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Unlocking and mastering EU CSDDD compliance requirements

The EU Corporate Sustainability Due Diligence Directive (CSDDD) is almost here, and it’s impacting businesses across the globe. NAVEX is here to help you understand the requirements and develop a plan to meet EU CSDDD compliance requirements.

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What is the EU CSDDD?

The Corporate Sustainability Due Diligence Directive is significant EU legislation mandating that EU and non-EU companies within its scope perform thorough environmental and human rights assessments throughout their operations, subsidiaries and supply chains.  

According to the outlined regulations, companies must recognize potential and actual adverse environmental and human rights effects stemming from their operations, subsidiaries and business ties. They must implement measures to prevent or alleviate any potential impacts they detect and halt or reduce any real impacts. In principle, the requirements affect the entire chain of activities, upstream and downstream.  

While all direct and indirect suppliers should be included in the assessment of the upstream activities, indirect business partners are not included in downstream activities. Downstream transportation, storage, and distribution activities must only be covered if conducted on the company’s behalf.

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Tackling the EU CSDDD

Learning how to stay compliant with EU CSDDD requirements can bring up many questions: 

How can we systematically address potential ESG risks within our operations and supply chains in alignment with CSDDD guidelines? 

What steps should we take to integrate sustainability considerations into our workforce training and development programs, ensuring ongoing compliance with CSDDD requirements? 

How can we adapt our corporate governance structures, policies and procedures to reflect the principles in the CSDDD? 

Where can we utilize technology to stay informed about updates to the CSDDD framework or other supply chain laws (e.g., the German Supply Chain Due Diligence Act)?

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What you need to do to comply with the EU CSDDD

Complying with the EU CSDDD means businesses need to provide visibility into their impact on the environment and society. While this presents challenges in meeting the requirements, it also comes with business benefits, including:  

  • Legal compliance - Compliance with the CSDDD means you’ll avoid potential legal consequences, penalties and fines.  
  • Reputation management - Demonstrating compliance with the CSDDD underscores your organization’s commitment to ethical business practices and sustainability. 
  • Market access and partnerships - Compliance with the CSDDD can expand your company’s access to markets and facilitate partnerships with like-minded organizations.

More you need to know about the EU Corporate Sustainability Due Diligence Directive

  • What is the status of CSDDD?

    There are three key dates to keep an eye on regarding the CSDDD legislation timeline: 

    • 15 May 2024 – COREPER will officially approve the text 
    • 23 May 2024 – Ministers will give the final policital approval during the COMPET council meeting 
    • By the end of May 2024 – the CSDDD will be ready for publication
  • Who does the CSDDD apply to?

    The CSDDD applies to companies operating within the European Union, with a focus on those engaged in activities that pose high sustainability risks, such as those related to environmental, social, and governance (ESG) factors.

  • What is the scope of the CSDDD?

    The CSDDD aims to ensure that companies conduct due diligence to identify, prevent, mitigate, and account for sustainability risks and adverse impacts in their operations and supply chains. It covers various aspects of sustainability, including environmental protection, human rights, labor standards, and anti-corruption measures.

  • What is the penalty for CSDDD noncompliance?

    Companies found to be non-compliant with the CSDDD may face fines of up to 5% of their global net turnover. Additionally, there might be potential civil liabilities for damages caused by the company’s failure to adhere to sustainability due diligence requirements.

  • What is CSRD reporting? 

    CSRD reporting refers to the Corporate Sustainability Reporting Directive, which mandates certain companies to disclose non-financial and diversity information in their annual reports.

  • What is the difference between CSRD and CSDDD?

    CSRD focuses on reporting non-financial and diverse information, while CSDDD emphasizes conducting due diligence to address sustainability risks and adverse impacts in business operations and supply chain.

  • What are the exemptions for CSRD? 

    Exceptions for the CSRD reporting may vary depending on the size, nature and location of the company. Some SMEs may be exempt from certain reporting requirements.

  • Are US companies subject to CSRD? 

    Whether US companies are subject to CSRD depends on various factors including their presence and operations within the European Union and whether they meet the criteria set forth by the directive.

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