How should companies integrate due diligence into policies?

Companies’ policies and management systems must be part of due diligence processes. This involves incorporating sustainability into the company's governance structure, performance metrics, and decision-making. For example, CSRD disclosures related to governance emphasise the role of administrative bodies in overseeing sustainability topics.

CSRD due diligence obligations: How do you navigate them?

Q: What are CSRD due diligence requirements?

Due diligence in CSRD refers to the processes companies must implement to identify, prevent, reduce, and address their environmental, social and governance (ESG) impacts. These impacts cover the company's direct operations and broader value chain, including suppliers, distributors, and other business partners.

The Corporate Sustainability Reporting Directive (CSRD) has introduced new guidelines for sustainability reporting, changing how companies approach due diligence. This EU directive requires companies to identify and control sustainability risks and opportunities throughout their value chain.

This article will explore the due diligence requirements under CSRD and provide practical recommendations for ensuring compliance.

Understanding CSRD due diligence

Due diligence in CSRD refers to the processes companies must implement to identify, prevent, reduce, and address their environmental, social and governance (ESG) impacts. These impacts cover the company's direct operations and broader value chain, including suppliers, distributors, and other business partners.

Critical elements of CSRD due diligence

To navigate due diligence obligations under CSRD, it's vital to understand the key elements that ensure a comprehensive and practical approach. This section will outline essential steps for risk management, policy integration, and performance evaluation, fostering a sustainable and responsible business.

Requirement	Detail
Risk identification and assessment	Companies must identify potential and existing sustainability risks. This includes evaluating ESG risks affecting the company and its stakeholders. International standards, such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, can support these assessments.
Integration of due diligence into policies	Companies’ policies and management systems must be part of due diligence processes. This involves incorporating sustainability into the company's governance structure, performance metrics, and decision-making. For example, CSRD disclosures related to governance emphasise the role of administrative bodies in overseeing sustainability topics.
Impact assessment	Companies are required to conduct impact assessments to evaluate their operations' impacts on the environment and society. These assessments should cover both adverse effects and opportunities for positive contributions, ensuring comprehensive and transparent reporting.
Preventing and reducing adverse impacts	Once risks are identified, companies must develop and implement plans to prevent and reduce adverse impacts. These plans should be flexible and reflect ongoing evaluations and the changing business environment. The CSRD provides a clear structure for reporting on these measures, enforcing accountability and continuous improvement.
Monitoring and evaluation	Regular monitoring and evaluation are essential to ensure that due diligence measures are effective. Companies must review their processes and outcomes, adjusting strategies to address new risks and opportunities. This includes setting and tracking performance against sustainability targets, as CSRD reporting requires.

Download our document about the CSRD & ESRS,access broader resources about all ESG reporting regulations, and compare the best CSRD software.

Practical guidance for CSRD due diligence compliance

Achieving CSRD due diligence compliance goes beyond simple checklists and procedures. It requires a strategic, collaborative, and technology-driven approach to fostering a sustainable company culture. Here are actionable insights to develop a robust due diligence roadmap.

1. Develop a due diligence roadmap

Create a roadmap outlining the steps for identifying, assessing, reducing, and reporting sustainability risks. This roadmap should align with international standards and be updated regularly to reflect regulatory requirements and changes in business operations.

2. Engage stakeholders

Engage with stakeholders, including employees, suppliers, and communities, to gather input and feedback on sustainability impacts. Effective stakeholder engagement identifies essential issues and promotes accountability in reporting.

3. Leverage technology for monitoring

Use technology to streamline the monitoring and reporting of sustainability metrics. Digital tools improve data accuracy, enable real-time reporting, and increase the efficiency of due diligence processes.

4. Educate and train employees

Ensure that all employees, especially those involved in sustainability reporting and management, are well-trained on CSRD requirements and due diligence processes. Continuous education and capacity building are essential for maintaining compliance and achieving sustainability goals.

5. Regularly review and update policies

Conduct regular reviews of sustainability policies and due diligence processes to ensure they remain effective and aligned with regulatory requirements. Engage third-party experts when necessary to provide insights and recommendations for improvement.

Due diligence under CSRD is a complex process that requires careful identification, assessment, and management of sustainability risks and opportunities. By integrating owing diligence into their core operations and engaging stakeholders, companies can comply with regulatory requirements and improve their sustainability performance, contributing to long-term business success.

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