CSDDD, explained: the Corporate Sustainability Due Diligence Directive
The EU directive puts stricter sustainability requirements on businesses around the world – including a mandate to plan for net zero.
The latest in this wave of legislation is the Corporate Sustainability Due Diligence Directive, or CSDDD for short. Though still a work in progress, the CSDDD is set to have a large impact on businesses – both in the EU and beyond.
Here’s a breakdown of the CSDDD, what it could mean for your business, and how to prepare for compliance.
What is the CSDDD?
The CSDDD is a European Union directive aimed at enhancing the protection of the environment and human rights both within the EU and globally.
It sets obligations for companies to address actual and potential adverse impacts on human rights and the environment, including those related to their own operations, their subsidiaries, and – vitally – their suppliers.
The CSDDD was first adopted by the European Commission in February 2022. In December 2023, a provisional deal outlined the directive’s scope, clarified liabilities for non-compliant companies, defined penalties, and completed the list of rights and prohibitions that companies should respect.
By 2026, companies should expect to comply with the directive, with larger corporations likely to be the first to adhere.
What the CSDDD means for businesses
Requirements for compliance
The era where businesses could overlook or dismiss their supply chain’s impact is drawing to a close:
To comply with the CSDDD, companies must identify, prevent, mitigate, and account for negative human rights and environmental impacts within their operations, subsidiaries, and value chain.
The proposed legislation gives business directors specific obligations to integrate due diligence into corporate strategy and consider the human rights, climate change, and environmental consequences of their decisions.
Large companies will also be required to align their business strategies with the Paris Agreement goal of limiting global warming to 1.5 °C – meaning that these large companies must have a plan for reaching net zero.
Learn what net zero is and how to get your business there
Our article explains what net zero means, why it goes beyond “carbon neutral,” and how your company can achieve it.Read the article
The CSDDD should not be viewed solely as a regulatory obligation.
Complying with the directive presents several opportunities to companies, including:
- Enhanced customer trust and employee commitment
- Improved risk management
- Better access to finance
In addition, the directive will establish a harmonized – and ideally easier-to-navigate – legal framework in the EU.
These opportunities provide the “carrot” of business benefits for companies that prepare in advance for CSDDD, alongside the “stick” of non-compliance penalties.
Which businesses need to comply with CSDDD
The CSDDD applies to large EU limited liability companies, as well as non-EU companies that are active in the EU and have a significant turnover threshold.
Companies based in the EU need to comply if they meet the following criteria:
- 500+ employees
- A net worldwide turnover over €150 million
Non-EU companies need to comply if they meet the following criteria:
- €150+ million net turnover generated in the EU, three years from the entry into force of the directive.
Penalties for non-compliance with CSDDD
The CSDDD will be enforced through administrative supervision and civil liability.
At the state level, EU Member States will designate authorities to supervise and impose sanctions, including fines and compliance orders.
At the European level, a network of supervisory authorities will ensure coordinated enforcement. Those who are harmed by non-compliant companies will have the right to compensation for damages.
For companies that do not pay fines, the provisional agreement includes injunction measures and considers the company’s turnover when imposing monetary penalties; i.e., up to 5% of the company’s net turnover. Additionally, compliance with the CSDDD may become a criterion for the awarding of public contracts and concessions.
Even businesses not directly subject to the CSDDD may be affected if they have business partners bound by the directive, as they may be required to terminate relationships with partners that have adverse environmental or human rights impacts that cannot be mitigated.
The provisional agreement on the CSDDD awaits formal endorsement and adoption by the European Parliament and the Council.
Once officially adopted, EU member states will have two years to implement the directive into national law.
However, as non-compliance could result in significant penalties, companies should already begin preparing to comply with the legislation now.
At Normative, our Climate Strategy Advisors have seen from experience that the sooner a business prepares for upcoming legislation, the smoother the compliance process will be.
This is especially true of legislation which targets the value chain – as the CSDDD does – because modern value chains can have thousands of suppliers scattered all around the globe. Manually parsing these suppliers to collect the needed data would be an enormous task.
Normative’s automated carbon accounting platform accelerates the process of calculating your business’s full climate impact – including that of the suppliers in your value chain.
Jumpstart your CSDDD compliance by booking a demo of Normative to learn how we can help you stay compliant, competitive, and equipped to reach net zero.
Use Normative to account for, report, and reduce your carbon emissions
Normative’s carbon accounting engine empowers your business to calculate its carbon footprint.
Automated features – including One-Click Reporting – accelerate the compliance process.
Expert Climate Strategy Advisors help you interpret your emissions calculations, and support your business with tailored decarbonization guidance.
Frequently asked questions about the CSDDD
The CSDDD is part of the EU’s effort to enhance the protection of the environment and human rights – both within the EU and around the world.
The EU’s Corporate Sustainability Reporting Directive (CSRD) focuses on expanding and standardizing sustainability reporting requirements for companies, ensuring they provide detailed information on their environmental and social impacts. In contrast, the Corporate Sustainability Due Diligence Directive (CSDDD) aims to establish rules for companies to identify, prevent, mitigate, and account for adverse environmental and human rights impacts in their operations and value chains. In practice, companies based in or operating in the EU may be mandated to comply with both legislations.
The CSDDD applies to both large EU limited liability companies and non-EU companies that have a significant turnover threshold in the EU.
The provisional agreement on the CSDDD is in the process of being formally endorsed and adopted by the European Parliament and the Council. Once officially adopted, EU member states will have two years to implement the directive into national law.