The implementation of the new Due Diligence Directive focused on sustainability (CSDDD) is a complex and extensive task that requires a structured approach. Many companies have started, but few have fully met the diverse requirements. This new tool helps with:
- Get the full overview of your current due diligence implementation: Maintain and strengthen the positive initiatives you have already started.
- Highlight gaps and risk of non-compliance: Most companies have not sufficiently implemented CSDDD, like fully assessed all relevant risks, or conducted adequate meaningful stakeholder engagement. The tool highlights where your company has gaps in implementation.
- Assess documentation: Sufficient documentation is crucial to demonstrate that your company is operating in accordance with international standards. A lack of documentation may indicate that implementation is lagging as well.
- Develop an implementation plan: A well-structured plan is essential for building strong and effective processes across the company. The focus should go beyond mere compliance, emphasizing the tangible results that the work will achieve - both within the company and throughout its value chains.
The most important aspect of working with CSDDD is to stay focused on the directive's purpose: to create better conditions for people, the environment, and the climate globally. CSDDD must not become merely a compliance exercise, and thorough, structured implementation is crucial to achieving the directive’s goals. Implementation takes time, so it’s important to start as soon as possible.
The tool is developed in close collaboration with Nordic Sustainability
CSDDD in brief
The directive requires companies with more than 1,000 employees to identify, prevent, address, and report on potential and actual impacts on people and the environment - both within their own operations and across the value chain.
The directive is based on the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises and is structured around the OECD’s six-step due diligence process.
Who is covered - and when?
The directive will be phased in starting from 2027:
July 2027: >5,000 employees and >1.5 billion EUR in revenue, as well as non-EU companies with >1.5 billion EUR in revenue within the EU.
July 2028: >3,000 employees and >900 million EUR in revenue, as well as non-EU companies with >900 million EUR in revenue within the EU.
July 2029: >1,000 employees and >450 million EUR in revenue, as well as non-EU companies with >450 million EUR in revenue within the EU.
Groups that meet the thresholds at a consolidated level are also covered. If a company is covered at the group level, all subsidiaries must be included in the implementation of the directive.
Due diligence for SMEs:
Although SMEs are not directly covered by the directive, all companies should take due diligence seriously. Expectations for responsible behavior are rising for all businesses, and SMEs with customers subject to CSDDD can expect increasing focus on due diligence. It also plays a crucial role in major EU legislation such as the CSRD, Taxonomy, EUDR, and the Forced Labour Ban Regulation. Therefore, due diligence is a key part of future-proofing your business.
The key principles of CSDDD:
The directive includes provisions for civil liability and fines:
Companies that do not comply with CSDDD risk significant financial penalties based on revenue (up to 5% of global net turnover). However, companies cannot be held liable for negative impacts solely caused by another company, such as a supplier.
The directive takes a clear risk-based approach:
The directive outlines a clear risk-based approach to due diligence and does not require companies to assess, for example, all direct suppliers. Instead, companies must take a broad view of the entire supply chain and focus their efforts where negative impacts on people and the environment are most severe and likely.
Companies must assess own practices:
When companies assess the risk of negative impacts on people and the environment, they must also evaluate whether their own practices are or could be contributing to this risk. Specifically, the directive mentions the assessment and adjustment of e.g. purchasing practices.
A limited value chain focus:
The directive has a limited focus within the value chain, covering the company itself, including subsidiaries, as well as the entire upstream value chain. Downstream, it is limited to the distribution, transportation, and storage of a product when carried out for or on behalf of the company.
Meaningful stakeholder engagement:
The directive requires companies to engage with relevant stakeholders in a meaningful way during implementation, for example, in the identification of human rights risks. This will require companies to conduct thorough mapping and plan for meaningful and continuous engagement. It should not be just about completing the process, but about ensuring valuable input for future work.
Climate transition plan aligned with the Paris Agreement:
Companies must develop a climate transition plan in line with the Paris Agreement. This involves setting targets for reducing greenhouse gas emissions and implementing strategies to achieve these goals. Companies already reporting under the CSRD are not subject to additional obligations regarding the development of a climate transition plan.
Support for SMEs in the supply chain:
Companies cannot shift the responsibilities imposed by CSDDD, such as managing negative human rights impacts, onto their suppliers. Additionally, the directive emphasizes that companies must support SMEs in implementation if they are a key part of the supply chain and lack the necessary resources.
The directive is extensive and far-reaching - both internally and across the company’s supply chains. Building robust and effective due diligence processes takes time. That’s why it’s important to get started, so the implementation can be thorough and well-considered.
September 2024