Corporate Sustainability Due Diligence Directive (CSDDD)
The Corporate Sustainability Due Diligence Directive (CSDDD) is a landmark piece of European Union legislation that mandates companies to conduct due diligence on the human rights and environmental impacts within their global value chains. This directive moves beyond voluntary commitments, establishing legally binding obligations for businesses to identify, prevent, mitigate, and account for adverse impacts related to their own operations, those of their subsidiaries, and their direct and indirect business partners.
Why it matters
For procurement professionals, the CSDDD represents a fundamental shift in compliance and supply chain management. It elevates sustainability from a corporate social responsibility initiative to a core operational and legal requirement. Understanding and preparing for this directive is crucial for maintaining market access in the EU and managing significant legal and financial risks.
Integrating a CSDDD-aligned strategy into your procurement function is essential to:
- Ensure legal compliance: The directive imposes substantial penalties for non-compliance, including fines and civil liability. A robust due diligence process is your primary defence against legal action and ensures you meet the stringent requirements for operating within the EU market.
- Mitigate broad-spectrum risks: The CSDDD compels a holistic view of risk, covering both human rights issues (like forced labour) and environmental concerns (such as greenhouse gas emissions and pollution). This integrated approach helps you build a more resilient and secure supply chain.
- Enhance corporate accountability: The directive requires companies to be transparent about their due diligence processes and outcomes. This fosters greater accountability to investors, consumers, and regulators, enhancing your company’s reputation and strengthening stakeholder trust.
- Drive supplier performance: Compliance with the CSDDD necessitates deeper engagement with suppliers. By embedding due diligence requirements into your procurement contracts and collaborating on improvement plans, you can drive better performance and create more sustainable, long-term partnerships.
How it works / key points
Companies must establish and embed a due diligence policy across all relevant business functions. This policy should outline the company’s approach to identifying and addressing human rights and environmental risks and must be updated annually.
Organisations are required to take appropriate measures to identify actual and potential adverse human rights and environmental impacts. This involves mapping the entire value chain and using a risk-based approach to prioritise areas where the risks of harm are most severe or likely.
Once risks are identified, companies must take action. This includes developing and implementing prevention and corrective action plans, making necessary financial investments, seeking contractual assurances from suppliers, and collaborating with others in the industry to address systemic issues. Where adverse impacts have occurred, businesses must provide or cooperate in remediation.
Companies must create a formal mechanism for affected persons, trade unions, and civil society organisations to submit complaints regarding potential or actual adverse impacts. This ensures that those directly affected have a voice and a channel for recourse.
Due diligence is an ongoing activity. Businesses are required to periodically assess the implementation and effectiveness of their due diligence measures to ensure they are working as intended and to identify areas for improvement.
Finally, companies must publicly report on their due diligence efforts. This communication should transparently describe the identified risks, the actions taken to address them, and the outcomes of these actions, providing clear evidence of compliance and progress.
Examples
European automotive manufacturer identifies inadequate safety protocols in the supply chain for a specific component sourced from outside the EU. Under the CSDDD, the company requires its direct supplier to undergo a SMETA audit. It then works with that supplier to cascade similar due diligence requirements down to the lower tiers of the supply chain, contractually obligating them to uphold rigorous safety standards and address identified hazards.
An electronics retailer is required by the CSDDD to adopt and put into effect a climate transition plan. The procurement team collaborates with key logistics partners to optimise shipping routes and invest in lower-emission transport options, directly addressing and mitigating its Scope 3 environmental impact.
A large food company sourcing coffee beans identifies risks of deforestation and poor wages for farmers. To comply with the CSDDD, it invests in a supply chain sustainability platform to map its supply chain back to the farm level. The company then provides financial support and training to farming cooperatives to help them adopt more sustainable agricultural practices and ensure fair payment.
About Sedex
Sedex is a global technology company that specialises in data, insights and professional services to empower supply chain sustainability. Our platform, tools and services enable businesses to easily manage and improve their environmental, social and governance (ESG) performance to meet their supply chain sustainability goals.
