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The European Union (EU) has always been at the forefront of encouraging corporate responsibility and sustainability. Continuing this trend, the EU introduced the Corporate Sustainability Due Diligence Directive (CSDDD) in March 2021. The directive aims to ensure that companies take proactive measures to respect human rights and mitigate environmental impacts within their operations and supply chains.

What is the CSDD Directive?

The CSDD Directive is a piece of legislation designed to enforce respect for human rights and the environment throughout the entire supply chain of businesses. Although several EU member countries have due diligence legislation in place, these laws are typically voluntary and often sector-specific or only address single aspects such as child labour. The CSDD Directive aims to bring a more comprehensive and mandatory approach to corporate sustainability in the region.

Who falls under the scope of the CSDDD?

The CSDDD will directly apply to both EU and non-EU companies.

For EU-based companies, the directive applies to those with more than 500 employees and a turnover exceeding €150M. Alternatively, companies with over 250 employees and a €40M turnover also fall under the directive, provided that 50% of their revenue comes from high-risk industries like fashion, minerals, or agriculture.

Non-EU companies operating within the EU also fall under the scope of the CSDDD. This includes third-country companies active in the EU that meet the turnover thresholds aligned with the above-mentioned groups, with the revenue being generated in the EU, irrespective of whether they have a branch or subsidiary in the region.

The European Union (EU) expects the Directive to directly impact around 13,000 companies within the EU and approximately 4,000 outside the EU.

What will companies need to do?

The CSDD Directive mandates that companies falling under its scope:

  1. Identify the principal adverse impact on the environment and human rights resulting from their operations, subsidiaries, and supply chains.
  2. Mitigate identified risks within their operations and supply chain, supported by an action plan and a timeline to address the identified risks.
  3. Establish grievance mechanisms for workers and stakeholders to raise issues if they arise.
  4. Align their business model and strategy with the 1.5°C target of the Paris Agreement, specifically for large companies.
  5. Publicly report on their due diligence via a sustainability report or website.

What's next?

On February 23 2022, the EU Commission adopted a proposal for the Directive on corporate sustainability due diligence. The proposal is currently awaiting approval from the European Parliament and Council, with a final adoption expected within 2023. Once formally adopted, Member States will have two years to transpose the CSDDD into domestic law. It is anticipated that companies will have to start applying the requirements by 2025 or 2026.

To learn more about this directive, you can read the proposal by the EU Commission.

In summary, the EU's Corporate Sustainability Due Diligence Directive (CSDDD) is an important step towards more sustainable and ethical business practices in the region. Companies falling under the scope of this directive should start preparing for these changes to ensure compliance when they come into effect.

Looking to stay ahead of the curve and ensure your company meets the requirements of the EU's CSDD Directive? Click here to book a demo with Plan A today and let us guide you towards a greener, more sustainable, and compliant future.

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