On 05/07/2024, after a long and challenging process, the Corporate Sustainability Due Diligence Directive (CSDDD) – 2024/1760/EU – was published in the Official Journal of the European Union, with the aim of fostering sustainable and responsible corporate behaviour in companies’ operations and across their global value chains. The new rules will ensure that companies in scope identify and address adverse human rights and environmental impacts of their actions inside and outside Europe.

The Directive introduces several due diligence requirements for organizations to prevent and mitigate negative impacts on human rights and the environment, both upstream and downstream, in addition to their own activities. It complements the Corporate Sustainability Reporting Directive (CSRD) in strengthening accountability and transparency obligations concerning social, environmental, and corporate governance aspects.

Member States will transpose the Directive into their national legislation in two years’ time.

Affected Companies – Scope of Application

• Large EU limited liability companies & partnerships (+/- 6,000 companies): – >1000 employees and >EUR 450 million turnover (net) worldwide.
• Franchises operating in the EU and >EUR 80 million turnover, of which at least EUR 22.5 million derive from licensing rights in the last financial year.
• Large non–EU companies (+/- 900 companies):  > EUR 450 million turnover (net) in EU.

Implementation Timeline:

• Starting July 26, 2027: companies with >5,000 employees and >EUR 1,500 million turnover
• Starting July 26, 2028: companies with >3,000 employees and >EUR 900 million turnover
• Starting July 26, 2029: companies with >1,000 employees and >EUR 450 million turnover

Due Diligence Obligations:

1. Integration of due diligence processes into corporate policies and risk management systems.
2. Identification and assessment of current and potential negative impacts on human rights and environment both at company level and along the value chain.
3. Definition of accessible reporting and complaint mechanisms, with fair and transparent management procedures for the whistleblowers’ protection.
4. Involvement of stakeholders directly or indirectly affected by the company’s activities.
5. Adoption of measures to prevent, mitigate, and reduce negative impacts on human rights and the environment across the entire value chain.
6. Periodic verification, monitoring, and evaluation of the effectiveness of due diligence measures concerning own operations and the value chain.
7. Reporting on due diligence policies and measures adopted in accordance with CSRD requirements.

Companies failing to comply with due diligence obligations are held accountable for damages resulting from an intentional or negligent failure to carry out due diligence, including through injunctive orders and effective, proportionate and dissuasive penalties (fines of up to 5% of the company’s net turnover).

Although micro companies and SMEs are not covered by the proposed rules, they will be indirectly affected as business partners in value chains. By aligning with the Directive’s principles, they can demonstrate commitment to sustainability, and gain a commercial competitive edge as avoid the costs of non-compliance and the related reputational risks.

We, s-mood sustainable solutions, are available with professional consulting services to support your company in proactively reviewing your current practices to mitigate risks and steer the business processes towards addressing sustainability impacts.