A few letters apart, it would be easy to confuse the two. The Corporate Sustainability Reporting Directive (CSRD) sets the framework for sustainability reporting, while the Corporate Sustainability Due Diligence Directive (CSDD) aims to ensure responsible corporate conduct. This directive establishes a corporate due diligence duty to identify, prevent or mitigate social or environmental impacts on their value chain.
Which criteria are taken into consideration?
The directive covers potential violations of human rights (freedom of thought and religion, labour rights including the prohibition of forced labour, child labour, freedom of association and collective bargaining, etc.) and environmental rights (violations of the objectives and prohibitions of international environmental conventions). The CSDDD thus implies to:
- integrate the due diligence duty into company policies (code of conduct, implementation and management of a complaints procedure and whistle-blowing systems);
- identify actual or potential negative impacts on human rights and the environment;
- prevent or mitigate these potential impacts;verify the effectiveness of due diligence measures and actions taken;
- communicate publicly on the due diligence duty.
Who does the CSDDD apply to?
The textile industry has been identified as a “high-risk sector“. Therefore, European companies with more than 250 employees and worldwide net sales of over €40 million are subject to the regulation. Non-European companies with sales of over €40 million, 50% of which in a high-risk sector such as textile, are also concerned.
Companies with worldwide net sales in excess of €150 million will also be required to share the actions implemented in their activities to limit global warming to 1.5°C, in line with the Paris Agreement.
When will the regulation be rolled out?
Adopted by the European Parliament in June 2023, the final version will be set after negotiations between the European Commission, the European Parliament and the European Council in 2024. As the CSDDD is a directive, it will then be transposed into the law of each member country within 2 years, thus harmonising the due diligence duty regulations already in place in France, Germany and the Netherlands.
What are the potential penalties?
Control will be enforced at the level of each member state, by an authority responsible for supervising and imposing penalties. Fines of at least 5% of sales, compliance injunctions, and exclusion from the European market for non-European companies are considered for non-compliant companies.
How to get ready for it?
In order to comply with the vigilance duty, the tools at the disposal of the businesses need to be strengthened to guard against and identify risks. Here are a few examples of actions to implement:
- updating codes of conduct;
- defining responsible purchasing policies that integrate the social and environmental vigilance duty;
- verifying that corrective action plans resulting from social and environmental audits are properly implemented.