The EU Corporate Sustainability Due Diligence Directive (CSDDD) has seen significant advancements in 2024, introducing important obligations for both EU and non-EU companies.
The directive targets large companies based in the EU with over 500 employees and a net worldwide turnover exceeding €150 million. For high-impact sectors like textiles, agriculture, and minerals, the threshold is lowered to 250 employees and €40 million turnover.
Non-EU companies generating over €450 million in turnover within the EU are also included under the directive. These thresholds aim to cover a wide range of industries, ensuring comprehensive compliance.
Companies must undertake thorough due diligence on human rights and environmental impacts across their entire „chain of activities.“ This includes:
- Policy Integration: Embedding due diligence into company policies and management systems.
- Impact Assessment: Identifying and evaluating potential adverse impacts on human rights and the environment.
- Mitigation and Remediation: Implementing measures to prevent, mitigate, or remedy adverse impacts.
- Monitoring and Reporting: Continuously monitoring the effectiveness of these measures and publicly reporting on due diligence activities annually (JD Supra) (European Commission).
Implementation and Compliance
Each EU member state will designate authorities to ensure compliance. In Germany, the Federal Office of Economics and Export Control (BAFA) is expected to take this role.
Companies failing to comply can face significant fines, up to 5% of global annual turnover, with each member state setting specific penalties.
Companies may be subject to civil claims for damages resulting from due diligence failures.
The CSDDD aligns with the Corporate Sustainability Reporting Directive (CSRD), eliminating the need for double reporting. Companies are required to publish an annual statement on their due diligence processes and adopt a climate transition plan to align their business models with the Paris Agreement goals.
The directive includes specific provisions for sectors such as financial services, mandating due diligence for fund managers‘ operations and upstream value chains. Further guidelines tailored to the financial sector are anticipated by 2026.