Corporate Sustainability Due Diligence Directive (CSDDD)

Fostering sustainability in corporate governance and management systems

Introduction

The EU's Corporate Sustainability Due Diligence Directive (CSDDD) provides a harmonized legal framework to address environmental and social risks, by setting clear expectations and legal obligations for businesses to follow, ultimately contributing to a more sustainable and responsible economy.

The directive empowers businesses operating in the single market to uphold human rights and environmental standards within their operations, subsidiaries, and upstream suppliers. 

By identifying, preventing, mitigating, and accounting for adverse impacts, and implementing robust governance and management systems, companies can drive meaningful change, fostering transparency and accountability.

Obligations

Companies within CSDDD scope will be required to carry out a due diligence procedure consisting of:

• Integrate due diligence into policies and risk management systems.
• Identify and assess actual or potential adverse human rights and environmental impacts, and where necessary, prioritise such impact for further actions.
• Prevent or mitigate potential impacts.
• Bring to an end or minimise actual impacts, and bring actual adverse impacts to an end and minimizing their extent.
• Provide remediation for actual adverse impact.
• Carry out meaningful engagement with stakeholders.
• Establish and maintain a notification mechanism and a complaints procedure.
• Monitor the effectiveness of the due diligence policy and measures.
• Publicly communicate on due diligence.

In addition, companies are required to adopt a transition plan for climate change mitigation, including implementing actions. The plan aims to ensure their business model and strategy align with the transition to a sustainable economy and the goal of limiting global warming to 1.5°C, in line with the Paris Agreement. This includes achieving climate neutrality by 2050, addressing intermediate targets, and considering exposure to coal, oil, and gas-related activities.

Companies in scope

The new EU rules will apply to:

EU companies

• EU companies with more than 1 000 employees on average and with a net worldwide turnover of more than EUR 450 million in the last financial year, or an EU company that is the ultimate parent company of a group of companies reached above those thresholds.
• A company entered into or is an ultimate parent company of a group that entered into franchising or licensing agreements in EU providing received royalties exceed EUR 22,5 million and the company/group generated net worldwide turnover over EUR 80 million.

Non-EU companies

• Non-EU companies that generated a net turnover in the EU of more than EUR 450 million in the financial year preceding the last financial year, or a non-EU company that is the ultimate parent company of a group of companies that on a consolidated basis reached that threshold.
• A company entered into or is an ultimate parent company of a group that entered into franchising or licensing agreements in EU providing received royalties exceed EUR 22,5 million in EU and the company/group generated net turnover over EUR 80 million in EU.

The Directive applies to those EU and non-EU companies which satisfy the relevant criteria above for two consecutive financial years.

Timeline

The Directive will become applicable to companies according to a staggered timeline as described below:

• 2028: Companies with 5,000+ employees and a net turnover of 1,500 million EUR.
• 2028: Companies with 3,000+ employees and a net turnover of 900 million EUR.
• 2029:  Companies with 1,000+ employees and a net turnover of 450 million EUR.

DNV services

This offering is part of the wide DNV sustainability services portfolio that includes social-and/or human rights due diligence, ESG assessments, supply-chain traceability services, risk assessments, ESG audits, validation of environmental performance and carbon foot printing.

Reach out to our team of experts to know if your products will be subject to this regulation and see how we can support in your overall EU Green Deal strategy and compliance needs.