Corporate Sustainability Due Diligence Directive (CS3D)

Fostering sustainability in corporate governance and management systems

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Introduction

Businesses play a key role in creating a sustainable and fair economy and society. Companies recognise the need to act and take measures to address adverse effects of their actions on human rights and the environment, but progress is slow and uneven.

With a harmonized legal framework on due diligence for human rights and environmental impacts, the EU will set with this Directive, a transversal framework to foster the contribution of businesses operating in the single market to the respect of the human rights and environment in their own operations and those of its subsidiaries, as well as their business partners in the chain of activities, by identifying, preventing, mitigating and accounting for their human rights- and environmental adverse impacts, and having adequate governance, management systems and measures in place to this end.

In addition, companies need to have a transition plan to ensure that their business model and business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.

Obligations

Companies within CS3D 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 must adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement and the objective of achieving climate neutrality, including its intermediate and 2050 climate neutrality targets, and where relevant, the exposure of the company 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:

• 2027: 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.