Sircle – CSDDD, a new step forward corporate Governance

The Proposal of Corporate Sustainability Due Diligence Directive (CSDDD) is a crucial step towards mandating respect for people and planet for the EU-operating businesses. 

The rationale guiding the recent EU legislation changes has been focused on Corporate Governance.  Specifically with a priority towards the long term implementation of several transparency measures as well as some concrete requirements for action, and an effort in keeping shareholders and stakeholders better informed. 

The Corporate Sustainability Reporting Directive and the proposed directive on Corporate Sustainability Sustainability Due Diligence revise the current obligations and introduce new ones under EU legislation regarding company disclosure and corporate governance practices. 

So far, the CSDD Directive is expected to be transposed by Member States into their national legislation by 2026 as a result of the two-year implementation period of EU directives. Nevertheless, the Directive will have a sudden impact on the business environment as a whole. The Directive’s main aim is to improve corporate governance practices and foster sustainable and responsible behaviour by mandating certain corporate due diligence measures and duties. 

While supply chain due diligence is not a new issue, the CSDDD introduces an additional layer of accountability. Board Members, CEOs and CFOs will bear wider responsibilities, extending to the proper management of and accurate reporting on social and environmental impacts along the entire value chain.  This includes direct and indirect suppliers, their own operations, products and services. 

To respond effectively, organizations will need to implement a seamless, comprehensive and global supply chain due diligence management system: in other words, companies may need to upgrade or re-position to meet the directive’s requirements. Among them, there are issues about the necessity to include human rights, social and labor rights, and environmental impacts – substantially the whole ESG spectrum. 

Who will the CSDD Directive apply to? First of all, EU companies with more than 500 employees and a net worldwide turnover of more than € 150 million and EU companies with more than 250 employees and a net worldwide turnover of more than € 40 million; In addition it is also applicable to Third-Country companies (non-EU) that generate a net turnover of more than € 150 million in EU and the Third-Country companies with a net turnover of more than € 40 million in the EU. Although small and medium-sized companies are not directly under the scope of CSDDD, they are impacted indirectly, as they will need to meet standards in their role as suppliers to larger, in scope businesses. So, what are the steps your organization has to take to comply with CSDDD? 

It’s important to say that companies should identify any current and potential future negative impacts on the environment and human rights within their operations and along their value chain. This involves putting in place measures and tools to prevent, mitigate, compensate and remediate these impacts. It will also involve the integration of the supply chain due diligence into the company policies, management systems and internal controls, and the establishment of a complaints procedure that all the stakeholders can access. 

All of this will have to be supported by a report on the organization’s success that fulfills the supply chain due diligence obligations, including relevant data in the annual report. 

In summary, the CSDDD requires organizations to implement a sort of Management System of the Governance of Sustainability that grants adequate measurement of the ESG impacts, engagement monitoring and control beyond company’s fences, transparency and accountability towards all the stakeholders.   

The Directive will enhance the protection of the environment and human rights in the EU and beyond, as it will allow companies to shift towards a more responsible behavior as a result of in-depth investigations into all partners along their value chain. New step, big shift.