After years of negotiations and three months of roller coasters, the EU Council has agreed on a version of the CSDDD (Corporate Sustainability Due Diligence Directive) on March 15th, 2024. Leaders of companies with business interests in the EU now find themselves at the forefront of significant shifts in regulatory compliance and corporate responsibility. As a Procurement or Sustainability decision-maker, you are now tasked with spearheading strategic initiatives to ensure alignment with the updated directive. Follow the steps below to position your organisation for success in the era of heightened sustainability scrutiny.
1. Identify if Your Company Meets the New Thresholds
The new thresholds set by the CSDDD affect EU companies and their parent companies with more than 1000 employees and 450 million euros revenue. Non-EU companies are subject to a revenue threshold of 450 million euros generated in the EU (no employee threshold applies). Additionally, franchises above 80 million euros revenue, with at least 22.5 million generated through royalties, fall under the directive's purview.
The delineation of high-risk sectors, including garment, food, and construction industries, has been removed, extending the threshold's applicability to all sectors.
Even if these new thresholds are cutting the number of companies in the direct scope of the directive by 70%, falling below these thresholds does not absolve companies of responsibility, as customers may still require similar due diligence from their suppliers. Moreover, the prescribed due diligence processes are increasingly recognised as sustainable procurement good practices, emphasising the importance of proactive engagement regardless of size or sector.
2. Understand Your Timing
Companies under the new version of the CSDDD have more time than anticipated to comply. The first reporting financial years are staggered:
- Starting January 1st, 2027, for companies above 5000 employees and 1500 million euros revenue.
- Starting January 1st, 2028, for companies above 3000 employees and 900 million euros revenue.
- Starting January 1st, 2029, for companies above 1000 employees and 450 million euros revenue.
This extended timeframe provides an opportunity to prepare and experiment with due diligence processes tailored to individual risk profiles and available resources. Use this time to build robust processes to address human rights and environmental risks effectively and evaluate your need in resources to structure your company for success.
3. Communicate Internally about Non-Compliance Risks to Onboard All Internal Stakeholders, as well as Your Investors
The version of the CSDDD approved by the Council confirms that each member state will appoint a supervisory authority to monitor, investigate, and penalise non-compliant companies. These entities will have the power to launch inquiries and impose sanctions.
The consequences for non-compliance are twofold. First, civil liability: companies will be held responsible for impacts resulting from intention or negligence and must fully compensate the victims. Second, financial penalties, including fines of up to 5% of a company's worldwide turnover, pose significant risks to the financial health and reputation of non-compliant organisations.
It is imperative for procurement and sustainability leaders to understand and communicate these risks internally. By engaging all relevant stakeholders, including internal teams and investors, you can foster a culture of transparency and accountability, securing the necessary resources to ensure compliance.
4. Prepare for the Directive’s Due Diligence Requirements
As you probably know by now, the aim of the directive is to prevent, end, or mitigate your company’s negative impacts on Human Rights and the environment. This includes impacts from your company's operations and subsidiaries, as well as those of your upstream partners. Downstream partners, on the other hand, are now only considered within scope if they engage directly in distribution, storage, or transport on behalf of your company. Notably, the disposal of products has been removed from the directive's scope.
Ensure you have a robust complaint mechanism in place to identify and report materialised risks, along with a process for engaging with stakeholders affected by your company’s negative impacts.
Additionally, companies within scope must develop a climate transition plan aligned with the Paris Agreement's objective of limiting global warming to below 1.5 degrees Celsius. Unlike the previous version, this updated directive does not mandate financial incentives tied to this plan for directors.
Procurement and sustainability leaders must embrace the CSDDD as an opportunity to strengthen their organisations' commitment to ethical and sustainable practices. With the European Parliament plenary vote expected for April 2024, now is the time to act. Implementing strong supply chain due diligence practices is not only essential for compliance but also for driving positive social and environmental impact.
CSDDD is just the latest most obvious reason to implement strong supply chain due diligence practices. Find out more about other sustainable procurement drivers for your company in this article.
To connect with BeeAware Consulting for expert guidance and support on navigating the implications of the modified CSDDD council agreement or to explore sustainable procurement practices further, contact us at info@beeaware-consulting.com or through our contact form.
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