The European Union (EU) has always been at the forefront of encouraging corporate responsibility and accountability (see for instanceCSRD, the Green Deal, etc.) and in March 2021 the EU Commission introduced a proposal for a Corporate Sustainability Due Diligence Directive (CSDDD). The Directive aims to ensure that companies take proactive measures to respect human rights and mitigate environmental impacts within their operations and supply chains. The regulation is currently in the process of being approved by the Council of Ministers but has not been without its hurdles1. If it is approved, it will formally transition into a Directive in 2024. All EU members will be obliged to incorporate the CSDDD into their national legislations in 2026. It is anticipated that companies will have to start applying requirements by 2025 or 2026, the timeline will be clarified in 2024.  

What is the Corporate Sustainability Due Diligence Directive (CSDDD)?  

The CSDDD is designed to enforce respect for human rights and the environment throughout the entire supply chain of businesses. Although several EU member countries have due diligence legislations in place, (see for instance France’s "Duty of Vigilance Law", the German "Act on Corporate Due Diligence in Supply Chains", Norway’s "Act on business transparency and work with fundamental human rights and decent work" and Netherland’s "Responsible and Sustainable International Business Conduct Act"), these frameworks are often voluntary and often sector-specific or only address single issues such as child labour2. 

The CSDDD aims to bring a mandatory and more comprehensive approach to corporate sustainability in the region. It will require companies not only to identify potential environmental and human rights impacts that may occur across their operations and value chains, but also ask them to take steps to prevent, mitigate, or remediate these impacts. 

Who is in scope?  

The CSDDD would apply to all large EU companies with more than 500 employees and a net turnover exceeding EUR 150 million³. Alternatively, companies with over 250 employees and an EUR 40 million turnover also fall under the Directive, provided that 50% of their revenue comes from high-risk industries like fashion, minerals, or agriculture⁴. 

CSDDD vs CSRD

CSDDD and CSRD are supposed to complement each other, and larger companies would need to comply with both of them. While the CSDDD focuses on companies implementing due diligence measures to address environmental and human rights impacts within their supply chains, the CSRD is a reporting directive and is aimed at ensuring companies report their sustainability actions in a standardised way. 

Both directives draw upon internationally recognized frameworks such as the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights to guide their due diligence efforts.

CSDDD will have a narrower reach compared to the CSRD, with approximately 17,000 companies falling under its scope, while the CSRD has been estimated to apply to around 50,000. 

What will companies need to do?

The EU’s CSDDD is a crucial shift in the EU business, which prioritises reporting and disclosure as initial steps towards a broader transformation. It requires companies to address adverse impacts within their operations and value chains, with the goal of minimizing negative human rights and environmental effects while fostering positive ones.

Irrespective of whether the directive is approved or not, the key elements of these regulatory initiatives will not go away. More importantly, companies that are proactive in identifying and mitigating environmental and human rights impacts beyond their operations and across their entire value chain will be better equipped to prevent these risks, rather than respond to them when they arise. CSDDD presents a unique opportunity for companies to transition to more sustainable and responsible operating models, which will strengthen their engagement with stakeholders. 

Companies that want to stay ahead of the curve can take a few first steps:  

• Prioritise engagement across the value chain, with a key focus on suppliers 
• Make the business case for effective stakeholder engagement with your senior leadership across the value chain
• Conduct a supplier needs and engagement analysis 
• Identify the key issues that affect your supply chain, including principal adverse impacts on human rights and the environment  
• Capture data gaps and provide clear timelines 
• Engage with suppliers and other stakeholders to support their implementation of due diligence, ensure that there are clear channels in place for members of the supply chain to raise concerns they may have around human rights or the environment.
• Prepare to report on due diligence efforts and outcomes via a report or website. 

As is often the case with regulations focusing on reporting, the aim is modifying the operating model and putting in on a more sustainable path, taking a long-term view of value creation. Companies and leaders that realise this will not only be able to attract capital but will also engage much more positively with their stakeholders.  

This article was put together with the help of Dr. Elli Siapkidou, Director of Insight and Innovation and Nadya Kamenkovich, Research Consultant and Patrick Miller, Sustainability Consultant.

_{[1] In December 2022, the EU Council and the EU Parliament reached a provisional agreement. Now the directive will be voted on by the EU ambassadors on 9th February. Even though the German FDP party has recently confirmed that Berlin would abstain in the upcoming vote, other EU countries would need to object as well to stop the legislation from being passed, Europe’s Toughest ESG Rule Hits Wall of German Objections.}

_{[2] LOI n° 2017-399 du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d'ordre, 27 March 2017; Beschlussempfehlung und Bericht des Ausschusses für Arbeit und Soziales (11. Ausschuss), 9 June 2021; Lov om virksomheters åpenhet og arbeid med grunnleggende menneskerettigheter og anstendige arbeidsforhold (åpenhetsloven), 9 April 2021; Tweede Kamer der Staten-Generaal, 2 November 2022.} 

_{[3] European Commission, Corporate sustainability due diligence.}

_{[4] European Commission, Proposal for a Directive of the European Parliament and of the council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937, 23 February 2022.} 

About Black Sun

Black Sun Global is an international stakeholder engagement agency that’s been helping global brands drive change for more than 30 years. At the forefront of corporate communications, we offer integrated solutions, covering strategy, reporting, ESG advisory and digital activation – all powered by insights, technology, and market-leading expertise.

By addressing stakeholder interests, we turn one-way communications into engaging two-way dialogues that deepen relationships, fuel innovation, and drive more sustainable business practices.