The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) is now in force, creating due diligence responsibilities for certain companies doing business in the EU. Companies that are in scope are required to have a sustainability due diligence policy. In addition, they must manage and mitigate adverse environmental and human rights impacts across their operations and value chain.
WHAT YOU NEED TO KNOW
The key CSDDD requirements
The CSDDD marks a milestone in the EU’s commitment to sustainable business practices. Affecting certain EU companies as well as non-EU companies with a presence in the EU, the directive mandates that they:
- Adopt a “risk-based” due diligence policy.
- Identify, prevent and terminate potential adverse impacts on an ongoing basis.
- Adopt and implement a transition plan for climate-change mitigation.
- Establish a whistleblower mechanism.
Noncompliance may lead to significant penalties. The CSDDD also includes civil liability provisions, which means a business could potentially be liable to pay full compensation for any damage caused to a person because of its failure to comply with the directive. Given the CSDDD’s complex requirements, companies should start preparing now.
WHAT YOU NEED TO DO
Four essential steps to compliance
In-scope companies should be getting ready for the directive’s four core obligations:
- Implement a risk-based due diligence policy to assess the severity and likelihood of potential adverse impacts on human rights and the environment. The human rights and environmental matters of concern are identified in an annex to the CSDDD. The policy must be aimed at identifying, mitigating and preventing potential adverse impacts, and it should extend across operations and the entire value chain, encompassing subsidiaries, direct and indirect suppliers and business partners.
- Monitor operations and the value chain to identify, prevent and terminate adverse impacts on an ongoing basis. Businesses have to identify and assess actual and potential negative impacts and take appropriate measures to prevent or mitigate potential negative impacts. If actual negative impacts are identified, the company must take steps to bring them to an end through mitigation measures or, as a last resort, end or suspend the relationship with the concerned business.
- Develop and implement a transition plan for climate change mitigation. The plan must include temporary targets based on scientific evidence; decarbonization actions; financing and investment activities; and information on the role supervisory and management bodies within the company will play in the effort. The plan must also aim to “ensure, through best efforts” that the company’s business model and strategy are “compatible” with:
- The transition to a sustainable economy.
- Limiting global warming in line with the Paris Agreement.
- The objective of achieving climate neutrality.
- Install a whistleblower mechanism or complaints procedure. This mechanism ensures that stakeholders can report alleged violations safely, confidentially and without retaliation. Complainants must also be able to meet with appropriate company representatives.
Download our CSDDD Guide for more information on these obligations and for details on the implementation timeline.
HOW SPHERA CAN HELP
Sustainability guidance, software and data
Companies will first need legal advice to understand whether the CSDDD applies to them and what is required of them for compliance. It’s crucial for them to get legal clarity on their status as quickly as possible so they can start their preparations.
For companies that fall within the scope of the CSDDD, one key step is to identify the software and data they’ll need for their compliance effort. Sphera offers integrated software solutions, data and sustainability consulting services that help businesses:
- Create due diligence policies and procedures.
- Conduct supply chain risk assessments from Tier 1 to the source level to uncover possible negative environmental or human rights impacts.
- Design risk mitigation and prevention strategies with internal stakeholders and supply chain partners and carry out action plans.
- Develop a transition plan for climate change mitigation.
- Access technical assistance for creating reports according to regulations and voluntary frameworks and for investors and consumers.
Sphera’s 200+ sustainability consultants can also provide industry-specific knowledge and guidance for the organization’s compliance effort and sustainability strategy.
WHAT HAPPENS NEXT
Ongoing due diligence is critical
Once the CSDDD is fully implemented, companies will face increased scrutiny from a wide range of stakeholders. Good preparation, enhanced visibility into their operations and supply chains, data-based decision-making and strategic partnerships will be key for compliance with the directive.
For more information about the CSDDD, please download our guide, and for details on how we can support your compliance effort, please contact us.
