What is the Corporate Sustainability Due Diligence Directive (CSDDD)?

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As nations become more conscious and thus, more active about climate change and sustainability, earnest efforts are being made to consolidate and clearly articulate rules, regulations, and responsibilities.

The natural extension of corporate responsibility and sustainability is, of course, transparency and accountability. This requires a significant level of due diligence on the part of companies, which is a good thing for everyone.

For many companies however, the world of environmental, social, and governance (ESG) standards can feel like an ever shifting landscape — one that can be difficult to navigate. And even harder to keep up with. As old policies are updated and new policies emerge, meeting requirements can become an overwhelming task.

One of the newest policies is the Corporate Sustainability Due Diligence Directive (CSDDD), which is designed to promote and enhance transparency of companies, and work towards a sustainable future.

In this article, we’ll go over what the CSDDD is, who it impacts, how it relates to other policies, and what you can do to set your company up for success.

Let’s dig in.

what is the CSDDD?

The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU mandate, adopted on May 24, 2024 when the EU Council gave final approval to the directive. EU member states now have until July 26, 2026 to transpose the directive into national law.

The CSDDD articulates a framework that many nations are also starting to inculcate into their sustainability and ESG policies. The CSDDD requires companies to report on the impact that their activities have on the environment — socially and ecologically. It also requires all reported information to be audited, as per transparency and accountability philosophies.

The CSDDD outlines the obligations of companies to conduct “appropriate human rights and environmental due diligence” with respect to the operations of their facilities, their subsidiaries, and all business partners throughout the entire manufacturing and operational chains.

The CSDDD sets out six steps as defined by the OECD Due Diligence Guidance for Responsible Business Conduct. These are:

Integrating due diligence into policies and management systems
Identifying and analyzing adverse human rights and environmental impacts as a result of business operations
Preventing, ceasing, or minimizing actual and potential adverse human rights and environmental impacts as a result of business operations
Assessing the effectiveness of these measures
Appropriate communication to enhance effectiveness of measures
Providing remediation in the event of violation

Additionally, the CSDDD sets out the obligation for large companies to adopt and enact a transition plan for climate change mitigation. This includes a path to ensuring — through best efforts — that business models and strategies are compatible with the transition to a sustainable economy while addressing the Paris Agreement’s objectives, including 2050 climate neutrality targets.

who does the CSDDD apply to?

Specifically, the CSDDD applies to both large European Union liability companies and non-EU companies that have significant business operations within the EU jurisdiction.

Additionally, reporting and compliance requirement deadlines are staggered, based on company size.

The CSDDD applies to companies within the EU, if that company:

Has 5,000+ employees and a €1.5 billion net turnover, where compliance must be complete by the end of July 2027.
Has 3,000+ employees and a €900 million turnover, where compliance must be complete by the end of July 2028.
Has 1,000+ employees and a €450 million turnover, where compliance must be complete by end of July 2029.

The CSDDD applies to companies outside of the EU, if that company:

Has a net turnover of more than €1.5 billion in the EU, to which compliance must be complete by the end of July 2027.
Has a net turnover of more than €900 million in the EU, to which compliance must be complete by the end of July 2028.
Has a net turnover of more than €450 million in the EU, to which compliance must be met by the end of July 2029.

how does the CSDDD affect companies?

Ultimately, the CSDDD is designed to help everyone — including communities, ecosystems, and the economy. But that’s not to say that companies won’t have to put in hard work to ensure their policies, procedures, and practices are in accordance with the CSDDD.

The most pertinent due diligence duties that companies must adhere to are:

Integrating risk management systems with CSDDD mandates.
Identify and rectify adverse human rights and environmental impacts in the company’s operational chain of activities, including partners and subsidiaries, and prioritizing them according to severity.
In order to prevent and/or mitigate potential impacts, companies must identify when negative impacts have already occurred and provide remedies.
In the event that all other actions have failed and where serious impacts will occur, and only where these negative impacts outweigh foreseeable negative consequences of disengagement, companies are required to suspend or terminate a business relationship.

Additionally, under the CSDDD companies are required to:

Consult with stakeholders at appropriate stages of the due diligence process, particularly when identifying potential impacts, and provide information on action plans.
Establish and maintain a notifications and complaints process.
Make public all reports on due diligence to the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), as set out in each policy.

how does the CSDDD differ from the CSRD and the ESRS?

The CSDDD, CSRD and the ESRS are fairly interchangeable when it comes to due diligence conversations. However, the CSDDD and CSRD are not the same thing, and each policy has key differences. Having said that, the CSDDD, the CSRD and the ESRS can work together to help articulate a clear and universal framework for due diligence standards.

corporate sustainability due diligence directive (CSDDD)

As we’ve mentioned above, the CSDDD aims to establish standardized regulations for companies to identify, prevent, mitigate, and account for adverse environmental and human rights impacts as a result of business operations.

corporate sustainability reporting directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) focuses on standardizing and expanding sustainability reporting requirements for companies. It is meant to ensure companies provide detailed reports on the environmental and social impacts of their business operations.

