What Companies Need to Know About the EU CSDDD
Maurizio Capuzzo
Chief Marketing Officer
Friday, 16 August 2024
About 6 minutes
The EU Corporate Sustainability Due Diligence Directive (CSDDD) is more than another regulatory hurdle: it’s a significant shift in how businesses must approach sustainability. If your company operates within the EU or has a substantial presence there, the CSDDD will impact you. Understanding it is crucial.
What is the CSDDD?
The European Union’s CSDDD is a new piece of legislation designed to drive sustainable and responsible business practices. It outlines requirements for companies regarding the social and environmental impact of their own activities and their suppliers’ operations.
Under the Directive, companies that meet its size and revenue thresholds are responsible for identifying ESG risks, preventing negative impacts, communicating their progress and, where appropriate, providing remedy if they’ve caused or contributed to harm.
Who does this EU Directive apply to?
The scope of the Directive will increase over a few years. By 2029, it will apply to:
- EU-based companies with 1,000 or more employees and €450 million or more in annual revenue.
- Non EU-based companies with €450 million in annual revenue within the EU market.
These thresholds may change in future, if the EU decides to expand the requirements to more businesses.
Take action now
Although EU countries have until 2026 to translate the CSDDD into national law, the Directive asks a lot from businesses. The next two years are a great opportunity to get ahead on human rights and environmental due diligence activities, in preparation for compliance and enforcement.
How will the CSDDD impact sustainability in business?
The EU CSDDD marks a pivotal shift in how businesses approach sustainability. This Directive aims to ensure that companies integrate human rights and environmental considerations into their operations and supply chains.
It’s no longer enough to simply have a sustainability report; companies must actively identify, prevent and mitigate negative impacts on both people and the planet. This includes companies conducting environmental and human rights due diligence on their own operations, subsidiaries and value chains, looking at everything from labour rights risks and working conditions to pollution and climate change.
Why CSDDD matters – and the opportunities within
This Directive pushes businesses to go beyond basic compliance – it’s about driving responsible business practices that benefit everyone. It’s part of a broader effort by the EU to promote responsible business conduct and sustainable development.
Here’s why the CSDDD matters:
- Stakeholder expectations: Consumers, investors, and employees increasingly demand that companies act ethically and sustainably. The CSDDD reflects these expectations.
- Sustainability risk management: The CSDDD expects companies to proactively address sustainability issues. Doing so will help companies avoid reputational damage, legal troubles and disruptions to their supply chains. Managing social and environmental risks effectively also helps businesses to build resilience and identify opportunities for efficiencies – for example, by reducing energy usage or waste.
- Competitive advantage: Companies that fully embrace the CSDDD’s requirements can differentiate themselves, attract new customers, satisfy investor demands and retain talent.
- Innovation: The Directive can drive new, sustainable business models and solutions.
Sedex enables businesses to manage and improve their supply chain sustainability practices by providing comprehensive data insights, our integrated data Platform and tools for risk assessment and mitigation.
Implications for businesses
Elevated stakeholder expectations
As we get closer to the CSDDD being enforced at national levels, stakeholders will expect companies to embed sustainable practices into every aspect of their operations. This shift from peripheral to central importance requires a fundamental change in decision-making processes.
Regulatory compliance and data management
Companies must navigate an increasingly complex landscape of sustainability laws. Relying on informal ESG data management practices is inefficient and can heighten compliance risks. Forward-thinking executive leaders are investing in structured ESG data management systems that ensure accurate reporting and transparency.
Sedex offers robust supply chain sustainability data management solutions for companies to collect, analyse and report on supply chain ESG practices, supporting compliance with evolving regulations.
Value creation through collaboration
Effective sustainability strategies depend on recognising when to compete and when to collaborate. By forming partnerships within their business world, companies can share benefits and address sustainability challenges more effectively. Sedex facilitates collaboration on sustainability goals through our network of suppliers, buyers, and auditors, fostering partnerships that drive collective action and genuine progress on sustainability issues.
Adapting to changing consumer needs: Climate change and other sustainability issues are driving shifts in consumer preferences that look set to continue – especially among millennial and Gen Z shoppers.
Businesses have the opportunity to realign their strategies to meet these evolving demands, ensuring long-term success by staying relevant and competitive. Sedex’s Community programme supports companies to understand and adapt to these changes by providing insights into sustainability trends and how businesses in different industries respond to these.
Building resilience through risk management
Companies must transition from passive to active risk management, leveraging digital technologies and innovative solutions to identify ESG issues, take action before these escalate and enhance resilience. For example, through proactive energy management to both reduce greenhouse gas emissions and optimise energy efficiency in business supply chains.
Sedex’s Platform includes tools for monitoring and managing energy consumption, helping supply chain businesses to improve efficiency and reduce their environmental footprint.
Strategic recommendations
Integrate sustainability into business decisions
Companies should connect key sustainability issues to their value creation and risk management processes. This involves incorporating sustainability metrics into strategic decision-making and prioritising activities that drive both positive financial and other business outcomes.
Sedex’s comprehensive data and analytics capabilities enable businesses to integrate sustainability into supply chain strategies effectively. Our Consulting team works with companies to develop comprehensive programmes covering multiple sustainability-related demands.
Make data-driven decisions
A cohesive ESG data model and data-centric solutions are crucial to prioritising activities, allocating resources and evidencing progress against sustainability goals. By consolidating ESG data needs and enhancing data literacy, businesses can empower their teams to make informed, sustainable decisions.
Sedex provides a unified platform for supply chain ESG data, ensuring access to the information and actionable insights stakeholders need to drive sustainable decisions.
Leverage innovation partnerships
Addressing complex sustainability challenges requires collaboration. Identifying areas where business ecosystem partnerships create value for everyone can lead to significant advancements in sustainability. Sedex’s extensive network and collaborative approach help businesses to forge effective partnerships and tackle sustainability challenges together.
Scale sustainable innovations
To protect and drive revenue, businesses must anticipate market needs for sustainable products and services at competitive prices. This involves assessing upcoming innovations, their capabilities and the potential impact of solutions such as low-carbon technologies on existing markets.
Sedex supports innovation by providing insights into emerging trends and helping companies to develop and scale sustainable solutions across their supply chains.
How Sedex can help
Navigating the CSDDD might seem daunting, but Sedex is here to help. Our responsible sourcing tools and expertise can empower your company to:
- Assess and monitor: Identify supply chain sustainability risks related to human rights and the environment.
- Collaborate: Work with suppliers to improve practices and drive positive change.
- Deliver sustainability reporting and disclosure: Meet your CSDDD reporting requirements with confidence.
- Integrate sustainability: Embed responsible practices into your company’s strategy and day-to-day operations.
By taking action now to prepare for future enforcement, your company can comply with regulations while building a more resilient, responsible and successful future.
Ready to see how Sedex can support your CSDDD journey? Contact us today.
