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* Negotiations on the final text of supply chain legislation at EU level are still ongoing. Meanwhile, France, Germany, and the Netherlands have already implemented their respective supply chain legislation at the national level. Additionally, at the EU level, laws pertaining to due diligence on conflict minerals, batteries, and deforestation-free products have been established, targeting specific products and sectors.
The CSDDD reflects the increasingly widespread notion of responsible business conduct in international fora - it aims to integrate ESG criteria into companies' strategy and operations.
The Directive sets out rules for companies to identify, mitigate and end actual and potential adverse impacts on human rights and the environment in their own operations, those of their subsidiaries and those of their business partners. It holds companies accountable for human rights and environmental abuses and directs them to ensure that their strategies are climate-conscious.
As a non-EU company, the CSDDD can affect you in two ways:
- You may have supply chain due diligence obligations under the CSDDD.
- You may be a subsidiary or business partner of an in-scope company. As such, they may ask you for information, contractual assurances, terminate or suspend their contract with you.
1. Is your company in scope? When do you need to comply?
2. What are your obligations?
2.1. Integrate a risk-based due diligence into your company policies
Companies need to determine their short- and long- term approach, code of conduct for employees and subsidiaries, and implementation procedures, revising them at least every two years.
2.2 Identify and assess actual or potential adverse impacts
Companies should identify and assess the adverse human rights and environmental impacts of themselves, their subsidiaries, and their value chain business partners.
- Mapping of areas where adverse impacts are likely to occur or could be severe.
- Priority will be given to the highest risk areas.
- Resources such as relevant disaggregated data, independent reports, information received through the reporting and complaint procedures, information gathered from business partners will be used.
2.3 Prevent and mitigate potential adverse impacts
Companies need to prevent the potential adverse human rights and environmental impacts they identify, or mitigate them if prevention is not possible.
- Implementing a tailored preventive action plan - obtaining contractual assurances from business partners, making necessary investments, supporting SMEs.some text
- Contractual guarantees must be on fair terms for SMEs.
- Compliance must be verified through an independent third-party verification.
- If preventive measures fail, responsible withdrawal from the business partner - suspension or termination of the relationship, with mitigation of the negative consequences of such withdrawal.
2.4 Bring actual adverse impacts to an end and minimise their extent
Companies should end the actual adverse human rights and environmental impacts they identify, or minimise their extent if they cannot end them.
- Implementing a tailored corrective action plan with timelines and options for improvement - obtaining contractual assurances from business partners, making necessary investments, supporting SMEs.
- Even if suspension or termination of the business relationship is not desired immediately, companies still need to reassess the situation and find solutions to eliminate the impacts.
2.5 Establish and maintain a complaints procedure
Companies are required to set up a system for receiving complaints regarding negative effects stemming from their operations, as well as those of their subsidiaries and within their value chains. Individuals or groups impacted or potentially impacted, including trade unions, worker representatives, and relevant NGOs, should have the ability to submit complaints through this mechanism.
2.6. Monitor the effectiveness of your due diligence policy and measures:
Companies should assess the due diligence measures of themselves, their subsidiaries and value chain business partners when it is clear that there is a risk of adverse impacts, and at least annually and update their due diligence policy accordingly.
2.7 Publicly communicate on due diligence
Companies have to report publicly each year on the decisions and actions taken in line with their due diligence obligations.
- In an extractable and machine-readable format.
- In the language of the EU Member State or a language commonly used in international business.
- Non-EU companies must have an authorised representative in the EU.
- Reporting requirements will be aligned with the CSRD.
2.8 Adopt a transition plan
Companies should make every effort to develop and implement a transition plan based on the science of climate change mitigation, to align business models with sustainability goals, and to explain the investments needed for such a transition.
Companies are not alone in getting started! The European Commission provides model contractual clauses and guidelines to support companies and EU Member States in implementation and enforcement. In addition, with a particular focus on SMEs, Member States also need to provide information and financial support to the companies and their partners.
3. What happens if your company is not compliant?
If you are in-scope: The supervisory authorities of the EU Member States evaluate the compliance of companies with the CSDDD. If companies fail to comply, they may face administrative fines and civil liability for damages they caused.
If you are out of the scope: If you work in the supply chain of a covered company, you may be required to provide contractual assurances, information on your strategy and operations, and if a negative impact on human rights and the environment is identified, your employment may be terminated or suspended, depending on the severity of the impact. EU companies are currently redesigning their supply chain to avoid sanctions for non-compliance. If you do not develop strategies to become a desirable business partner, you could fall behind the race.
