The European Parliament’s Legal Affairs Committee announced on 19.03.2024 that it has approved the revised Corporate Sustainability Due Diligence Directive (CSDDD).

As businesses navigate the complexities of today's global landscape, it's imperative to prioritize responsible business conduct. Multiple international standards underscore the crucial role companies play in protecting human rights and addressing environmental impacts across their operations and supply chains.

The United Nations Guiding Principles on Business and Human Rights outline the responsibility of companies to conduct human rights due diligence, encompassing identification, prevention, and mitigation of adverse impacts. Building upon this, the OECD Guidelines for Multinational Enterprises extend due diligence to environmental and governance realms, emphasizing comprehensive accountability.

At the heart of these efforts, of course, lies practical implementation. Internationally recognized frameworks like the OECD Guidance on Responsible Business Conduct offer actionable steps for companies to identify, prevent, and mitigate potential impacts within their operations, supply chains, and business relationships.

And now finally, the European Union with the adoption of the CSDDD, lays down rules on obligations for large companies regarding actual and potential adverse impacts on the environment and human rights for their business chain of activities inspired by the international standards, which covers the upstream business partners of the company and partially the downstream activities, such as distribution or recycling.

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What are the benefits of these new rules?

For citizens

• Better protection of human rights, including labor rights.
• Healthier environment for present and future generations.
• Increased trust in businesses.
• More transparency enabling informed choices.
• Better access to justice for victims. 

For companies

• Harmonized legal framework in the EU, creating legal certainty and a level playing field.
• Greater customer trust and employee commitment.
• Better awareness of companies’ negative environmental and human rights impacts.
• Better risk management and adaptability.
• Increased attractiveness for talent, sustainability-oriented investors and public procurers.
• Higher attention to innovation.
• Better access to finance.

For developing countries

• Better protection of human rights and the environment.
• Increased stakeholder awareness on key sustainability issues.
• Sustainable investment.
• Improved sustainability-related practices.
• Increased take-up of international standards.
• Improved living conditions for people.

What are the obligations of companies and their directors?

This Directive establishes a corporate due diligence duty. The core elements of this duty are identifying, bringing to an end, preventing, mitigating, and accounting for negative human rights and environmental impacts in the company’s own operations, their subsidiaries, and their value chains. In addition, certain large companies need to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement. Directors are incentivized to contribute to sustainability and climate change mitigation goals.

The Directive also introduces duties for the directors of the EU companies covered. These duties include setting up and overseeing the implementation of the due diligence processes and integrating due diligence into the corporate strategy. In addition, when fulfilling their duty to act in the best interest of the company, directors must take into account the human rights, climate change, and environmental consequences of their decisions.

Which companies will the new EU rules apply to?

Large EU and non-EU limited liability companies:

• EU and non-EU companies. 1000+ employees and net EUR 450 million+ turnover worldwide.
• SMEs. Micro companies and SMEs are not concerned by the proposed rules. However, the proposal provides supporting measures for SMEs, which could be indirectly affected.

Source: Corporate sustainability due diligence - European Commission (europa.eu)