Factlines – Explaining the CSDDD

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.

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

Woman holding thread in spool manufacturing equipment stock photo

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.

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.

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

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.

Advantages of pre-qualification

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.

Confident asian woman, trying to help her customers stock photo

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.

Female executive showing data to team in meeting stock photo.

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.

The Corporate Sustainability Due Diligence Directive (CSDDD) – what it is and how Factlines can help

Introduction to the CSDDD

Key components of the CSDDD

What needs to be done?

Comparison of the Norwegian Transparency Act and the CSDDD

Supply Chain Sustainability Software

EU Taxonomy Reporting

Advantages of pre-qualification

Have a question?

Which EU legislation applies to your company?

Let's talk to discuss the right approach for your CSDDD reporting

The Corporate Sustainability Due Diligence Directive (CSDDD) – what it is and how Factlines can help

Introduction to the CSDDD

Key components of the CSDDD

What needs to be done?

Comparison of the Norwegian Transparency Act and the CSDDD

Supply Chain Sustainability Software

EU Taxonomy Reporting

Advantages of pre-qualification

Have a question?

Which EU legislation applies to your company?

Let's talk to discuss the right approach for your CSDDD reporting

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