Ultimately, many EU-based companies — or companies with significant operations within the EU — are subject to both the CSDDD and CSRD. In these cases, the CSDDD does not levy additional regulatory requirements. The only additional requirement that the CSDDD levies is that companies already subject to CSRD must describe how they carry out due diligence as provided for in the CSDDD.

Companies subject to CSRD requirements will be required to report using the European Sustainability Reporting Standards (ESRS).

european sustainability reporting standards (ESRS)

The European Sustainability Reporting Standards (ESRS) emerged in January 2024, and is one of the most prominent EU policies on sustainability reporting. Since its enactment, it has reshaped the landscape of sustainability accountability, transparency, and reporting in the EU.

The ESRS is a framework that aims to provide a transparent, accurate, and comparable overview of a company’s environmental, social, and governance (ESG) impacts, risks, and opportunities.

The ESRS has two main requirements that overlap with the CSRD, and outline essential principles and disclosure requirements that are universally applicable across the EU. These two main principles are:

ESRS 1 “General Requirements”: Sets general principles for sustainability reporting and outlines minimal requirements necessary for articulating a company’s impact, risks, and opportunities regarding ESG aspects as they relate to business operations.

ESRS 2 “General Disclosures”: Outlines essential information to prepare a sustainability statement, which is applicable to all EU companies regardless of their sustainability status or activities. It articulates mandatory information on strategy, materiality assessment, key performance indicators (KPIs), governance, and value chain coverage.

how to prepare for the CSDDD?

You are no doubt by now making preparations for the CSDDD. Additionally, there are a handful of other regulatory requirements that overlap with the CSDDD, which will put you in a good position to meet the pending requirements.

Here are a few steps you can take to ensure your team and company are well-prepared for the CSDDD, and ultimately head into a future that is sustainable and equitable for everyone.

1. company-wide education and leadership

No one works in a silo, and this is particularly true for all ESG and sustainability measures, company-wide. Team buy-in is essential to ensuring all reporting regulations are met and this should start with leadership.

Commitment from senior leadership demonstrates to all stakeholders that your company is ready to meet any potential challenges and goals that arise, including incorporating the CSDDD requirements into workflows. Leadership should champion these initiatives and this ideally should come from the top.

2. appoint a planning team

Once you get buy-in and leadership commitment, create a team that will champion these efforts, roll out new initiatives, and provide ongoing education and updates.

Your team should be composed of leadership, middle management, and experts across departments. What is most important is that your team are the leaders and company experts on all things CSDDD and other similar policies.

Additionally, your team should be supported by specialists, project managers, and other support staff so they can make the best decisions and be fully informed at all times.

3. articulate goals and a plan of action

Of course, all of this is moot if you can’t get a clear view of where your company stands now and what goals the team needs to achieve for the future.

Start with taking a full audit of your company’s ESG status and operations. This should include policies, operational procedures, and targets that are already in place. You most likely already have a fairly robust collection of policies and procedures that are enacted which can provide you with crucial information.

At this point, enlisting the help of an analyst (or group of analysts) who specializes in ESG and other related policies — particularly CSDDD — will be helpful and very likely to be a wise financial investment in the long run.

Once you’ve conducted your audit, you can articulate your goals and set a plan of action to achieve them.

4. avoid greenwashing your goals

“Greenwashing” is a term used to describe performative gestures towards ESG and climate action in the corporate world which serve only to improve company optics.

In a concerted effort to avoid greenwashing — and thus, create goals that are beneficial — anchor your efforts and goals in empirically sound science. Actions should always result in measurable results that work towards CSDDD requirements, Net-Zero Standard Criteria, and other national and/or international goals.

To help with target-setting, use a step-by-step approach that is measurable, verifiable, and actionable.

5. utilize the right tools and resources

Legacy systems of collecting, disseminating, and analyzing data can result in redundancies and inefficiencies. Time is lost and costly errors are made. Particularly with how quickly policies are evolving and expanding, it’s critical to utilize the right tools to ensure success.

Data collection, organization, and analysis of all climate and sustainability data can be a challenge. Employing the right ESG software, such as the AMCS Sustainability Platform, can streamline this process, company-wide. Tools like this can help you reach your CSDDD targets with the assistance of AI learning, simplification, automation, and dissemination of your data, so you can create a clear path forward.

smart sustainability — for everyone

Your company shouldn’t be held back by policies that aim to make a better world for everyone. The AMCS Sustainability Platform offers intuitive solutions, all in one hub, to tackle your environmental, social, and governance data collection and reporting, so you can forge into a more sustainable — and equitable — future.

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