EU Parliament Passes CSDDD

The European Parliament has voted to approve a new law aimed at promoting corporate responsibility and accountability across global supply chains. The Corporate Sustainability Due Diligence Directive (CSDDD) will legally require large companies operating in the EU to identify and prevent environmental and human rights abuses throughout their operations and supply chains.

The CSDDD is aimed at fundamentally reshaping corporate responsibility and accountability within the European Union. By mandating comprehensive due diligence across companies' entire global supply chains, the directive seeks to address shortcomings in the current regulatory landscape that often deals with sustainability issues in silos.

The core objective is to compel businesses operating in the EU to proactively identify, prevent, mitigate and remediate potential environmental and human rights impacts connected to their operations. This holistic approach covers not just a company's direct activities, but also extends to subsidiaries, suppliers and wider third parties.

Rather than being overly prescriptive, the CSDDD establishes a robust framework that enables organizations to develop tailored compliance systems suited to their unique contexts. It outlines key components of an effective due diligence process, largely modeled on the UN Guiding Principles and OECD guidance:

1. Embedding responsible business conduct policies and management systems
2. Proactively identifying and assessing adverse impacts
3. Implementing strategies to cease, prevent or mitigate identified risks
4. Tracking implementation and results through ongoing monitoring
5. Transparently communicating efforts to stakeholders
6. Providing for or cooperating in remediation when violations occur

Central to the directive is fostering a cyclical, iterative approach where companies continuously enhance their practices based on results and evolving social/environmental considerations.

The CSDDD applies a phased implementation timeline based on company size, staggered from 2028 to 2030. It covers EU firms as well as non-EU companies operating in the EU market exceeding thresholds of €450 million in net global turnover and 1,000 employees.

While enforcement will align with national legal frameworks, the directive empowers regulators to take action against non-compliance. It also enables NGOs to pursue civil liability cases for CSDDD breaches through member state procedures.

After years of negotiations and input from civil society groups, the CSDDD secured approval from the European Parliament in April 2024 and the Council in March 2024. Following official publication and a designated transition period, the phased implementation will commence.

The CSDDD represents a significant shift by establishing binding due diligence obligations integrated into corporate governance. It aims to drive sustainability into the core of how businesses approach their operations and supply chains - with potential for far-reaching global impacts. However, successful adoption will require companies to strategically prepare for the new regulatory landscape.

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