EU Corporate Sustainability Due Diligence Directive (CSDDD)

Welcome to our latest blog post, where we delve into a significant development reshaping the landscape of corporate responsibility: the European Union's Corporate Sustainability Due Diligence Directive (CSDDD). This ground-breaking legislative proposal marks a pivotal shift in how businesses approach sustainability and corporate governance. Aimed at large companies operating within the EU, the directive seeks to embed a deep sense of responsibility towards human rights and environmental standards in global value chains.

As we navigate through the intricacies of the CSDDD, we will explore its objectives, the spectrum of companies it impacts, and the transformative implications it holds for the future of sustainable business practices.

Join us as we unpack the essence of this directive and what it means for the global corporate community.

What is the Corporate Sustainability Due Diligence Directive?

The Corporate Sustainability Due Diligence Directive is a legislative proposal by the European Union aimed at fostering sustainable and responsible corporate behaviour throughout global value chains. Here's a general overview of its key aspects:

Scope and Objective

The directive targets large companies operating in the EU, including certain non-EU companies, with the aim of ensuring they address and mitigate their impact on human rights and the environment. This includes aspects like labour rights, climate change, and pollution.

Due Diligence Obligations

Companies are required to conduct due diligence to identify, prevent, mitigate, and account for potential adverse impacts of their operations on human rights and the environment. This involves assessing actual and potential impacts, integrating findings into corporate policies, and taking appropriate action to address them.

Transparency and Reporting

The directive emphasises transparency and accountability. Companies must publicly report on their due diligence policies and actions, ensuring stakeholders, including consumers and investors, are informed about their practices.

Enforcement and Liability

The directive includes mechanisms for enforcement at the national level and introduces legal liability for companies that fail to comply with their due diligence obligations, particularly when such failure leads to harm.

Stakeholder Engagement

Companies are expected to engage with stakeholders, including affected communities and workers, in their due diligence processes. This is crucial for understanding the real-world impact of their activities and effectively addressing risks.

Sector-Specific Standards

There may be additional standards and requirements in specific sectors with higher risks of adverse impacts, such as textiles and mining.

Support for Small and Medium-sized Enterprises (SMEs)

While the directive primarily targets large companies, it also recognises the role of SMEs in the value chain and seeks to support them in implementing due diligence practices.

This directive is part of the EU's broader efforts to promote sustainable development, corporate social responsibility, and respect for human rights in business activities. It aligns with international standards like the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. The directive's development and eventual implementation reflect a growing global trend towards embedding sustainability and ethical considerations in corporate governance.

Which Companies Could Be Affected by the Corporate Sustainability Due Diligence Directive?

The Corporate Sustainability Due Diligence Directive, proposed by the European Union, is designed to impact a significant number of companies, both within and outside the EU. The directive focuses on large companies due to their substantial influence and resources, which makes them key players in promoting sustainable and responsible business practices. Here are the types of companies that could be affected:

Large EU Companies

The primary targets of the directive are large companies that are established within the EU. This includes publicly listed companies and large non-listed companies. The specific criteria for determining the size of a company usually involve financial thresholds (like turnover), employee numbers, or market influence.

Non-EU Companies with Significant EU Operations

The directive also extends to certain large non-EU companies that have significant operations in the EU market. This inclusion ensures that the directive has a global impact, influencing multinational corporations to adopt sustainable practices worldwide. The criteria might include revenue generated within the EU.

High-Risk Sectors

Companies operating in sectors that are considered high-risk for environmental or human rights impacts are particularly targeted. This includes industries like mining, agriculture, textiles, and manufacturing, where the risk of adverse impacts on human rights and the environment is higher.

Companies in the Supply Chain

While the directive primarily focuses on large companies, it indirectly affects smaller companies, including small and medium-sized enterprises (SMEs), that are part of the supply chain of these larger companies. Large companies must ensure that their suppliers adhere to certain sustainability standards, which in turn cascades down the supply chain.

Financial Sector

Financial institutions, including banks and investment firms, might also be impacted, as they are often required to assess their portfolios' sustainability risks and adjust their investment strategies accordingly.

Publicly Listed and High-Revenue Companies

Specific criteria like being publicly listed or having a high revenue could also be a determining factor in whether a company falls under the scope of the directive.

