What is the Corporate Sustainability Due Diligence Directive?
The Corporate Sustainability Due Diligence Directive (CSDDD), approved by the European Parliament on April 24, 2024, establishes a new regulatory framework that requires companies to identify and mitigate negative impacts on human rights and the environment throughout their value chain. This article provides a comprehensive guide on the CSDDD, its obligations, and how GlobalSuite Solutions can help you comply with these new regulations.
The CSDDD is a European regulation that imposes on companies the responsibility to implement due diligence measures to prevent, mitigate, and eliminate adverse impacts on human rights and the environment. It affects large EU companies and those from third countries with activities in the EU.
Objectives of the CSDDD Directive
- Human Rights Protection: Ensure that companies respect human rights in all their operations.
- Environmental Sustainability: Mitigate and prevent environmental damage throughout the supply chain.
- Transparency and Accountability: Promote transparency and accountability in business operations.
- Supply chain control: Due diligence must cover all operations in the companies’ chain of activities, carried out by their business partners. This includes both upstream activities (related to the production of goods, provision of services, extraction of raw materials, design, transport, storage… that happens before the main activity of the company in question) and downstream activities (related to the distribution, transport, and storage of the final product). It is essential that companies assess and manage the environmental and human rights risks that affect their suppliers and business partners.
Obligations of Companies under the CSDDD
Integration into Policies and Procedures: Companies must integrate due diligence into their internal policies and procedures, ensuring that all activities meet sustainability standards.
Risk Detection and Management: Implement procedures for identifying risks and adverse effects, both actual and potential, on human rights and the environment.
Prevention and Mitigation: Develop preventive and mitigation measures to address identified risks, eliminating actual negative impacts and mitigating potential ones. Additionally, companies must repair adverse effects that have materialized.
Transition plan for climate change mitigation: Establish a plan to ensure that the company’s business model and strategy are compatible with the transition to a sustainable economy and with limiting global warming to 1.5°C, in line with the Paris Agreement and the goal of achieving climate neutrality by 2050.
Alert and Reporting Systems: Establish and maintain internal alert and reporting systems that allow stakeholders to report legitimate concerns regarding risks related to the companies’ own operations, the operations of their subsidiaries, or the operations of their business partners in the companies’ chains of activities. It is worth mentioning that the obligation to have an internal whistleblowing system has been mandatory in Spain since 2023 for all companies with more than 50 employees.
Contractual Clauses: Incorporate contractual clauses that reinforce environmental and social responsibility in business relationships.
Control and Verification: Implement control and verification mechanisms to ensure continuous compliance with due diligence obligations throughout the value chain.
Annual information reporting: Report on the aspects regulated by the Directive by publishing an annual statement on their website.
Who are the Obligated Subjects?
The directive applies to companies with more than 1,000 employees and a turnover exceeding 450 million euros. Additionally, it will apply to the following companies gradually from 2027:
- 2027: companies with 5,000 employees and more than 1,500 million euros
- 2028: companies with 3,000 employees and more than 900 million euros.
- 2029: companies with 1,000 employees and more than 450 million euros.
Likewise, companies established outside the European Union that carry out commercial activities in European countries and reach these turnover thresholds will be obligated.
SMEs are not directly obligated by the directive, but may be affected as part of the value chain of companies that do fall within its scope of application.
Regulated financial companies will only need to address due diligence obligations in the initial stages of their value chains.
Sanctions and Control Mechanisms
EU Member States will establish control authorities to supervise compliance with the CSDDD and apply sanctions for non-compliance, which can reach 5% of the infringing company’s worldwide net turnover.
Criminal Liability and Offenses According to Directive (EU) 2024/1226
Directive (EU) 2024/1226, published on April 24, 2024, introduces criminal liability for legal and natural persons who violate restrictive measures of the European Union. Offenses include providing funds to sanctioned entities, failing to freeze funds, conducting operations with third-state entities, among others. Sanctions can be severe, including significant fines and prison sentences.
Specific Offenses:
- Providing funds to sanctioned entities
- Failing to freeze funds
- Operations with third-state entities
- Providing financial services in violation of restrictive measures
- Evading restrictive measures by failing to report
Sanctions
- Fines for legal persons: Up to 5% of worldwide turnover.
- Prison sentences for natural persons: Up to five years.
How GlobalSuite Solutions Can Help You
At GlobalSuite Solutions, we offer tools and advice to help your company comply with the CSDDD. Our comprehensive approach includes:
- Risk assessment: We identify and evaluate risks in your supply chain regarding human rights and the environment.
- Control management and policy implementation: We help integrate due diligence into your corporate policies and manage all controls established in the Directive.
- Training and capacity building: We provide training to ensure your team is aware of the new obligations.
- Alert systems: We develop internal alert and reporting systems.
- Monitoring and reporting: We implement control and verification mechanisms to ensure continuous compliance.
Conclusion
The Corporate Sustainability Due Diligence Directive and Directive (EU) 2024/1226 represent a significant change in European regulations, driving companies towards greater responsibility and sustainability. GlobalSuite Solutions is here to help you navigate these changes and ensure effective compliance with all new obligations.
For more information on how we can help you, contact us today.
