On February 23, 2022, the European Commission adopted the proposal for a Corporate Sustainability Due Diligence Directive (CSDDD). This proposal has significant implications for companies and their sustainability efforts. In this blog, we explain what the Corporate Sustainability Due Diligence Directive entails and what it means for you as a business owner.
Background of the CSDDD
International guidelines such as the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines on Responsible Business Conduct emphasise the importance of respect for the environment and human rights by businesses. But these guidelines are non-binding, and many companies approach them too casually. According to the European Commission, only 37% of the companies surveyed check whether human rights and the environment are respected. Only 16% do this for the entire supply chain. The CSDDD is a proposal to address this problem and obligate businesses to make their operations more sustainable.
Who does the CSDDD apply to?
The directive applies to 'large companies':
- Companies with more than 500 employees and a global turnover of more than 150 million euros;
- Companies with more than 250 employees and a global turnover of more than 40 million euros are active in a high-risk sector such as the textile industry;
- And non-EU companies meeting the above criteria and earning all their revenue in the EU.
What are the obligations of the CSDDD?
The legislation imposes several obligations on these companies. They must establish a corporate social responsibility policy, identify and prevent negative effects on people and the environment, and establish a complaint procedure. Moreover, they have to demonstrate that their business model and strategy are aligned with a sustainable economy and limiting global warming to 1.5 °C, in line with the Paris Agreement.
Establishing a policy
Each company must develop a comprehensive policy focused on responsible business conduct regarding people and the environment. This policy must be updated annually to ensure that the company remains up-to-date with the latest sustainability standards and practices. It should contain a detailed action plan, a code of conduct for employees and subsidiaries, and a description of the processes used to promote corporate social responsibility. This policy serves as a roadmap for the company to achieve its sustainability goals and to be accountable to stakeholders.
Complaint procedure
Companies must also establish a robust complaint procedure. This procedure should be accessible and transparent so that stakeholders can express their concerns when there are suspicions about negative effects on people and the environment. This could range from employees reporting unsafe working conditions to suppliers exposing unethical practices in the supply chain. Setting up an effective complaint procedure is a critical step in promoting transparency and accountability within the organisation.
Counteracting climate change
In addition to the preceding obligations related to corporate social responsibility, companies must also demonstrate that their business model and strategy are aligned with a sustainable economy. This means they need to show how their business activities contribute to limiting global warming to 1.5 °C, in line with the Paris Agreement. This could be by reducing CO2 emissions, investing in renewable energy, or implementing circular business models. Demonstrating this commitment to climate action is not only good for the planet but can also bring business benefits, such as cost savings and improved brand reputation.
What does this mean for SMEs?
Although the CSDDD does not directly apply to SMEs, it still has implications. If you are part of the supply chain of a large company covered by the directive, this company can require you to ensure that no negative effects on people and the environment occur in your operations. For example, research shows that this is the case for over 77% of SMEs. The CSDDD takes this into account and states that such contracts should not be too burdensome for SMEs.
How can Eevery help you?
At Eevery, our goal is to support businesses in their sustainability journey. We assist you in preventing negative effects on people and the environment and in conducting business responsibly. Once the directive of the CSDDD is final, our platform will be calibrated to it. This way, you as a business owner can easily yet reliably see whether you comply with the CSDDD.Stay up-to-date with the latest news about upcoming legislation and the CSDD. Subscribe now.