It's important to note that while the directive focuses on larger companies due to their extensive reach and resources, its ripple effects will likely be felt across entire industries and supply chains, encouraging or necessitating changes in sustainability practices even among smaller companies indirectly linked to these large entities.

When Does the CSDDD Start?

The Corporate Sustainability Due Diligence Directive (CSDDD) was a proposal by the European Union and has not yet come into force. Adopting such a directive involves several stages, including proposal, discussion, amendments, and approval by various EU bodies, such as the European Commission, the European Parliament, and the Council of the European Union.

Once adopted, the directive would then need to be transposed into national law by the member states, a process that can take additional time. This means that there's often a gap between the adoption of an EU directive and its actual implementation and enforcement at the national level. For more information when the CSDDD will start please consult the UK Sustainability Disclosure Standards.

What Will Companies Have to Do to Comply with the CSDDD?

To comply with the Corporate Sustainability Due Diligence Directive (CSDDD), companies must undertake several key actions focused on sustainability and responsible business conduct. The directive aims to ensure that large companies are accountable for their impact on human rights and the environment throughout their supply chains. Here are the main requirements that companies would typically need to meet:

Risk Assessment

Companies must conduct regular due diligence to identify, prevent, mitigate, and account for potential and actual adverse impacts on human rights and the environment in their operations and value chains.

Integration into Corporate Policies

The findings of these risk assessments must be integrated into corporate policies and decision-making processes. Companies would need to establish and publicly communicate their due diligence policy.

Preventive Actions and Mitigation Measures

Where risks are identified, companies must take appropriate measures to prevent or mitigate adverse impacts. This could involve changing operational practices, providing support or remediation, or altering relationships with suppliers or business partners.

Monitoring and Reporting

Ongoing monitoring of the effectiveness of the company's due diligence measures is required. Additionally, companies must regularly report on their due diligence activities, findings, and actions taken in response to risks identified.

Stakeholder Engagement

Companies must engage with potentially affected groups in their due diligence processes, such as local communities, workers, and other stakeholders. This is essential for understanding the impact of their activities and addressing concerns effectively.

Grievance Mechanisms

The establishment of a complaints procedure or grievance mechanism that is accessible to all stakeholders, including affected communities and workers, is another requirement. This allows for the reporting and addressing potential violations related to the company's operations.

Alignment with International Standards

The due diligence process should be aligned with internationally recognised standards and guidelines, such as the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

Accountability and Legal Liability

Companies must be accountable for their due diligence obligations. This includes legal liability provisions in cases where companies fail to comply with their due diligence obligations and cause or contribute to harm.

Supply Chain Management

Companies need to extend their due diligence processes to their supply chains, ensuring that their suppliers and business partners comply with certain sustainability standards.

It's important to note that the specific obligations and how they are implemented can vary depending on the company's size, sector, and operational context. Also, the directive may undergo changes during the legislative process, so companies should monitor developments closely to understand their compliance obligations fully.

How Can Companies Prepare for the CSDDD?

Preparing for the Corporate Sustainability Due Diligence Directive (CSDDD) is crucial for companies, especially those operating within or in connection with the European Union. Since the directive aims to enforce responsible business practices concerning human rights and environmental impact, companies must proactively align their operations with these goals. Here are key steps companies can take to prepare:

Understand the Directive

Stay informed about the specifics of the CSDDD, including its scope, requirements, and timelines. Monitoring updates and changes during the legislative process is essential.

Conduct a Risk Assessment

Identify and assess risks related to human rights and the environment in the company's operations and supply chain. Understanding where potential issues may arise is critical for effective due diligence.

Develop and Integrate Policies

Create or update corporate policies to include sustainable and responsible business practices. This should involve integrating human rights and environmental considerations into decision-making processes.

Establish Due Diligence Processes

Set up a framework for ongoing due diligence, including regular assessments, monitoring, and reporting. Ensure this process is adaptable to identify new risks and challenges.

Engage with Stakeholders

Build relationships with stakeholders, including employees, suppliers, customers, and local communities. Open dialogue can provide valuable insights into potential impacts and areas for improvement.

Supply Chain Management

Evaluate and engage with suppliers to ensure they adhere to responsible business practices. This may involve revising supplier contracts or developing collaborative approaches to sustainability.

