The publication in the Official Journal of Directive 2024/1760/EU, known as the “Corporate Sustainability Due Diligence Directive” or “CSDDD”, represents a significant step towards greater corporate responsibility, aiming to promote a fairer and more sustainable global economy and placing specific responsibilities on corporate governance bodies for the protection of human rights and the environment.

Main Obligations

The CSDDD requires companies to adopt due diligence practices to identify, prevent, mitigate, and account for risks and negative impacts on human rights and the environment, both in their own operations and along supply chains.

Specifically, companies must adopt the following measures:

• Integration of due diligence into corporate policies through the adoption of specific procedures and codes of conduct;
• Mapping potential risks related to human rights and the environment in their own operations and in those of companies within their supply chains;
• Implementing concrete measures to prevent identified risks and remedy negative impacts that have already occurred;
• Establishing mechanisms for stakeholder dialogue, notification, and complaints;
• Constantly monitoring the effectiveness of due diligence policies and procedures and updating them accordingly;
• Communicating the results of due diligence activities;
• Implementing transition plans to reduce greenhouse gas emissions, ensuring that the business model and corporate strategy are compatible with the targets of limiting global warming to 1.5°C as set by the Paris Agreement.

Directly Obligated Entities

The directive will affect:

• EU companies with more than 1,000 employees and a turnover exceeding €450 million;
• EU parent companies of large groups that meet the thresholds mentioned above on a consolidated basis;
• EU companies with franchise/license agreements generating royalties above €22.5 million and net turnover exceeding €80 million;
• Non-EU companies, parent companies, and companies with franchise or license agreements in the EU, that meet the same turnover thresholds in the EU as mentioned above.
• Indirect Implications for Other Companies

Companies within supply chains not directly subject to CSDDD obligations will still face significant implications.

These companies will need to adapt to new due diligence requirements imposed by lead companies, which will demand higher standards of transparency, accountability, and sustainability throughout the supply chain. Furthermore, the obligations imposed by the CSDDD may be set as conditions for access to public procurement and concession contracts, and performance in relation to human rights and environmental compliance may be included in the relevant awarding criteria.

To address these implications, specific measures will be needed to identify and mitigate risks related to human rights and the environment, adapting internal policies and procedures accordingly. While this adaptation may involve initial investments, it will provide long-term benefits, such as increased competitiveness, access or retention within supply chains, the ability to win public tenders, and the reduction of legal and reputational risks.

Sanctions

In transposing the CSDDD, member states must provide for a sanctioning system that includes at least the following measures:

Financial penalties of up to 5% of the global net turnover realized in the preceding financial year;
Publication of non-compliance, specifying the company’s responsibilities and the nature of the violation;
Civil liability towards individuals affected by the violations.
Administrative supervision will be carried out by national supervisory authorities coordinated at the European level.

Entry into Force

The CSDDD was published in the Official Journal on July 5, 2024, and member states must transpose it by July 26, 2026.

The application of the CSDDD provisions will be phased in over time depending on the type and size of the recipients:

• From July 26, 2027: EU companies with over 5,000 employees and a global net turnover exceeding €1,500 million; non-EU companies that have realized a net turnover in the EU exceeding €1,500 million;
• From July 26, 2028: EU companies with over 3,000 employees and a global net turnover exceeding €900 million; non-EU companies that have realized a net turnover in the EU exceeding €900 million;
• From July 26, 2029: all other obligated companies.