Corporate Sustainability Due Diligence Directive (CSDDD)

What is the Corporate Sustainability Due Diligence Directive (CSDDD) ?

The management of a company’s environmental and social impact extends beyond its production facilities and directly controlled assets. True sustainability is established throughout the entire value chain, encompassing all aspects of procurement, production, and distribution.

The Corporate Sustainability Due Diligence Directive (CSDDD), also known as the Supply Chain Act, is designed to serve as a key guideline for companies in achieving these sustainability goals.

The EU Corporate Sustainability Due Diligence Directive is aimed at imposing on companies responsible management of the environmental and social impact along the entire supply chain in order to develop a more sustainable and fairer economy, towards the environment and people.

The CSDDD focuses attention on the development of a form of due diligence that allows you to control all areas of ESG, with checks and obligations to ensure that company operations do not cause damage to the environment and people.

It sets obligations for companies regarding actual and potential negative impacts on human rights and the environment, in relation to their own operations, those of their partners and those carried out by their supply chain.

Which Businesses Will Be Impacted?

The Directive, which came into force in 2024, concerns all EU companies with at least 500 employees and a net turnover of 150 million euros. For these companies, the CSDDD represents a mandatory requirement starting from 2026.

For companies with more than 250 employees and with a net turnover exceeding 40 million euros, the time horizon for complying with the CSDDD is expected to be 2028.

Sanctions

The enforcement of the Corporate Sustainability Due Diligence Directive (CSDDD) mandates that the regulatory authorities of each Member State will oversee compliance with the regulations. These authorities are empowered to impose financial penalties for non-compliance, which can amount to as much as 5% of a company’s global turnover in certain cases.

Sanctions are designed to be effective, proportionate, and dissuasive, ensuring that they are not trivial for companies. They also consider any corrective measures adopted by the company. This strict approach is driven by the objective of creating conditions that encourage companies to expedite the transformation of their development strategies. This transformation is essential to meet the commitments outlined in the Paris Agreement, reflecting a global effort to address climate change and sustainability challenges.

Three Main Areas

In essence, through the CSDDD, companies will have to demonstrate that their activities are carried out in compliance with ethically correct sustainable practices.

Member States ensure that companies undertake human rights and environmental due diligence by carrying out the following three main areas:

Obligatory

Companies must carry out due diligence regarding the environmental and social impact in all their operations by understanding the role of suppliers and partners. With this due diligence, companies must identify and analyze all risks and present projects to prevent and contain them.

Communication

Activities related to sustainability disclosure are also part of the due diligence which involves the need to provide information on respect for the environment, respect for human rights, governance and management and control activities adopted at the supply chain level.

Reporting

With due diligence, companies will have to report on the impact of their activities and the related risks, understanding the impact and risks at the supply chain level.

Integration of due diligence into the company's policies: including an annually updated description of the company's approach to due diligence, its internal code of conduct, and the processes in place.
Negative impacts: neutralizing the impact by paying damages to affected people/communities or establishing corrective action plans. Companies must seek contractual guarantees to ensure compliance with the code of conduct or try to suspend the relationship with the partner who does not follow it.
Companies shall conduct yearly assessments of their due diligence measures and progress, but also of those of their subsidiaries and established business partners.
Companies must publish an annual report on their website on the issues covered by this Directive.

Are you ready for CSDDD?

The assessment and management of risks represent a process that has long been part of the logic of ESG risks and which with the CSDDD becomes in all respects a fulfillment.

The risks for the environment, for society, and for the territories in which a company operates with CSDDD must also include the risks incurred at the level of supply chains in terms of risk management.
Here it becomes important to count on the evaluation of suppliers, and the monitoring and control of their activities.

To be able to carry out these activities, precise mapping of the supply chain is necessary to allow companies to identify, evaluate, and address the risks that impact their value chains.

How to be ready

Traceability is crucial for brands aiming to stay proactive and maintain a comprehensive understanding of their product’s composition and environmental impact.

By initiating data collection and establishing strong communication channels with suppliers, brands can gain a significant edge. Our platform facilitates a collaborative environment for brands and suppliers to jointly manage supply chain data.

This collaboration enables the digital mapping of all suppliers and the traceability of all materials and process involved in manufacturing a specific garment, thereby streamlining the communication process for gathering vital product-level information required for the Digital Product Passport.

For brands that have to consolidate their traceability data yet, now is the opportune time to centralize this information.

This proactive step will align brands with forthcoming ecodesign regulations and meet evolving consumer demands for transparency. Book a call with our expert to explore ways to enhance your brand’s traceability strategies and stay ahead in the market.

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Corporate Sustainability Due Diligence Directive (CSDDD)

Corporate Sustainability Due Diligence Directive (CSDDD)

Table of Contents

What is the Corporate Sustainability Due Diligence Directive (CSDDD) ?

Which Businesses Will Be Impacted?

Sanctions