With less than three years until the first deadline for CSDDD, the EU’s latest environmental directive, we run down exactly what affected companies need to know and how to action it.

Let's start simply. What is CSDDD?  

CSDDD - otherwise known as the Corporate Sustainability Due Diligence Directive - entered into force on July 25, 2024.  

First introduced back in 2022, the directive has been through several iterations, with some arguing that the final text had to be “significantly watered down” in order to get the green light from EU member states.  

Regardless though, it remains an ambitious addition to the EU’s regulatory framework with some steep requirements for companies in scope.  

Briefly put, the directive compels large businesses to take material steps to address the environmental and human rights impact of their global supply chain.  

To ensure this, it requires due diligence to be carried out across their "chain of activities", a term coined by the creators of the CSDDD, that encompasses nearly all upstream and also some downstream elements, including distribution, transport and storage, but not sales or product disposal.  

Critically, it isn’t only the direct impact of a company that is taken into account, but also that of their subsidiaries operating within this "chain of activities".

It’s worth noting that there are some overlaps between the CSDDD and the existing Corporate Sustainability Reporting Directive (CSRD). For example, both directives require companies to consider many of the same areas of sustainability, such as carbon output.  

However, while the CSRD focuses on reporting the CSDDD is designed to drive action.  

Am I affected?  

As with the CSRD, implementation of the CSDDD will be phased in gradually, with larger companies affected first.  

The current implementation timeline is as follows:  

July 2027:  

  • EU companies with EUR 1,500 million in worldwide turnover and 5,000+ employees 
  • Non-EU companies with 1,5000 million turnover in the EU 

July 2028:  

  • EU companies with EUR 900 million in worldwide turnover and 3,000+ employees 
  • Non-EU companies with 900 million turnover in the EU 

July 2029:  

  • EU companies with EUR 450 million in worldwide turnover and 1,000+ employees 
  • Non-EU companies with 450 million turnover in the EU 

By 2029, it’s thought that some 6,000 large EU and non-EU companies will fall within the scope of the directive.  

Many thousands more small and medium-sized companies are likely to be affected too. That’s because, though the CSDDD doesn’t make them directly obligated to carry out due diligence, their larger supply chain partners may well be, with a knock-on impact across any organisation that falls within that value chain or ‘chain of activities.’  

This could have significant commercial ramifications. Under the CSDDD, companies in scope must consider suspending or terminating relationships "as a last resort" where issues cannot be addressed. That makes it critical that all companies develop a grasp of if and how they might be implicated.     

So, how do I ensure I’m compliant with CSDDD?  

Any companies that fall within the scope of the CSDDD will need to carry out due diligence across their supply chain to mitigate any actual and potential adverse impact on the environment and human rights.  

The CSDDD takes its definition of due diligence from the OECD’s Guidelines for Responsible Business Conduct here, which breaks the process down into six steps.  

1. Integrate due diligence into policies and risk management systems

This should outline their approach to risk management and be designed with employee input.

2. Identify and assess actual and potential adverse impacts

Prioritise areas with the highest likelihood and/or most severe level of impact.  

3. Prevent and mitigate actual and potential adverse impacts and bring actual adverse impacts to an end

This requires companies to implement measures to prevent or adequately mitigate these identified impacts, both from their own operations and that of their subsidiaries.  

4. Establish and maintain a notification mechanism and complaints procedure

This includes a process for whistleblowing.   

5. Monitor the effectiveness of measures

Companies will need to carry out periodic assessments (at least annually) to review progress and update policies accordingly.  

6. Publicly communicate progress

This can be included as part of an existing CSRD report, or via an annual statement published on their website.  

In addition to due diligence, the CSDDD requires in-scope companies to develop and execute transition plans for climate change. This plan must set out a strategy to ensure the business is in line with global efforts to reduce global warming to 1.5°C, with time-bound climate targets for 2030 onwards. 

How can I get started? 

There are less than three years to go until the first wave of affected companies will need to demonstrate they’re compliant with the CSDDD - or face financial penalties of up to 5% of global turnover.  

For those yet to start the process, start with these three steps.  

Map out your value chain

Without a clear overview of the supply chain, including both direct and indirect suppliers, it is impossible to meet the requirements of the CSDDD. That’s why it’s critical to start with a comprehensive mapping exercise that highlights the various interconnecting relationships and global markets that need to be taken into account.  

Identify the biggest risks

The CSDDD encourages companies to start with those parts of their supply chain that have the most significant impact on the environment and/or human rights. But remember, these won’t necessarily relate to a part of the supply chain that is particularly impactful at a commercial level.

The biggest environmental risk, for example, may relate to the sourcing of an ingredient used in tiny amounts in an end product, but which has a disproportionately negative impact on land or water use. This step requires supply chain leaders to take a macro view of their value chain and its impact.  

Tap into expertise

To ensure any due diligence policy is meaningful, ensure its creation is a collaborative, collective exercise which draws on internal expertise within your organisation – and draws on the rapidly growing set of free guidance being shared too. This Frequently Asked Questions document from the European Commission is a great starting place.  

You can read more about the different regulations shaping the food industry on our dedicated Regulations page, where you can find all our expert analysis on the subject. 

With EUDR and FSMA 204 the biggest talking points in the regulation conversation right now, we reached out to 500 businesses in the UK and US to find out how prepared they felt. Download our whitepaper on the subject to read the results. 

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