Understanding the Corporate Sustainability Due Diligence Directive (CSDDD), An Introduction
Understanding the Scope: What is CSDDD?
Introduced in February 2022 by the European Commission, the CSDDD focuses on improving corporate governance, fostering long-term sustainable value creation, and helping companies identify risks and impacts throughout their operations and value chains. As part of the broader EU Green Deal, the CSDDD is one of the key regulations safeguarding human rights and the environment. It impacts around 6,000 EU-based and 900 non-EU companies, as well as many others involved in the supply chains of these businesses.
The directive officially came into force on 25th July 2024 and will be implemented gradually, with companies phased into compliance over the next five years.
The Corporate Sustainability Due Diligence Directive (CSDDD) marks a significant step in the journey from voluntary sustainability frameworks to mandatory regulations. While international frameworks helped companies adopt sustainability practices, they have not been enough to fully integrate these processes into business operations. The CSDDD aims to standardise sustainability due diligence across the private sector, addressing the gaps that existed within previous voluntary measures.
Implementation Timeline
By 26th July 2027
Applies to EU companies with over 5,000 employees and non-EU companies with over €1.5 billion EU-generated turnover.
By 26th July 2028
Extends to EU companies with over 3,000 employees and non-EU companies with over €900 million EU-generated turnover.
By 26th July 2029
All other companies under the directive will be required to comply.
Key Objectives of the CSDDD
Improving Corporate Governance
Integrating risk management for human rights and environmental impacts, especially those arising from global value chains, into corporate strategies.
Avoiding Fragmentation
Creating legal certainty across the EU by ensuring uniform due diligence standards and preventing different regulations across member states.
Increasing Accountability
Holding businesses accountable for adverse human rights and environmental impacts while aligning with other EU initiatives on responsible business conduct.
Improving Access to Justice
Ensuring those affected by adverse corporate practices have access to remedies.
Supporting the Green Transition
Complementing other relevant regulations to drive businesses towards more sustainable practices.
Key Elements of the CSDDD
1. Adverse Human Rights and Environmental Impacts: Companies must identify and address negative impacts within their operations, subsidiaries, and value chains. This includes considering the entire product lifecycle, from production to storage.
2. Value Chain Scope: The directive defines the activities that make up a company’s value chain, covering upstream and downstream business partners involved in the production, distribution, and storage of products.
3. Large Companies within Scope: Companies with more than 1,000 employees and over €450 million in global turnover (or non-EU companies with €450 million generated in the EU) must comply with the directive’s due diligence obligations.
4. Risk-Based Approach: Companies are required to take proportionate actions based on the severity and likelihood of risks, meaning they will be judged on their efforts, not the final results.
5. No Double Reporting: The CSDDD aligns with the Corporate Sustainability Reporting Directive (CSRD) to avoid duplication of reporting obligations, simplifying compliance for companies.
The Disclosure Imperative
Environmental and human rights disclosure is becoming increasingly important under the CSDDD. Companies are required to gather both quantitative and qualitative data to assess their impact, focusing on areas where their actions can be most effective. The directive strengthens the EU Sustainable Finance Framework’s requirements for high-quality environmental disclosure, including impact materiality and adherence to “Do No Significant Harm” principles under the EU Taxonomy.
These disclosures not only ensure compliance but also improve access to sustainable finance by highlighting how businesses manage their impacts on the environment and society.
Conclusion
The CSDDD is a major step towards standardising corporate responsibility across the EU, providing businesses with clearer guidance on sustainability and human rights practices. As more companies fall under the directive’s scope, it will drive meaningful change across global value chains, improving both environmental protection and human rights across sectors. This directive paves the way for businesses to embrace sustainable development while securing access to capital through responsible finance initiatives.
Bianca Huttner
Bianca Huttner is a seasoned marketing leader with 15 years of experience driving growth for SaaS and Professional Services organisations. She has covered numerous territories including China, the USA, the Middle East, Australia, and Europe. Known for her relationship-oriented approach, Bianca excels in Corporate, Revenue, and Alliances Marketing. Her expertise spans product launches, marketing strategy, and Go-to-Market strategies. She holds a BA in Journalism and Marketing from the University of Johannesburg and has furthered her education at Northwestern Kellogg School of Management and Oxford University.
How United Outcomes helps
United Outcomes partners with organisations to bridge the gap between software and the supply chain. Our investigative and forensic specialists collaborate closely with your internal team and Supply Chain SaaS solution account managers, conducting thorough on-the-ground investigations of vendors and suppliers from Tier 2 through Tier 4. We carry out in-person, in-territory assessments, audits, and investigations, and, when necessary, forensic analyses to identify and address any negative impacts across operations, subsidiaries, and value chains.
