On 14 December 2023, the European Council and the European Parliament reached a provisional agreement on the Corporate Sustainability Due Diligence Directive (CSDDD). The directive, which is also known as the European Supply Chain Act, is intended to improve the human rights situation, protect environmental concerns and advance international climate protection goals. The downstream value chain must also be taken into account.
Scope of application
The CSDDD will cover large companies with more than 500 employees and a global net turnover of more than EUR 150 million. Companies with more than 250 employees and a net turnover of more than EUR 40 million are covered by the CSDDD if they generate at least EUR 20 million in a high-risk sector. These include, for example, (i) the manufacture or wholesale of textiles, clothing and footwear, (ii) agriculture, forestry and fishing, (iii) the manufacture and wholesale of food or (iv) the extraction and wholesale of mineral resources.
Companies that are not established under the law of an EU Member State are also obliged to comply if they generate net turnover of more than EUR 300 million in the EU three years after the CSDDD comes into force. The Commission has announced that it will publish a list of these companies.
Opportunities and challenges for your company
The CSDDD provides companies with the opportunity to have a positive impact on the environment and human rights and to strengthen their corporate reputation. A proactive approach can not only fulfil the legal requirements, but also enable long-term success.
The implementation of the CSDDD will pose major challenges for many companies, particularly with regard to the minimum threshold of 250 employees for applicability.
Two aspects are particularly noteworthy:
Data requirement & supply chain transparency
The legally required supply chain transparency leads to significant implementation requirements, especially when the number of active suppliers is in the thousands. Companies are well advised to maintain supplier master data properly and integrate LkSG/CSDDD-compliant IT solutions for risk analysis into their IT landscape and risk management now at the latest.
ESG strategy & transformation
The CSDDD requires the integration of due diligence into corporate policy and the compatibility of business strategy with the Paris Agreement target of 1.5°C. A systematic sustainability strategy that covers key ESG issues not only provides a substantive framework for the implementation of CSDDD, but also facilitates ESG orientation in the target operating model. This in turn can entail high, sometimes disruptive transformation requirements. It is therefore advisable for companies to review their sustainability strategy in this regard.
The upcoming CSDDD will have a lasting impact on the corporate landscape. As your reliable partner, we are ready to help you prepare for the new requirements.
