When will the first group of in-scope companies need to be compliant with the CSDDD?

The Corporate Sustainability Due Diligence Directive (CSDDD) will enter into force 20 days after its publication in the Official Journal of the European Union. Member States will then have two years to transpose the Directive into national law and communicate the relevant texts to the Commission. One year later, the rules will start to apply to companies, with a gradual phase-in of between 3 and 5 years after entry into force. Depending on when publication takes place, this will either be Q2 or Q3 of 2027.

This first group of in-scope companies need to communicate in line with Article 16 “within a reasonable period of time, but no later than 12 months after the balance sheet date of the financial year for which the statement is drawn up…”.

Will an affiliate (less than 100 employees) of a foreign company (over 1000 employees) that is established in the EU be impacted by the CSDDD?

If the foreign company has a net turnover of €450 million within the EU, it will be subject to the CSDDD. It will also be impacted if it is the ultimate parent company of a group that reached this threshold on a consolidated basis in the financial year. There are no employee thresholds for foreign companies.

If the above conditions are not met, it will depend on whether the affiliate is formed in accordance with the legislation of a Member State and reaches the thresholds for EU-based companies as set out in the Directive.

As a supplier to a company subject to the CSDDD, what can you expect?

It’s likely that, as a first step, the company will ask you for information on how you manage human rights risks. This will be part of a general risk assessment of their supply chain. If the company identifies your business as particularly at risk, or deems you to have insufficient management practices, they will likely further engage you to better understand the risk or to improve your management approach. This can take many forms depending on the perceived risk, such as surveys, conversations, site visits or full impact assessments.

“Robust data management will be critical if companies hope to achieve the transparency and accountability required by the CSDDD.”

Tariq Desai, Human Rights Lead, Position Green

Are there any guidelines on scoping criteria to define human rights and environmental risks within your chain of activities?

As a solid starting point, the OECD Guidelines for Multinational Enterprises, the OECD Due Diligence Guidelines and the UN Guiding Principles on Business and Human Rights all provide best-practice information for how to scope risks within your chain of activities.

Should your due diligence approach differ when applied to own operations as opposed to your value chain?

No, you should apply the same approach. However, due to the level of control a company has over its own operations, expectations are higher. There should be fewer blind spots in identifying impacts and it will be easier to access and engage the relevant stakeholders in remediation efforts.

What does the CSDDD mean by ‘chain of activities’? How does this compare to what the CSRD means with ‘value chain’?  

The CSRD envisions a broader scope for the value chain, including expectations for financial institutions to properly map their value chain. The CSDDD is narrower, reflected in the term ‘chain of activities’. This is primarily because the CSDDD restricts downstream activities to the distribution, transport and storage of a company’s product, provided that these activities are conducted by direct business partners. In addition, the CSDDD excludes the distribution, transport and storage of a product that is subject to export controls, including the export control of weapons, munitions or war materials, once the export of the product is authorized.

How much of the knowledge, processes, statistics and results from the CSRD and ESRS reporting can be used to prepare for the CSDDD?

The CSRD and ESRS can be used as a starting point for understanding the risks associated with a company and its supply chain. If done properly, and in depth, companies should be applying the OECD Guidelines and UN Guiding Principles to support CSRD compliance, which would mean that they have put themselves in a good position to be ready for the CSDDD. However, as it is a reporting directive, many companies are doing a lighter assessment of what the ideal would be. This means it is likely that companies will have to go into more depth, particularly in value chain mapping, stakeholder engagement and supplier engagement.

Can a company use the results of their CSRD double materiality assessment in their CSDDD compliance efforts? 

It will depend on the extent of the double materiality assessment (DMA). In theory, the DMA can serve as an identification process. However, the CSDDD also wants companies, based on the results of the mapping, to carry out an in-depth assessment of their own operations, those of their subsidiaries and, where related to their chains of activities, those of their business partners, in the areas where adverse impacts were identified as most likely and severe.

How can Position Green help you get started with the CSDDD?

Our human rights due diligence (HRDD) software is designed by experts to support your CSDDD compliance journey. Get a full picture of the relevant risks and opportunities in your supply chain, automate assessment and easily engage suppliers in improvement processes. Our advisors are also on hand to help you strategize and plan what actions you need to take to mitigate both human rights and environmental impacts.

Contact us, and one of our experts will be in touch to schedule a demo of how our software solution works in practice. No strings attached, of course.

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