The European Supply Chain Directive (CSDDD) was adopted by the Permanent Representatives Council last week after several attempts. After a gradual introduction over five years, companies with more than 1,000 employees and a net annual turnover of 450 million euros will be subject to the legal obligation. Commitments in the downstream value chain and on climate change mitigation have also been reduced.
The EU Corporate Sustainability Due Diligence Directive is set to establish binding legal obligations for companies based in or trading in the EU. The directive is meant to foster responsible corporate behaviour regarding human rights and environmental considerations through identifying and addressing environmental risks such as pollution, and adverse impacts on human rights such as labour abuses.
More specifically, the directive covers six steps defined by the OECD for responsible business conduct: (1) integrating due diligence into policies and management systems, (2) identifying and assessing adverse human rights and environmental impacts, (3) preventing, ceasing, or minimizing actual and potential adverse human rights and environmental impacts, (4) monitoring and assessing the effectiveness of measures, (5) communicating, (6) providing remediation.
Companies in the EU with more than 1,000 employees on average and a net turnover of more than 450 million EUR are required to comply with the directive. This encompasses the entire value chain, both inside and outside of Europe, with third countries (non-EU) companies with significant operations in the EU also being covered. This applies to third countries (non-EU) generating at least 450 million EUR in the Union. This makes organizations liable for any non-compliance within the entire supply chain, including impacts from suppliers, partners or other third parties.
The Directive includes regulations on activities in both a company´s upstream business partners – related to production of goods and services, design, sourcing, and supply of raw materials, as well as activities related to downstream business partners with distribution, transport, and storage of product.