After lengthy delays and unprecedented political turbulence, a new era of mandatory supply chain due diligence has finally arrived. The EU Commission approved the revised version of the Corporate Sustainability Due Diligence Directive (CSDDD) on May 24th.
While much has been said about the compromises required to reach this point, the directive still represents the most significant legislative step toward transforming global value chains into a force for social and environmental good. Companies will need to identify a broad spectrum of sustainability risks and impacts throughout their value chains—well beyond Tier 1—and collaborate closely with their partners to mitigate and prevent them.
Here, we explore some of its groundbreaking aspects and what they mean for both in-scope companies and those that will need to respond to their trading partners’ demands. We also highlight the opportunities that a proactive approach to compliance can offer and some of the key CommonShare solutions that can help you prepare for this new era of due diligence.
Three Groundbreaking Aspects of the CSDDD
1. Immense Reach Across Global Value Chains
Roughly 5,500 EU-based companies will be directly in scope, with the first batch required to comply from 2027. At least 1,000 non-EU companies with significant business in the bloc, primarily from the US, Canada, UK, Australia, and Japan, will also be captured by the directive. These large multinationals and their subsidiaries collectively represent a massive slice of global value chains. As companies prepare for compliance, they will increasingly pressure their suppliers to provide better sustainability data and act on risks or issues uncovered. This demand for greater transparency and accountability will inevitably cascade into deeper tiers and across regions, exponentially increasing the number of companies required to rethink sustainability in their operations and value chains. The CSDDD also goes beyond the upstream supply chain, requiring in-scope companies to conduct due diligence on some downstream partners, such as those involved in transportation or distribution on the company’s behalf.
2. Holistic Approach to Due Diligence Across Environment and Human Rights
Built on the United Nations Guiding Principles on Business and Human Rights and OECD guidelines for multinational companies, the CSDDD covers a broad range of social and environmental topics. It emphasizes human rights challenges such as eliminating modern slavery, protecting labor rights, and providing safe working conditions. However, it uniquely focuses on environmental challenges—from taking action on climate change to reducing biodiversity loss. This holistic approach to due diligence will likely challenge even companies that have already developed a foundation for compliance with laws like Germany’s LKSG. The directive’s climate change component, under Article 15, requires companies to develop a climate transition plan showing how they are setting their business on a 1.5ºC-aligned pathway to achieve net zero by 2050. These plans must include time-bound, science-based emissions targets and a description of progress made toward them.
3. Enforcement Through Fines and Civil Liability
The CSDDD significantly raises the compliance stakes. Companies failing to comply could face public naming and shaming, removal of products from the market, and fines of up to 5% of their global net turnover. The directive also provides for civil liability, giving affected stakeholders worldwide recourse in European courts if in-scope companies are found negligent in their due diligence efforts. This aspect of the CSDDD will help harmonize the inconsistent civil liability regimes currently existing in the EU for value chain impacts. For example, France’s Duty of Care law provides access to civil liability, while the LkSG does not.
A Proactive Approach Can Unlock Value Beyond Compliance
Adopting a proactive approach to compliance with the CSDDD can offer numerous opportunities. By integrating robust due diligence practices, companies can not only avoid penalties but also build stronger, more resilient supply chains that are better prepared to address future challenges. EcoVadis provides several key solutions to help companies navigate this new era of due diligence, including comprehensive sustainability assessments, supplier engagement tools, and advanced analytics to track and report on sustainability performance.
In summary, while the CSDDD presents significant challenges, it also offers a unique opportunity to transform global value chains into a force for good. By embracing this directive and proactively addressing its requirements, companies can enhance their sustainability practices, mitigate risks, and contribute to a more sustainable and equitable global economy.
Comprehensive Solutions for Supply Chain Due Diligence Compliance
CommonShare offers an advanced platform designed to assist companies in achieving compliance with supply chain due diligence requirements. This tool is particularly relevant for meeting regulations such as the German Supply Chain Due Diligence Act, which mandates that companies ensure their supply chains are free from human rights violations and environmental harm. An example of this is how Guess has been active in delivering materiality and sustainability reporting, ensuring compliance with regulations like the Corporate Sustainability Reporting Directive (CSRD) and the German Supply Chain Due Diligence Act
CommonShare's platform provides several key features:
Supply Chain Mapping and Monitoring: This allows companies to map their entire supply chain, offering visibility into supplier practices and product origins. It includes track and trace functionality, which helps in identifying and managing risks across the supply chain.
Risk Mitigation: The platform includes tools for engaging with suppliers to improve practices and for building custom surveys to assess supplier compliance. This helps companies proactively address potential issues and maintain ethical standards.
Reporting: CommonShare offers data visualization and analytics tools to help companies evaluate the effectiveness of their due diligence measures and prepare reports for regulators and stakeholders. This enhances transparency and accountability.
Additionally, CommonShare supports the integration of various data sources and certification bodies to ensure the credibility of supply chain data. Their protocols and standards maintain high data quality and security, protecting intellectual property and ensuring accurate reporting.