CSDDD: An EU Deal Unsigned, Unsealed And Undelivered

CSDDD: An EU Deal Unsigned, Unsealed And Undelivered

Following the indication by key member states – Germany, Finland and Sweden – that they would abstain from voting, the much-anticipated EU council vote on the final text of the Corporate Sustainability Due Diligence Directive (CSDDD), due to enter into force in 2027, was postponed last week to a yet unannounced date.

The CSDDD, if enacted, will require organizations to identify, evaluate and remediate human rights and environmental concerns in value chains through due diligence measures across their operations, subsidiaries and supply chains. The rules will apply to:

• EU firms that have more than 500 employees and a net worldwide turnover above €150 million. 
• Some 4,000 non-EU firms that generate over €150 million in net turnover in the EU, but are headquartered elsewhere.

Penalties for breaching the rules could be as high as 5% of a firm’s global turnover and open the firm up to civil litigation from those who are impacted.

The current draft of the CSDDD can be accepted or rejected – but not amended – by the voting bodies. In the case of rejection, the proposal will be sent back for further negotiations. This could delay the CSDDD indefinitely, given that the 2024 European Parliament election is scheduled for June, when it is plausible that the composure of the parliament may change on this issue, removing majority support.

Germany’s abstention is rooted in fears of burdening businesses with excessive bureaucracy. Such concerns have been exacerbated by the passing of its own due diligence law – the German Supply Chain Act, enforced in January 2023 – which has become a symbol of “bureaucratic madness for German firms”. However, German-headquartered businesses such as Aldi and Bayer have released a shared statement describing the CSDDD’s requirements as appropriate and feasible, and the only chance for an EU-wide level playing field.

The CSDDD is monumental: it underlines an approach that goes beyond regulatory compliance to necessitate proactive engagement and dynamic improvements in labour and environmental standards. It also signifies a critical movement towards accountability and transparency in the global business ecosystem, by obliging firms to publicly communicate due diligence undertaken.

Taking a diligent approach to evaluating value chains, and adopting pre-emptive measures and actions, are vital actions for firms – some 17.3 million people toil under conditions of forced labour in the private sector worldwide. The 2019 Brumadinho dam collapse in Brazil following years of failure to address identified safety risks; rampant child labour and hazardous working conditions in the cobalt mines in the Democratic Republic of the Congo; and human rights abuses against Uyghur Muslims in China, within supply chains of various global firms in fashion, retail, media and technology, are all compelling reasons for robust due diligence processes.

By acting now, businesses can not only cut through the potential complexities of compliance, but also satisfactorily answer questions about the materials or services on which their operations depend, thus building stakeholder trust. To begin this long and difficult journey of due diligence, firms must obtain full visibility over their value chains, adopt holistic human rights impact assessments that go beyond traditional audit-based approaches and leverage digital technologies as part of comprehensive supply chain strategies (see Verdantix Best Practices: Improving ESG Performance In The Supply Chain).

For information on digital solution providers for supply chain sustainability, see Verdantix Smart Innovators: Supply Chain Sustainability Software, which provides a benchmark of the capabilities of 30 software providers in this space.