As global sustainability expectations evolve, the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) is setting a new benchmark for corporate accountability. This landmark legislation goes beyond traditional ESG disclosures—requiring companies to actively prevent, mitigate, and account for human rights and environmental harm throughout their value chains.
Whether you operate in the EU or partner with EU-based companies, understanding the CSDDD is essential to future-proofing your business and aligning with global sustainability norms.
What Is the Corporate Sustainability Due Diligence Directive (CSDDD)?
The Corporate Sustainability Due Diligence Directive, or CSDDD, is a legislative proposal by the European Commission designed to ensure companies take responsibility for the impact of their operations, including subsidiaries and supply chains.
Core Objectives:
- Protect human rights: Safeguard labor rights, prevent child labor, forced labor, and discrimination.
- Preserve the environment: Prevent deforestation, biodiversity loss, pollution, and climate damage.
- Embed sustainability into governance: Require companies to integrate due diligence into their policies, risk management, and oversight structures.
In short, CSDDD shifts sustainability from “voluntary reporting” to legally binding due diligence.
Who Does the CSDDD Apply To?
As of 2024, the CSDDD will apply to companies based on their size and turnover, both within and outside the EU.
In-scope companies include:
EU Companies:
- Group 1: ≥ 1,000 employees and ≥ €450 million turnover worldwide.
- Group 2 (High-risk sectors): Lower thresholds apply for sectors like textiles, agriculture, and mining.
Non-EU Companies:
- Operating in the EU with a net turnover ≥ €450 million within the EU, regardless of whether they have a legal presence there.
This means even companies outside Europe need to comply if they do business in the EU or are part of an EU company’s value chain.
What Are the CSDDD Requirements?
Companies under the CSDDD will be required to:
1. Conduct Due Diligence Across the Value Chain
- Map out and assess human rights and environmental risks across own operations, subsidiaries, and supply chains.
- Engage with stakeholders, including workers, communities, and civil society.
2. Integrate Due Diligence into Company Policies
- Develop a due diligence policy that identifies and addresses risks.
- Regularly update risk assessments and impact evaluations.
3. Prevent and Mitigate Adverse Impacts
- Take appropriate measures to prevent potential harm or mitigate ongoing damage.
- Terminate relationships with suppliers that fail to comply after remediation efforts.
4. Establish a Grievance Mechanism
- Provide accessible channels for affected parties to report issues.
- Collaborate with trade unions, NGOs, and workers’ representatives.
5. Monitor, Track, and Communicate Progress
- Regularly monitor the effectiveness of due diligence actions.
- Publicly disclose due diligence practices and outcomes (closely aligned with CSRD reporting obligations).
6. Link Executive Pay to Sustainability
- Larger companies will need to align directors’ variable remuneration with climate transition plans and sustainability goals.
What Happens If Companies Don’t Comply?
The CSDDD includes real legal consequences:
- Fines and Sanctions: Member States can impose proportionate penalties, including substantial fines based on turnover.
- Civil Liability: Companies may be held legally liable if they fail to prevent harm and victims suffer loss as a result.
In effect, this brings legal accountability to ESG practices, not just reputational risks.
How Is the CSDDD Different from Other Regulations?
| Regulation | Focus | Binding? | Value Chain Scope |
|---|---|---|---|
| CSRD | Disclosure/reporting | Yes | Limited to operations & upstream |
| CSDDD | Due diligence/actions | Yes | Full value chain, incl. downstream |
| GRI/UNGPs | Voluntary frameworks | No | Full value chain (guiding principles) |
Unlike CSRD, which focuses on reporting, CSDDD is about action and accountability. It operationalizes the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises into binding EU law.
Implications for Businesses: What You Should Do Now
Whether or not you fall directly under the directive, the ripple effects will reach most global supply chains. Here’s how to prepare:
Assess Your Exposure
- Are you directly covered under CSDDD?
- Do you supply or partner with EU companies that are?
Map Your Value Chain Risks
- Identify high-risk areas for labor exploitation, environmental degradation, or governance issues.
- Prioritize sectors like textiles, agriculture, extractives, and electronics.
Strengthen Governance and Oversight
- Appoint sustainability leads at board or C-suite level.
- Embed due diligence in enterprise risk management (ERM) systems.
Engage Suppliers and Partners
- Set clear ESG expectations and integrate them into contracts.
- Provide capacity-building or onboarding support for smaller suppliers.
Align with Reporting Standards
- Coordinate CSDDD activities with CSRD, GRI, ISSB, and ESRS frameworks to streamline sustainability reporting and reduce duplication.
Final Thoughts: Why CSDDD Is a Turning Point
The CSDDD marks a paradigm shift in corporate sustainability—from passive reporting to proactive responsibility. It is a powerful step toward a just transition, corporate accountability, and global sustainability standards.
Companies that embrace the directive early will not only reduce legal and reputational risks—they’ll build resilience, trust, and long-term value in a purpose-driven economy.
In the age of global transparency, ethical business is no longer an option—it’s an obligation.
Book a demo: sali-ai.com