CSDDD: Guide to EU’s Directive on corporate sustainability due diligence

This directive aims to promote sustainable and responsible corporate behaviour, and to incorporate human rights and environmental considerations into companies’ operations and corporate governance.

Learn more about CSDDD, how it correlates with the Norwegian Transparency Act and how our software Sustainable Supplier Network ensures compliance.

Introduction to the CSDDD

The European Union proposed the Corporate Sustainability Due Diligence Directive on February 23, 2022. The legislation mandates large companies to integrate human rights and environmental considerations into their operations. The CSDDD targets companies with substantial revenue and international supply chains, ensuring they assess and address adverse impacts. The directive aims to create a level playing field for businesses, enhance transparency, promote risk management, and bolster consumer and investor trust.

This hard law signifies a pivotal shift towards integrating sustainability deeply in corporate governance, setting a precedent for future regulations, and affirming the EU’s commitment to leading global sustainability efforts.
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Key milestones in the evolution of the law:
• March 10, 2021: The European Parliament passed a resolution calling for the creation of the CSDDD to enhance corporate accountability on sustainability.
• February 23, 2022: The European Commission proposed the CSDDD, initiating its legislative process.
• 2023-2024: The directive was refined and amended through negotiations among EU institutions.
• March 15, 2024: The EU Council endorsed the CSDDD, overcoming previous challenges and delays.
• May 24, 2024: Formal approval by the European Council, marking the final legislative approval.
• Published in Official Journal 2024: The directive enters into force 36 months after publication in the EU Official Journal, with a two-year transposition period for member states 2026.
• 2027: Entry into force, batch 1. 2028 batch 2, 2029 batch 3.

Key components of the CSDDD

Scope and applicability
Due diligence obligations
Risk management and reporting
Stakeholder engagement and grievance mechanisms
Legal compliance and enforcement
Civil liability
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What needs to be done?

Due diligence processes: Report on strategies and methods used to identify, prevent, and mitigate adverse human rights and environmental impacts.
Actual and potential impacts: Disclose details of actual and potential adverse impacts, and the actions taken to address them.
Risk management: Describe how human rights and environmental risks are managed and integrated into business strategies.
Stakeholder engagement: Outline interactions with affected communities, workers, and other stakeholders in the due diligence process.
Grievance mechanisms: Provide information on grievance mechanisms available for those harmed by company activities.
Effectiveness of due diligence measures: Evaluate and report on the effectiveness of the due diligence actions implemented.
Combating climate change: Updated best effort obligation to limiting global warming and achieve climate neutrality within 2050. Plan must be updated every 12 months.
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Who does the CSDDD apply to?
• Businesses with more than 1,000 full-time employees and an annual turnover of more than 450 million Euro.
• Financial institutions are covered by the directive, but only subject to carrying out due diligence assessments for their supply chain, not for customers who receive goods and services.
• Consolidated parent companies are covered by the directive if consolidated figures for the group meet the directive's threshold values.
• 2027 Companies with 5,000 employees and a turnover of more than 1,500 million Euro.
• 2028 Companies with 3,000 employees and a turnover of over 900 million Euro.
• 2029 Companies with 1,000 employees and a turnover of over 450 million Euro.
Penalties for non-compliance with the CSDDD
are "effective, proportionate, and dissuasive." They include significant fines, potentially based on a percentage of the company’s annual global turnover, to enforce compliance. Enforcement measures, applied by member states, may also involve injunctions or corrective orders to address non-compliance.

Comparison of the Norwegian Transparency Act and the CSDDD

Criteria
The Norwegian Transparency Act
CSDDD
Human Rights Due Diligence
Environmental Impact Assessments
Public Reporting of Due Diligence
Stakeholder Engagement
Supply Chain Transparency
Grievance Mechanisms
Regular Updates and Monitoring
Legal and Financial Liability
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Not responsible for third parties, but cascading not default
Commission provides model contract clauses that can be used voluntarily.But, it is very important that the companies can not just cascade the responsibility to their suppliers. The responsibility must be fair, reasonable and non-discriminatory. (Article 10 & 11) This means a large buyer has responsibility to help small suppliers with compliance.
Disengagement is only to be used as last resort
Prioritisation of preventive and correction actions over the termination of business relationships. This is very important to open for honesty and real disclosure instead of fear from losing the contract. This means the companies can only withdraw from the contract if staying will result in a worse situation then if they continue the relation and correct the negative impact.There are cases where disengagement might be the only solution, for instance if state forced labour is the practice.
Companies that already comply with the Norwegian Transparency Act have a good basis for following the broader and stricter requirements of the CSDDD.
In addition to the requirements in the Transparency Act, the business must then expand to assess its environmental emissions according to the due diligence requirements in the OECD's process. In addition to that, the climate action plan must comply with the legal requirements set out in the Act. To conduct an assessment of whether the business is on track for climate adaptation, we recommend Factlines product on the EU Taxonomy.
Factlines EU Taxonomy Reporting dashboard

Advantages of pre-qualification
using Factlines Sustainable Supplier Network

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The due diligence and transparency required by the Norwegian Transparency Act align closely with CSDDD's mandates. Working under the Norwegian framework equips companies with the methodologies and practices that are adaptable to the CSDDD’s requirements.
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CSDDD introduces harsher penalties and stricter enforcement for non-compliance, making pre-qualification a crucial step. By ensuring compliance with the Norwegian Transparency Act through Factlines Sustainable Supplier Network, companies not only align with current regulations, but also prepare proactively for upcoming EU mandates.
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Is your business in the process of systematic supplier follow-up? With the Factlines Sustainable Supplier Network, you increase the chance of better contract terms, minimised supplier risk and optimised compliance processes before CSDDD comes into full effect.

Frequently asked questions
by the IT and Finance departments

What are the financial implications of CSDDD for our company?
How does CSDDD compliance impact our company's investment potential?
What are the risks of non-compliance with CSDDD for our business?
How can technology optimise compliance with the CSDDD?
What are the data management requirements under CSDDD?
How can the integration of sustainability software impact our existing IT infrastructure?

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