EU adopts the Corporate Sustainability Due Diligence Directive (CSDDD), what’s next?

Keywords: Learn, Newsroom, Policy

The CSDDD is set to impose mandatory human rights and environmental due diligence obligations for in-scope companies.

On July 5, the Corporate Sustainability Due Diligence Directive (CSDDD) was officially published in the EU’s Official Journal, marking a significant step towards enhanced corporate accountability. Member States have two years from the CSDDD’s entry into force on 25 July 2024 to transpose the CSDDD into national law.

Initially proposed in February 2022, the CSDDD aims to create a comprehensive due diligence framework across the EU. The CSDDD has wide-reaching scope, impacting both EU and non-EU companies with significant operations in the EU market.

In recent years, several EU Member States have introduced due diligence legislation, such as Germany’s Supply Chain Act and Norway’s Transparency Act. The Corporate Sustainability Due Diligence Directive (CSDDD) aligns with these national efforts, providing a comprehensive framework for corporate responsibility.

Complementing existing EU regulations

The CSDDD complements an array of existing EU human rights and value chain due diligence-related legislation, including:

  • Deforestation Regulation
  • Conflict Minerals Regulation
  • Forthcoming Forced Labour Regulation

In contrast to these regulations which apply to specific contexts or sectors, the CSDDD aims to establish a common and comprehensive due diligence framework across in-scope companies.

Key aspects & penalties

The CSDDD requires companies to integrate due diligence into their policies, identify and evaluate human rights and environmental impacts, and implement measures to mitigate these risks.

Companies must also establish complaint mechanisms, monitor the effectiveness of their due diligence measures, and publicly communicate their efforts.

For enforcement, Member States must impose penalties, including fines up to 5% of a company’s net worldwide turnover, and introduce a civil liability scheme for non-compliance.

Key deadlines for implementation

  • Transposition into National Law: Member States must transpose the Directive into national law by July 26, 2026.
  • European Commission Report: By the same date, the European Commission is expected to deliver a report on the potential extension of the Directive’s scope to include financial services.

Phased application timeline

  • July 2027: Companies with more than 5,000 employees and €1.5 billion in net turnover must comply.
  • July 2028: Rules apply to companies with over 3,000 employees and €900 million in net turnover.
  • July 2029: Compliance required for companies with over 1,000 employees and €450 million in net turnover.

Scope and future discussions

The final agreement reached in March featured a more limited scope than initially proposed, particularly excluding most financial services. The Commission’s report in 2026 is expected to reopen discussions about extending these rules to the financial sector, potentially broadening the Directive’s impact.

The publication of the CSDDD marks a pivotal moment in the EU’s effort to ensure corporate responsibility and sustainability, with significant implications for large companies across Europe.