Europe Breaks Free from Self-Imposed Limits and Raises the Global Bar, Aligned with Mario Draghi’s Report on the EU’s Economic Strategy

In the wake of the Paris Agreement, the global business landscape has been evolving rapidly towards sustainability. Many companies have embraced carbon neutrality targets and the transition to net-zero emissions, leading the way in aligning their business models with environmental and social responsibility. Yet, despite these voluntary commitments, the need for a more unified and comprehensive approach has become clear. With its focus on "sustainability due diligence," the Corporate Sustainability Due Diligence Directive (CSDDD) outlines the steps companies must follow to address social and environmental risks in their value chains. The CSDDD still needs to be transposed into national legislation by Member States (with the deadline for transposition set for mid-2026), and implementation will begin between 2027 and 2029, depending on the size of the company. Once fully implemented, large companies (over 1,000 employees and a global net turnover of at least €450 million) based in or operating in the EU will have a legal obligation to ensure that social and environmental considerations are clearly embedded in their end-to-end operations, including corporate governance frameworks. Notably, this requirement extends to the activities of suppliers across the entire value chain, regardless of their size.

The CSDDD aims to bring all businesses up to the same high standards, ensuring that sustainability is not just a goal for a few leaders, but the norm for all. It addresses the interconnectedness of climate change, human rights, and environmental protection, making companies accountable for their impact across their entire value chain and setting a global benchmark for responsible business practices.

The CSDDD requires companies to identify and address potential and actual adverse environmental and human rights impacts within their operations, subsidiaries, and value chains. This marks a new era where sustainability is no longer optional or superficial but an integral part of how businesses operate. From now on, companies will be accountable for these impacts with the same seriousness as they present their financial statements. Justice will finally be served for the many companies that have been acting responsibly for years, as they see the rest of the market follow suit under this directive.

A Historic Law Post-Paris Agreement: Turning Ambitions into Reality

The CSDDD is not just another piece of regulation—it’s the first law of its kind introduced since the Paris Agreement, directly tying corporate actions to climate goals. By requiring companies to align their business operations with the 1.5°C target, the directive ensures that Europe remains committed to its climate pledges and human rights obligations. This is a decisive moment where sustainability becomes a legal requirement, moving beyond voluntary actions and signaling that the EU is serious about its climate commitments.

Much like carbon neutrality, which has become a driving force for businesses globally, the CSDDD obliges large companies to adopt transition plans in line with the Paris Agreement, making it the most comprehensive and binding legislation to date. These plans will require detailed, time-bound climate targets, ensuring that corporations not only reduce their emissions but also transparently report on their progress, enhancing corporate accountability and stakeholder trust.

A Comprehensive Framework to Protect People and the Planet

The CSDDD doesn’t operate in isolation but complements a robust European framework already in place. This includes the Green Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), and the Sustainable Finance Disclosure Regulation (SFDR), all of which aim to enhance transparency and encourage sustainable investment. While the Green Taxonomy defines what constitutes an environmentally sustainable activity, and the CSRD mandates extensive reporting on ESG issues, the CSDDD goes a step further by requiring companies to take proactive measures to address both human rights and environmental risks throughout their operations and value chains.

This means that not only will environmental issues like carbon emissions and water use be addressed, but also critical social issues such as labor conditions, forced labor, and child exploitation. The CSDDD places human rights and environmental accountability on an equal footing, ensuring that businesses operate responsibly across all areas. This directive will prevent human rights abuses, protect the environment, and contribute to fairer market conditions by eliminating Social and Environmental dumping, where companies undercut competitors by lowering labor and environmental standards.

From Reporting to Action: A New Era of Corporate Responsibility

While other regulations like the CSRD focus heavily on disclosure, the CSDDD is about action. It requires companies to go beyond merely reporting on their sustainability performance and instead actively identify, prevent, mitigate, and account for the adverse impacts of their activities. This legal mandate turns climate data into concrete steps toward sustainability, ensuring that businesses are not just telling a story but making real progress toward environmental and social goals.

By obliging companies to integrate due diligence into their business strategies, the directive ensures that risks such as deforestation, forced labor, and poor working conditions in supply chains are systematically addressed. This shift from voluntary to mandatory actions is crucial in closing the gap between corporate promises and actual outcomes on the ground.

Building Trust and Ensuring Fair Competition

Critics often argue that new regulations impose burdens on businesses, but the reality is far more positive. Like financial reporting, which has become a vital part of corporate governance, compliance with sustainability due diligence is an investment in long-term success. Companies that proactively engage with the CSDDD will build trust with consumers, investors, and workers, thereby securing a competitive advantage in an increasingly sustainability-driven market.

The directive also helps create a level playing field for companies across Europe. By harmonizing standards across all Member States, it eliminates the competitive advantage of businesses that cut corners, ensuring that companies compete on the quality of their products and services—not by exploiting people or the planet. This is particularly important for small and medium-sized enterprises (SMEs), which will benefit from the higher supplier standards set by larger companies, even if SMEs themselves are not directly covered by the directive.

