CSDDD: EU Parliament adopts new due-diligence rules for corporates

On 24 April 2024, the European Union’s Parliament adopted the Corporate Sustainability Due Diligence Directive (“CSDDD”). The CSDDD imposes obligations on large EU-based companies in relation to harmful human rights and environmental impacts, both in a company’s own operations, and in those of its subsidiaries and business partners along their upstream and downstream supply chains.

This Directive applies to companies registered in the EU with more than 1 000 staff and a global turnover of more than EUR 450 million, including a parent company of a group that accumulated this turnover threshold. In terms of the Directive, these companies must conduct risk-based human rights and environmental due diligence assessments, including the following actions:

• Integrate due diligence into policies and risk management systems;
• Identify and prioritise actual or potential adverse impacts to prevent, mitigate, and eliminate such impacts;
• Provide remediation for actual adverse impacts;
• Carry out meaningful engagement with stakeholders, and maintain a notification mechanism and complaints procedure;
• Monitor the effectiveness of the due diligence policy and any prevention and mitigation measures in place; and
• Publicly report on the above actions via websites and annual statements.

As policy analysts have noted, the CSDDD aims to address European Commission research which found that companies’ due diligence actions tended to focus only on the first link in their supply chains, often at the expense of addressing human rights and environmental harms further upstream or downstream in their operations. The Directive seeks to fix this by obliging businesses to reform their entire supply chains. This also follows the enactment of national supply chain due diligence or duty of vigilance laws across Europe, including France and Germany.

The Directive also obliges companies to develop transition plans for climate change mitigation which aim to ensure that the business model is compatible with the transition to a sustainable economy and align with climate goals in the Paris Agreement, the European Green Deal and the UN Sustainable Development Goals.

The CSDDD will now go to the EU’s Council of Ministers for final adoption. EU Member States will then have two years from the date of its enforcement to incorporate its provisions into national law.

• Download the CSDDD here.

This advisory note was prepared by ALT Advisory’s Climate Justice & Sustainability Practice (CJS). With an emphasis on implementation, monitoring, and impact reporting, CJS aims to build climate-resilience through digital transformation and climate and environmental justice. Find out more here.

Please note: The information contained in this note is for general guidance on matters of interest, and does not constitute legal advice. For any enquiries, please contact us at [email protected].