed on a final version of the directive. This was published in the Official Journal of the EU on 5 July 2024 and is therefore legally binding.

Scope of application of the CSDDD

The Directive applies to companies with more than 1,000 employees and an annual turnover of more than €450 million that are based in the EU or generate significant turnover there. These companies must implement the requirements of the CSDDD from 26 July 2028. For companies with more than 250 employees and an annual turnover of more than €40 million, the regulations will apply from 26 July 2030. ​

Requirements of the CSDDD

Companies are required to identify and address human rights and environmental risks in their own business operations, subsidiaries and throughout the value chain. This includes the following steps:​

1. Integrating due diligence into corporate policy and management systems
2. Identifying and assessing negative impacts
3. Preventing, ending or mitigating actual and potential negative impacts
4. Assessing the effectiveness of the measures taken
5. Communicating the results
6. Providing remedies for those affected

These steps are based on the OECD Guidelines for Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights.

Regulatory and economic aspects

The CSDDD complements other EU initiatives such as the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD) and the Deforestation-Free Products Regulation. It promotes the creation of a uniform legal framework for corporate due diligence and strengthens corporate accountability. Companies that violate the directive face fines of up to 5% of their global annual turnover and possible civil lawsuits.

Conclusion

The CSDDD represents a significant step towards sustainable and responsible corporate governance. Companies are required to make their value chains transparent and actively manage risks in the areas of human rights and the environment. The implementation of the directive offers opportunities to improve risk management, strengthen supplier relationships and promote innovation.