Furthermore, the CSDDD aligns closely with the broader recommendations on European competitiveness outlined in Mario Draghi's report on the future of the EU’s economic strategy. Draghi identifies key areas that Europe must address to maintain and enhance its global standing: closing the innovation gap with the U.S. and China, capitalizing on the energy transition, and securing supply chains to reduce geopolitical dependencies. The CSDDD directly supports these objectives.

By requiring businesses to integrate sustainable practices across their value chains, the CSDDD fosters innovation, particularly in the development of green technologies. This is crucial for Europe to bridge the technological divide with leading global economies, a major focus of Draghi’s recommendations. Encouraging sustainable innovation not only improves environmental outcomes but also positions European companies as leaders in emerging clean technology sectors.

Additionally, the directive plays a critical role in the energy transition, which is central to Europe’s future competitiveness. Although the transition may pose short-term costs, the CSDDD helps ensure that businesses make the necessary investments in sustainability, ultimately fostering a more resilient and competitive industrial base. This approach supports Draghi’s call for balancing decarbonization efforts with economic growth.

The CSDDD also addresses the need to reduce geopolitical dependencies, as emphasized by Draghi. By ensuring that companies source materials and labor ethically and sustainably, the directive helps Europe lessen its reliance on external suppliers, particularly in regions where environmental and human rights standards are lacking. This contributes to Europe’s strategic autonomy, a critical element in securing long-term competitiveness in an increasingly interconnected world.

In essence, the CSDDD not only enhances sustainability but also reinforces Europe’s economic resilience and competitiveness, aligning with Draghi’s vision of a stronger, more innovative, and strategically autonomous Europe.

A Step Toward a Sustainable and Just Economy

The CSDDD is not only about addressing environmental concerns; it is about securing Europe's social and economic cohesion. By fostering sustainable business practices, the directive will enhance economic resilience, create stronger consumer trust, and attract ethical investors. It sends a clear message that Europe is committed to turning the promises of the Paris Agreement into real, actionable policies, and that these policies will have a far-reaching impact, both within the EU and globally.

At a time when fake news often clouds the reality of sustainable business practices, the CSDDD offers a clear and concrete framework for companies to follow. It dispels the myth that sustainability is a burden and demonstrates that compliance with human rights and environmental standards is not only a moral imperative but also a strategic one, delivering long-term benefits for businesses and society alike.

Water: The Overlooked Crisis in Corporate Responsibility

One of the most urgent crises humanity faces today is water scarcity, yet it often takes a backseat in the corporate sustainability narrative. The CSDDD directly addresses this by requiring companies to account for their water footprint alongside other environmental impacts. In a world where industries account for 90% of the global water footprint, the role of businesses in mitigating water usage has never been more critical.

The United Nations predicts that by 2050, the world could face an unsustainable scenario due to a combination of too much water, too little water, and severe pollution, all exacerbated by human activity. This makes the CSDDD not just a regulatory necessity but a moral imperative. Companies must mitigate their negative impact on water resources, whether through excessive consumption or damage to ecosystems. This example highlights the broader scope of the CSDDD—sustainability is no longer just about controlling carbon emissions but about safeguarding the planet's most essential resources, including water, soil, and air.

Since 2023, EU companies with activities in Europe are required to disclose information on their water use and water resources. The bloc has two corporate sustainability directives designed to mitigate the environmental impact of excessive water use and pollution:

This directive requires companies to identify and address potential and actual adverse environmental impacts, including their water footprint, within their operations, subsidiaries, and value chains. Companies must mitigate their negative impact on human rights and the environment, including excessive water consumption or damage to ecosystems.

A Future Built on Sustainability

The Corporate Sustainability Due Diligence Directive is the culmination of years of progress toward creating a more sustainable, fair, and just economy. As the first law introduced post-Paris Agreement, it marks a significant shift from voluntary corporate actions to mandatory, legally enforceable obligations. By aligning corporate operations with the goals of the Paris Agreement, the CSDDD ensures that businesses contribute meaningfully to the global fight against climate change while safeguarding human rights.

This directive represents the future of business in Europe—and beyond. It has a positive impact not only on European businesses but also on global value chains, as companies will be required to ensure that their suppliers outside of Europe adhere to the same environmental and social standards. This means that suppliers in other regions will benefit from improved labor conditions, environmental protections, and sustainable practices, fostering a ripple effect of responsibility across borders. By addressing the entire supply chain, the CSDDD promotes sustainability, fosters innovation, and encourages ethical practices globally.

For companies, compliance is not just about avoiding penalties; it is about embracing a new business model that values people, the planet, and long-term prosperity. The CSDDD is a bold and necessary step that will secure Europe’s leadership in sustainable business practices, reinforcing its commitment to the Paris Agreement and laying the foundation for a greener, more inclusive global economy.

Acknowledgements

I would like to extend my heartfelt thanks to my friend Marcela for their invaluable assistance in the preparation of this article. Their expertise and thoughtful contributions were instrumental in shaping the ideas and perspectives shared here. Your support and collaboration have been greatly appreciated, and this article would not have been the same without your guidance.