CSDDD: What The Directive Means For Supply Chain Sustainability

Written by Sophia S.

The EU's new Corporate Sustainability Due Diligence Directive (CSDDD) will significantly impact global supply chain sustainability.

The directive mandates that EU companies identify, prevent, mitigate, and publicly report adverse human rights and environmental impacts linked to their operations, subsidiaries, and supply chains—both within and outside the EU.

CSDDD requires board oversight in integrating sustainability considerations into their governance structures and risk management systems. The directive holds directors accountable for implementing due diligence and monitoring the effectiveness of the measures. Aligned with the Paris Agreement, CSDDD requires companies to adopt and implement climate transition plans to achieve a net-zero target by 2050.

Who does the CSDDD apply to?

?The CSDDD applies to the entire value chain of parent companies of groups of:?

• EU Companies with 1000+ employees and a worldwide net turnover of over €450 million.
• Non-EU companies that generate a net turnover of over €450 million within the EU market.
• EU companies with franchising agreements with global turnover over €80 million if royalties generated at least €22.5 million.

The CSDDD became law on July 25, 2024, marking a watershed moment for corporate accountability in the EU. The directive follows a strategic phased implementation approach:

How does the CSDDD affect supply chain operations?

The Corporate Sustainability Due Diligence Directive (CSDDD) also changes how companies manage their supply chains. In the past, companies could choose to implement various CSR initiatives in their value chains, but now, these practices are required by law.

Here's what companies need to do:

1. Conduct a supply chain audit. Map out your entire supply chain to identify key partners, their geographic locations, their impact on your supply chain resilience, and your leverage points. Potential risks and data gaps should already become apparent. Consider this as a first engagement touchpoint with suppliers on sustainability topics.
2. Develop robust due diligence policies. Assess your existing policies, data, and practices related to human rights and environmental impacts. Compare current practices with the directive's requirements to determine gaps and areas for improvement. Accordingly, establish or update your supply chain policies to align with the CSDDD. Concurrently revise supplier contracts to include sustainability compliance clauses.
3. Establish monitoring and grievance mechanisms. Provide and maintain an accessible complaint and notification procedure through which stakeholders can report potential or actual adverse impacts resulting from the company's activities. Companies must regularly monitor the effectiveness of their due diligence processes and annually report their findings and actions taken.
4. Build capacity for both suppliers and employees. Work closely with suppliers to ensure they understand and meet compliance requirements. Simultaneously, upskill internal teams in their sustainability compliance roles. From purchasing, legal, and finance to human resources, employees across the organization should have the knowledge and resources to implement the comprehensive reporting required by the directive. Educate management on sustainability themes in the industry to competently evaluate the completeness of risk identification and assessment of human rights and environmental impacts.

How long do companies have to implement supply chain due diligence?

EU member states have until July 26, 2026, to incorporate the Corporate Sustainability Due Diligence Directive (CSDDD) into their national laws. Once individual countries have adopted the CSDDD requirements into their domestic legislation, companies must comply starting in 2027.

Member states will impose fines based on the company’s turnover for instances of non-compliance. Additionally, companies may be liable for damages resulting from failure to prevent or mitigate adverse human rights or environmental impacts. Non-compliant companies may be excluded from public tenders, and information regarding their CSDDD violations will be publicly accessible for at least five years.

In preparation, organizations must consider their value chains' social and environmental impacts in their strategic planning.

At GO2 Markets, our Advisory team is committed to guiding organizations through this transformative journey, helping them navigate compliance while unlocking the strategic value of sustainable practices. Our expertise assists global companies in efficiently addressing Scope 3 emissions and effectively engaging their value chain partners.

Whether seeking to achieve net zero targets or comply with sustainability reporting requirements, we provide tailored solutions that save your company time and resources while enhancing your competitiveness. Contact us at [email protected] to take the first step toward securing your organization's place as a leader in a sustainable economy.

Watch Webinar CSRD and Scope 3: Best Practices for Value Chain Reporting