The Corporate Sustainability Due Diligence Directive (CSDDD) was approved by the Council of the European Union on the 24th of May, following the European Parliament’s vote for legislation amendment earlier this year.
What is the purpose for the Sustainability Due Diligence Directive (CSDDD)?
The new law enforced by the EU Council will ultimately raise the concern for businesses accountability towards environmental and societal impact throughout their every-day operations within the EU. This will depend on their status towards sustainability support and human rights management within their culture. CSDDD will primarily target large corporations, effectively encouraging the adaptation towards a sustainable future and ethical processes.
How has CSDDD compliance evolved?
The latest publication of CSDDD compliance underwent significant changes from previous drafts. The evolution of text is substantial, from broad specifications to elaborate ruling indirectly targeting large EU-based companies.
The new legislation will now apply to all companies within Europe by 2029 that achieve the following:
- A worldwide annual turnover exceeding €450 million
- A workforce of over 1000 employees
- Non-EU companies with over €450 million in net turnover generated in the EU during the year before the last financial year
The new directive will be rolled out in phases, beginning in 2027 through to 2029. It will begin with:
- Companies with 5000+ employees and a net turnover of €1,500 million who are required to comply to the new directive by 2027.
- Companies with over 3000+ employees and a turnover of €900 million will be required to comply by 2028.
- Companies with over 1000+ employees and a turnover of €450 million will be required to comply by 2029.
As these corporations now require human rights and sustainability measurement with best practices, it strives for a balanced and ethical playing field with smaller stakeholders.
As an example, smaller supply chains who previously had limited input towards an agreement or demand made by bigger entities now have more bargaining power due to new regulations with CSDDD, thus bringing balance to negotiations moving forward. However, the strict requirements in-place to impact bigger corporations is projected to initially harm the economy, whilst demanding similar standards down their respective supply chain.
What will they measure?
The Sustainability Due Diligence Directive will measure the environmental sustainability and human rights standards by actively observing operation activities and how large businesses comply to sustainability and human rights legislation throughout internal processes, stakeholder management, and supply chains.
How this impacts you as a business:
To clarify, the impact of this legislation is largely dependent on the size of your business, the way you operate and how you have adapted within a shifting regulatory landscape.
For large corporations:
- They must implement comprehensive due diligence mechanisms in their day-to-day operations.
- Regulated controlled assessments will be required that acknowledge potential environmental or human rights risks, followed by how they will be measured and mitigated appropriately.
- A formal transition plan to be in place for climate change mitigation, which must include objectives specified in the European Climate Law and complies with the Paris Agreement for the 2050 climate neutrality goal.
- Failure to comply with CSDDD will result in substantial penalties, with recent law enforcement establishing thorough administrative oversight and civil liability measures. Punishment by authorities involve a heavy fine with potential compensation for damages due to liability negligence or failure to conduct assessments.
For small to medium enterprises (SME):
- SME’s will be under rigorous regulation to provide so they keep essential stakeholder relationships intact.
- They will be forced to heavily invest into their own due diligence processes and systems to comply with CSDDD.
How Menzies can assist with CSDDD compliance
Menzies LLP has a dedicated team of advisors that help clients grow and manage their business. If you are looking to ensure you can demonstrate sustainability credentials or human rights support within a workplace due to new CSDDD regulations, please get in touch with Richard Singleton, Finance & Sustainability Director, or contact us via the form below:
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