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This is the CSDDD and this is how you get on with it

As a company, you can no longer turn a blind eye to violations of human rights or environmental rules in your chains. That is because of the Corporate Sustainability Due Diligence Directive (CSDDD), also known as the European chain duty of care or IMVO law. This holds large companies responsible for pollution and exploitation in their production chains. In this article, you will read all about this legislation, what it means for companies and how best to prepare.

The 'anti-kickback law', as initiator Lara Wolters also calls the law, requires large companies to investigate human rights violations, environmental degradation and climate damage in their chains and take measures to prevent and remedy it.

This is an effort obligation, not a result obligation. So companies have not immediately broken the law if wrongdoing surfaces somewhere - they just have to identify it and take action on it. The law simplifies it for injured parties and civil society organisations to sue companies.

Chain sustainability through CSRD and CSDD

The CSDDD complements EU initiatives such as the Fit for 55 package and the European Green Deal. But see the CSDDD primarily as an extension of or logical follow-up to the CSRD.

The CSRD directive requires companies to report on impacts of their activities on people and the environment. This is necessary to actually change things. As of the CSDD, companies have to dive deeper into their supply chain and draw up improvement processes based on sustainability reporting figures. Consider a climate plan in line with the Paris Agreement with the ambition to limit the temperature rise to 1.5 degrees Celsius.

Read more about the creation of the CSDDD

After a four-and-a-half-year period and an earlier blockade by some EU member states, the Corporate Sustainability Due Diligence Directive has been adopted. Our public affairs adviser explains what preceded it.

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Waar gaat de Corporate Sustainability Due Diligence Directive over?

Key components of the CSDDD:

  • Implement due diligence policy: integrate due diligence into company policies and procedures. Know how? View our 'Getting Started with Due Diligence' roadmap.

  • Risk identification: take appropriate measures to identify actual and potential negative human rights and environmental impacts. The MVO Risk Checker is a useful tool to identify risks in your chain.

  • Chain of activity: involve both the early and later stages of the production process to make improvements 'upstream in the chain' as well. That is, in production countries and among textile workers.

  • Solutions: continuously explore appropriate measures to prevent and mitigate potential negative impacts on people and the environment. Consider penalty clauses and reparations where appropriate.

  • Grievance procedure: set up a grievance procedure so that affected individuals and organisations can file complaints in case of concerns about actual or potential adverse human rights or environmental impacts.

  • Periodic monitoring: conduct regular monitoring and evaluations to check the effectiveness of measures to identify, prevent, mitigate and end adverse human rights and environmental impacts. If not, adjust the measures and come up with new improvement processes.

The answer to all your questions on the CSDDD

Who does the CSDDD apply to?

The European Commission estimates that the scope of the proposed directive covers about 13,000 EU companies and 4,000 third-country companies, which we can classify into the following three groups: 

  • Companies with more than 5,000 employees and a turnover of 1,500 million have 3 years to comply with the CSDDD;

  • Companies with more than 3,000 employees and a turnover of 900 million have 4 years to comply with the CSDDD;

  • Companies with more than 1,000 employees and a turnover of 300 million have  5 years to comply with the CSDDD.

Non-EU companies:

  • with net sales in the EU of more than €150 million.

  • with net sales in the EU of more than €40 million, provided that at least 50% of the net sales are achieved in one or more of the high-impact sectors.

*these numbers are constantly evolving and subject to change.

Who monitors compliance with the CSDD?

Each European Union member state is required to appoint at least one supervisory authority. This authority is tasked with monitoring compliance with national legislation created as a result of the proposed directive. Member states are expected to have another 2 years to transpose the directive into national law.

What does the CSDDD mean for SMEs?

SMEs are not directly affected by the directive. However, they may be indirectly affected, if they are part of the value chain of companies covered by the directive. If you, as an SME, are in the supply chain of large companies, chances are they will need data from you for their own reporting. Within MVO Nederland's CSRD community, you as an SME will get plenty of support to take this on. Want to know more? View our CSRD activities.

How does CSDDD affect my business?

Depending on the size and nature of your business, CSDD may require you to put systems in place to monitor and manage environmental and human rights issues within your own operations and those of your suppliers. This may require changes in how you choose suppliers and how you draft contracts. 

What are the consequences of non-compliance?

Failure to comply with the CSDD may result in fines and legal sanctions. This does depend on how the Netherlands eventually implements the law. You also run the risk of reputational damage and negative impact on relationships with stakeholders, customers and other business partners if it appears that you, as a company, are not taking action to resolve the abuses in your supply chain.

How can I meet the CSDDD requirements?

Start by preparing a due diligence plan that addresses your company's specific risks. Work with legal and sustainability experts to tighten up your policies and procedures. Provide training for your staff on these new procedures. Also look at your supply chain management: make the supply chain more transparent, ensure traceability of products and screen suppliers for compliance with environmental and human rights standards. Pull together with peers in this preparation by participating in one of our events.

How do I report on my sustainability efforts according to CSDDD?

Develop a reporting format that meets CSDDD requirements and report annually. These reports should be publicly available and contain detailed information on how your company manages and addresses risks. CSR Netherlands is working on a programme where you will learn with peers how to prepare such a report, with guidance from experienced accountants and experts. 

What is the timeline for implementation of the CSDDD?*

On 24 April 2024, the law was formally adopted after long wrangling among EU member states. Only the European Council still needs to agree. It is then up to EU member states to incorporate the law into their national legislation. Member states have two years to do this. Implementation of CSDD by the first group of companies is expected to start in 2027. In any case, companies would do well to start preparing now.

How can Future Up help?

In the new Community of Practice programme on due diligence and chain responsibility, you prepare yourself to work according to the CSDD, so that you keep an eye on people and the environment and embed this in your organisation. In a fixed group of companies, you will learn from and with each other how, as a company, you deal with responsibility in combination with your business operations and how, as a company, you ensure that you recognise and address potential risks of your business activities in time. You can register for the Community of Practice via the registration form.