What Is The CSDDD?
The Corporate Sustainability Due Diligence Directive (CSDDD) might sound like another confusing ESG acronym, but it's a simple and straightforward concept. The CSDDD is a proposal by the European Union (EU) designed to hold companies accountable for their impact on human rights and the environment.
In simpler terms, it's like a rulebook that asks companies to check if their operations (and those of their partners in their supply chains) might be harming people or the environment. If they find potential harm, they're asked to do something about it.
Why Was The CSDDD Created?
The EU noticed that not every company was taking their responsibility to people and the environment seriously. They wanted to ensure:
- A healthier environment for everyone, now and in the future
- Better protection of human rights, including labour rights
- Increased trust in businesses
The CSDDD is a way to encourage companies to act responsibly, while making sure everyone is playing by the same rules.
Who Does The CSDDD Affect?
The CSDDD affects companies both within and outside the EU. If your company is based in the EU, or if you're exporting goods to the EU, these rules are relevant to you. Here's a quick rundown:
Large EU companies
- Group 1: Companies with 500+ employees and net turnover of more than EUR 150 million worldwide.
- Group 2: Companies in high-impact sectors (like textiles, agriculture, and mining) with 250+ employees and net turnover of more than EUR 40 million worldwide.
- Companies with significant activity in the EU and meeting the turnover thresholds of Groups 1 and 2 above.
Small and medium-sized enterprises (SMEs)
- The rules don't directly apply to SMEs, but they could still be indirectly affected.
When Will The CSDDD Come Into Effect?
As of June 2023, the EU Parliament has approved the draft proposal of the CSDDD. However, it still needs to be negotiated with EU member states. Depending on how these negotiations go, we could see these rules in action as early as 2025.
What Do Companies Need To Do?
Under the CSDDD, companies are required to:
- Integrate due diligence into their policies
- Carry out risk analyses
- Prevent and mitigate potential adverse impacts
- Establish a complaints procedure
- Monitor the effectiveness of their due diligence policy and measures
- Communicate publicly about the due diligence undertaken
- Create climate transition plans in line with the Paris Agreement
The CSDDD is a major step towards making businesses more responsible for their impact on people and the environment. It's important for companies to understand these changes and take proactive steps to align with these new rules.
How does it compare to established ESG frameworks?
The CSDDD is not set to replace existing sustainability reporting frameworks like the GRI or TCFD. Instead, it's about reinforcing and expanding corporate accountability. It's about ensuring companies don't just report on their impacts, but actively work towards mitigating any negative effects on human rights and the environment.
Let's delve a little deeper into what this means:
- Leveraging Existing Frameworks
If your corporation is already reporting under mainstream frameworks such as GRI, ESG IDP, or TCFD, you're off to a good start. These frameworks lay the groundwork for the kind of transparency and due diligence that the CSDDD advocates for. Your experience with risk identification, impact assessment, and public communication in these frameworks will certainly help you to meet the requirements of the CSDDD.
- Going Beyond Reporting
However, the CSDDD goes a step further than just reporting. It demands action. It's not enough to identify and report risks - corporations must actively work towards preventing and mitigating potential adverse impacts. This means integrating due diligence into your business strategy, setting up a complaints procedure, and creating climate transition plans. In other words, corporations are expected to be more proactive in addressing their environmental and human rights impacts, rather than simply reporting their performance.
Building a More Sustainable and Responsible Future
The CSDDD is a reflection of a global move towards greater corporate accountability. It's a call to action for corporations to play their part in building a sustainable and fair economy and society. With the CSDDD, corporations are encouraged to not just talk the talk, but to walk the walk when it comes to sustainability and human rights.
Remember, the journey towards sustainability is an ongoing one, and the CSDDD is another crucial step on this path. It's about setting higher standards and striving to meet them, for the benefit of people, the planet, and the long-term success of your business.
About the Author
Markus is a specialist in ESG & Sustainability Reporting and at Diginex, uses his passion for sustainability reporting help create the next generation of sustainability reporting software solutions. With sustainability experience gained in academia, industry, and consulting, he has utilized countless sustainability frameworks, standards, and ratings to improve sustainability strategies for companies in a wide variety of industries. Learn more about Markus here.