The Corporate Sustainability Due Diligence Directive (CSDDD) is a groundbreaking initiative by the European Union, creating a comprehensive framework for large corporations to identify, prevent, mitigate, and account for negative human rights and environmental impacts in their operations and supply chains. The directive enforces visibility beyond the first-tier of suppliers and represents a significant leap forward in global efforts towards sustainability and ethical corporate behavior.
At its core, the CSDDD is about more than just compliance; it’s about fostering a culture of responsibility. The directive obliges companies to align their business strategies with global warming mitigation, adding a new layer to the responsibilities of corporate directors. Now, they must oversee the implementation of due diligence processes, keeping an eye on both the environmental and human rights consequences of their decisions.
The Corporate Sustainability Due Diligence Directive is more than a new set of rules; it’s a call to action for corporations worldwide to take a stand against human rights abuses and environmental harm. The CSDDD is paving the way for a future where businesses are not just about profit, but about making a positive difference in the world.
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The primary objectives of the CSDDD are to engender sustainability and ethical corporate conduct, obliging businesses to align their strategies with the global agenda of mitigating climate change and promoting human rights.
In the context of an increasingly interconnected global economy, fostering sustainable and responsible corporate behaviour has become more than a moral obligation; it is a strategic imperative. Sustainable business practices are associated with long-term profitability, resilience, and enhanced brand reputation, which are all crucial to competitiveness in today’s market. Businesses that fail to act responsibly risk facing litigation, fines, and reputational damage. The CSDDD places particular emphasis on supply chain due diligence, recognizing that businesses have a significant role to play in preventing human rights abuses and environmental harm.
Determine the negative impacts on human rights, the environment, and good governance that may result from their own activites as well as those of their value chains and corporate relationships.
Detect, prevent, mitigate, take responsibility for, and remdiate the aforementioned impacts.
Take appropriate and reasonable measures and make all efforts to prevent their value chains from negatively impacting human rights, the environment, and good governance.
Proactively address negative impacts
Implement a due diligence strategy and a risk analysis
Review the risk assessment and ensure that the due diligence strategy is still effective at least once a year
Provide a remediation process or grievance procedure for potential and existing violations of human rights, the environment, and good governance
The EU’s CSDDD makes it mandatory for companies to address social and environmental impacts within their supply chain—even those stemming from their own operations. Your company is affected by this directive if it falls under one of the following categories:
It is essential to emphasize that, while small and medium-sized enterprises may not be within the immediate purview of the EU CSDDD, they are subject to indirect ramifications. This arises from their obligation to adhere to standards in their capacity as suppliers to larger entities falling within the scope of the regulation.
In addition to the employee and net turnover thresholds and the sectors under consideration, several topics are poised for negotiation between the Parliament and the EU Member States. One notable area of focus is sanctions and penalties.
Across all three proposals, sanctions and penalties will be determined by the respective EU Member State and are required to be effective, proportionate, and dissuasive. The Commission recommends that sanctions be linked to a business’s turnover, while Member States must publicly disclose CSDDD breaches.
The Council’s proposal specifies that pecuniary penalties should be based on a company’s worldwide net turnover, and CSDDD violations must be publicly accessible for a minimum of three years. Administrative authorities, selected by the Member States, may issue penalties and sanctions to companies that fail to comply with the CSDDD. Companies may be liable to pay a penalty of up to 5% of their global revenue.
Going a step further, the Parliament calls for a comprehensive set of measures and sanctions, including:
Discover actionable strategies for your business to thrive under CSDDD. From preparing for compliance to understanding penalties and leveraging sustainable practices, this is where theory transforms into practice.
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