Implement Grievance Mechanisms

Establish accessible complaint and remediation mechanisms. These should allow stakeholders to report concerns or abuses related to the company's operations.

Training and Awareness

Educate employees at all levels about the importance of sustainability and responsible business practices. Ensure they understand their role in implementing the CSDDD.

Monitor Legal and Regulatory Developments

Keep abreast of legal changes and emerging best practices in sustainability and corporate responsibility, both within the EU and globally.

Leverage Technology and Expertise

Utilise technology for efficient data collection and analysis, and consider engaging with external experts for guidance and insight.

Prepare for Reporting

Develop a robust system for transparent and regular reporting on sustainability and due diligence efforts per the directive's requirements.

Build Resilience and Adaptability

Create a business culture that is adaptable to change, fostering innovation in sustainability and ethical practices.

By taking these steps, companies can prepare for compliance with the CSDDD and position themselves as leaders in sustainable and responsible business practices. This proactive approach can offer long-term benefits, including enhanced reputation, better risk management, and stronger stakeholder relationships.

What is Digital Sustainability?

Digital sustainability refers to the practice of designing, implementing, and using digital technologies in a way that promotes sustainable development and minimises negative impacts on society and the environment. This concept encompasses various aspects, from how digital technologies are produced to how they are used and disposed of. Key elements of digital sustainability include:

Energy Efficiency

Minimising the energy consumption of digital technologies, including data centres, network infrastructure, and devices. This involves using renewable energy sources where possible and optimising software and hardware for energy efficiency.

Resource Efficiency

Reducing the use of non-renewable resources in the production of digital technologies. This includes designing for longevity, promoting the recyclability of electronic components, and encouraging a circular economy approach to reduce electronic waste.

Responsible Sourcing

Ensuring that the materials used in digital technologies are sourced responsibly, with attention to reducing environmental impact and ensuring fair labour practices.

Accessibility and Inclusivity

Making digital technologies accessible and useful for a broad range of people, including those in underserved or marginalised communities, to reduce the digital divide.

Data Ethics and Privacy

Ensuring digital technologies respect user privacy and ethics, including responsible data collection, storage, and use.

Green Software Engineering

Developing software in a way that considers its environmental impact, such as optimising code for energy efficiency and reducing the carbon footprint of software operations.

Sustainable Business Models

Adopting business models that support the sustainable use and development of digital technologies, such as models that prioritise service and maintenance over constant hardware upgrades.

Awareness and Education

Raising awareness about digital technologies' environmental and social impacts and educating users and producers about sustainable practices.

Policy and Regulation

Implementing policies and regulations that encourage the sustainable development and use of digital technologies.

Innovation for Sustainability

Leveraging digital technologies to support sustainability goals in other sectors, such as using big data in environmental monitoring or developing smart grids for energy.

Digital sustainability is an increasingly important consideration as the global reliance on technology grows and as this technology's environmental and social impacts become more apparent. It's a multidisciplinary effort requiring collaboration between technologists, environmental scientists, policymakers, and users.

Where Can You Learn More About Digital Sustainability?

At Purple Griffon, we offer an ITIL® 4 Specialist Sustainability in Digital & IT (SDIT) training course. This course will help you to:

• Understand how to use the ITIL guiding principles to deliver value by creating sustainable digitally enabled products and services.
• Effectively address VUCA challenges through sustainable strategies, procurement, products and practices.
• Obtain a practical grounding in the key principles of sustainability.
• Conduct a complete cost-benefit analysis identifying potential risks and opportunities using best practice guidance.

Final Notes on the Corporate Sustainability Due Diligence Directive

In conclusion, this comprehensive exploration has delved into the nuances of the Corporate Sustainability Due Diligence Directive, a pivotal legislative proposal by the European Union aimed at enforcing sustainable and responsible business practices.

We've covered its potential impact on various companies, the preparatory steps businesses can take for compliance, and the broader concept of digital sustainability. This journey highlights the growing emphasis on integrating ethical, environmental, and human rights considerations into the corporate and digital realms.

As these developments unfold, they signal a transformative era in corporate governance and technology use, underscoring the vital role of sustainability in shaping a more responsible and equitable global landscape. Stay tuned for more insights and updates in this evolving domain.