CSDDD just got its final seal of approval from the EU — here’s why it matters
Worldfavor’s Ulrika Sandberg shares the steps required undertaken by the companies that the new legislation targets.
29 May 2024

Worldfavor is a leading ESG platform that helps companies manage sustainability data and drive change. The platform enables businesses to collect high-quality ESG data directly from their value chains, to make informed, sustainable decisions and in that way drive sustainability. 

— We provide tools that empower companies to be proactive and with our extensive library of ESG metrics, companies can seamlessly monitor environmental, social, and governance aspects critical to their business. We help companies to align with different due diligence legislation, as well as the EU game-changer directive The Corporate Sustainability Due diligence directive (CSDDD), says Ulrika Sandberg, Senior Sustainability advisor.

The CSDDD is a proposed European Union legislation. It’s designed to ensure that companies take action on risks and actual negative impact related to human rights and certain environmental topics, in their business operations and supply chains. 

— The directive, Sandberg continues, also aims to hold companies accountable for their impacts and promote sustainable corporate behaviour. The draft is still under discussion, and its finalisation is expected to occur before the upcoming elections, reflecting ongoing political negotiations and stakeholder feedback. In March, the EU member states agreed to give a green light to the long-awaited CSDDD and last week, it got its final seal of approval. Once adopted, each member state will have two years to make the directive into national law. The directive will then start to apply to companies in a phase-in way from 2027 and onwards, starting with the largest companies. 

According to the current text, the CSDDD applies to EU-based and parent companies with 1,000+ employees and a net worldwide turnover of over 450 million EUR. Also parent companies with 1,000+ employees and worldwide turnover of over 450 million EUR. Non-EU companies generated a net turnover of at least 450 million EUR in the EU the previous financial year. Lastly, franchises with a turnover of over 80 million EUR if at least 22,5 million EUR was generated by royalties.

— However, even companies outside CSDDD’s direct focus should expect some impact — and prepare accordingly — since in-scope companies will most likely involve their smaller business partners in their due diligence processes. In this way, even smaller companies will be asked questions on their human rights and environmental impact, says Sandberg.

Can you further explain the CSDDD requirements? 

— The main aim is for companies to avoid and minimise damage, or what is often called negative impact, on human rights and the environment. Therefore, the directive introduces a corporate due diligence duty to identify, prevent, end, mitigate, and account for adverse human rights and environmental impacts in the company’s operations, its subsidiaries, and their value chains. 

— To do so, companies must conduct ongoing human rights and environmental due diligence aligned with the OECD due diligence guidelines. Companies that the CSDDD targets will be required to undertake several steps, related to human rights and environmental impacts (full list below).

For anyone completely new to the phenomenon, where is a good way to start? 

— A good starting point is the European Commission’s official website, which provides detailed information on the directive. Additionally, various industry associations and sustainability forums offer valuable resources and insights into CSDDD and so do we, as experts.

Yes, you’ve just arranged a dedicated CSDDD webinar. 

— Yes to raise awareness and provide practical guidance on what the directive is all about and what it will require from companies. We presented an overview of the CSDDD requirements and shared insights on a practical level what companies will have to do to comply. We also demonstrated how our platform can facilitate this process by enabling companies to access social and human rights data from supply chains 

Can you share any key takeaways from it? 

— The importance of integrating due diligence into core business operations, leveraging technology for efficient data collection, and emphasising the importance of stakeholder engagement across the value chain. Participants also learned about the benefits of proactive compliance, that is starting to align its business with CSDDD already now, and to conduct risk identification and mitigation as well as enhanced stakeholder dialogue. Moreover, we highlighted how the CSDDD is linked with the CSRD (Corporate Sustainability Reporting Directive). 

— The feedback was overwhelmingly positive. It’s also very clear that there is a lack of knowledge and understanding of this directive although it is ’right on our doorstep’. The era of companies turning a blind eye to what’s happening in their supply chains is ending. And it’s clear that CSDDD will bring some huge changes in how companies, big and small, in all kinds of industries, will act when it comes to impacts in their supply chains. This will ultimately have a positive impact on both people and the planet. 

Yes, how will it affect the creative sectors more concretely?

— Significantly, by requiring greater transparency and accountability in their supply chains. Challenges include the need to adapt existing processes and ensure comprehensive data collection from diverse sources, including from the supply chain which may be very complex and long. However, there are endless opportunities to build more sustainable brands, enhance reputational value, and gain a competitive edge through other responsible purchasing practices in which human rights and environmental risks and impacts are included. Embracing these changes can lead to innovations and a stronger connection with ethically conscious consumers.

— For executives in the creative sectors, embracing sustainability is not just a regulatory requirement but also a strategic advantage, and should be seen as a means to strengthen business value. Leveraging ESG data can drive innovation, create new market opportunities, and strengthen relationships with conscious consumers. Staying informed about evolving standards and regulations as well as using tools like ours can position your business for long-term success and enable a successful sustainability journey. It helps you track relevant ESG metrics and ensures that companies can work aligned with various legislations and frameworks such as the Corporate Sustainability Reporting Directive (CSRD) and Science Based Targets initiative (SBTi). 

With the CSDDD, Sandberg explains, we are entering a new era as business will not be business as usual. 

— Instead, businesses will need to take into consideration the impact on people and planet. And it is important to stress that although the CSDDD may seem very complex and hard to understand, the ultimate aim is not for companies to display perfect and problem-free supply chains, but rather that companies are given tools to address the most serious negative impacts step by step. I also want to emphasise the importance of staying informed and proactive in navigating the regulatory landscape, particularly with initiatives like CSDDD and CSRD, but also in regard to specific EU legislation on forced labor and deforestation. 

Ulrika Sandberg.

The steps required undertaken by the companies that the CSDDD targets

— Integrate human rights and environmental due diligence into policies
— Develop a process to identify and assess actual or potential adverse human rights and environmental impacts – both in own operations and in the supply chain
— Prevent or mitigate potential impacts 
— End or minimise actual impacts
— Conduct meaningful stakeholder engagement 
— Track the implementation and results to evaluate the effectiveness of due diligence procedures (at least once every 12 months) 
— Publish an annual statement on their website to communicate the relevant due diligence measures taken during the previous year 
— Establish and maintain a complaints procedure 
— Provide remediation in case of adverse impact

Further insights into the directive’s key requirements, tips to kickstart the journey, and a timeline with important dates can be found in Worldfavor’s guide CSDDD Explained: Your Starter Guide to the Corporate Sustainability Due Diligence Directive – the 2024 Updates