What is the EU’s Corporate Sustainability Due Diligence Directive (CSDDD)

 

Increasing global trade creates increasingly long and winding supply chains. Since the journey of products is often quite hard to trace, some companies may feel emboldened to condone actions in faraway countries that would certainly not fly at home.

 

Incidents include scandals over $12 garments produced in sweatshops, or the horrible Rana Plaza tragedy where over a thousand people have died when a building housing a textile factory collapsed.

 

However, when a problematic issue comes to light, large companies tend to feign ignorance and blame their supply chain partners.

 

Well, not anymore.

 

With the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) in the making, companies will have to take responsibility for their entire supply chain.

 

Illustration of a global supply chain

 

 

The CSDDD in a nutshell

According to the European Commission, the aim of the new legislation “is to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance.”

 

This means that companies are tasked with a corporate due diligence duty to identify, prevent, stop, mitigate and account for negative environmental and human rights consequences of their own actions, as well as those of their subsidiaries and value chains.

 

Larger companies have an additional requirement of ensuring that their business strategies are in line with the goal of limiting global warming to 1.5°C, as defined by the Paris Agreement.

 

Directors of companies based in the EU are responsible for creating the due diligence processes and supervising their implementation in the company’s daily operations.

 

 

Which companies are affected by the CSDDD

The corporate due diligence requirement is not obligatory for all companies. In fact, many small businesses are exempt from it, as the legislation only applies to companies with over 500 employees and exceeding a global net 150 million euro turnover.

 

Regarding high impact sectors like textile, agriculture, food and extraction of minerals, the thresholds are a little lower. In these sectors, companies with over 250 employees and a net 40 million euro turnover are bound by the new rules.

 

It’s important to note that the rules are also applicable to non EU-based companies active in the EU.

 

According to the calculation of the European Commission, around 9,400 EU-based and 2,600 non-EU companies fall under the first category, while 3,400 EU and 1,200 non-EU companies belong in the second category of high impact sector actors affected by the CSDDD.

 

Illustration: EU flags flying in front of the European Commission’s Headquarters in Brussels

 

 

Penalties for non-compliance

EU Member States are responsible for implementing and overseeing the CSDDD. In addition, the European Commission will set up a European Network of Supervisory Authorities to facilitate coordination on a European level.

 

Companies not adhering to the rules face a penalty of up to 5% of their global turnover, as well as a public naming-and-shaming process where the names of rule-breaking companies are published.

 

In the age of social media and rapid opinion-forming, such an act could have a devastating impact on a company’s reputation.

 

 

Next steps

At the time of writing, the CSDDD is not yet in force, but the end of the legislative procedure seems to be in sight. At the end of 2023, the European Parliament and the Council have come to an agreement about the proposed legislation. Now both bodies have to formally adopt the text to ensure its entry into force.

 

 

Related topics

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EU tax transparency extended to online marketplaces

 

A new era for digital services in Europe

 

EU Digital Markets Act forces tech giants to play fair

 

 

The control of supply chains

The EU is not wrong to make companies responsible for their supply chains. After all, a lot can go wrong during a product’s journey from a bunch of raw materials to a finished and packaged item waiting for its end-user.

 

For example, manufacturers can demonstrate a liberal attitude towards your patents and hand them out to unauthorised parties, leading to copyright-infringement and a loss of revenue for you.

 

Illustration of a patent

 

Similarly, various quantities of your products can get deliberately misdirected towards unauthorised marketplaces, resulting in price-eroding grey markets that damage your legitimate distribution chain.

 

However, although controlling your supply chain is very important (especially now when not doing it comes with heavy fines and public shaming), it’s certainly not an easy task, even for larger corporations. You need to devote a significant amount of time and resources to this purpose, including specialised expertise most companies simply don’t possess.

 

Luckily, this is a field where online brand protection can lend you a hand.

 

 

Supply chain control with online brand protection

Supply chain control starts with truly knowing who your business partners are. Unfortunately, this may prove to be more difficult than it sounds, especially if some of your business partners are halfway around the world.

 

This is where our effective, global compliance checks come in handy. We run thorough background checks to learn as much about your business partners’ behaviour and professional actions as possible.

 

For this purpose, we employ a mixture of versatile methods, from software-based monitoring to on-site background checks in various locations. In each case, we adopt our methods to the current situation, which means you’ll get a perfectly tailored solution to meet your exact needs.

 

Once we’ve gathered the data, you’ll receive a comprehensive report with actionable advice and court-admissible documentation (e.g. in case of online findings, a time-stamped screenshot created by our software screenseal).

 

All in all, supply chain monitoring is a necessary but quite difficult task that may soon become obligatory for your brand. Don’t worry about how you’re going to manage it; instead, reach out to us and let’s create a supply chain monitoring system perfectly tailored to your brand’s needs.