• The Corporate Sustainability Due Diligence Directive (CSDDD) is a legal framework for companies conducting business in the EU that encourages human rights and environmental considerations in operations and corporate governance.
• The directive outlines specific compliance requirements, including the implementation of due diligence processes, risk assessment, and transparent reporting, with phased implementation timelines starting from final approval in early 2024 to full effect by 2026/2027.
• Non-compliance with the CSDDD poses significant risks, including civil liability and financial penalties up to 5% of a company's net worldwide turnover, emphasizing the importance of proactive preparation and reliable sustainability data to track and report due diligence.

Please note: As of April 24th, 2024 the CSDDD has been passed / adopted.

In an era where sustainability is not just a buzzword but a business imperative, the European Union is taking decisive steps to ensure that companies are not just participants but active contributors to a sustainable future. The Corporate Sustainability Due Diligence Directive (CSDDD) emerges as an essential cornerstone for these steps, aiming to encourage responsible corporate behavior for both people and planet. 

But what does this mean for businesses within and beyond the EU? This blog dives into the most important CSDDD details companies need to know — requirements, timeline, and best practices. And, of course, how BanQu can help you capture the data needed for your CSDDD reporting.

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What is the CSDDD?

"[The purpose of this directive] is to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance." - EU Commission

The Corporate Sustainability Due Diligence Directive (CSDDD) is a legislative initiative by the European Union requiring companies to integrate human rights and environmental considerations directly into their corporate strategy and operations. The CSDDD mandates businesses to conduct thorough due diligence processes to identify, prevent, mitigate, and publicly report how their activities impact human rights and the environment.

Who does the CSDDD affect?

The CSDDD categorizes companies into distinct groups based on size, turnover, and sector, determining their obligations under the directive:

Large EU Companies

Companies with 1,000+ employees (previously 500+) and a net turnover of EUR 450 million+ worldwide (previously 150 million+). These companies are the primary targets of the directive and will need to comply with its requirements from the outset.

Non-EU Companies

These are companies not based in the EU but active within its market, with turnover thresholds aligned with the requirements above, generated within the EU.

SMEs and Micro Companies  / Indirect Companies & Suppliers

Due to the nature of supply chains and sourcing, even smaller suppliers or corporations not in-scope may also be required to comply if their customers are affected (e.g.,  if a company in Group 1 is affected by CSDDD, it will require certain due diligence data and documentation from its suppliers, even if those suppliers aren’t directly affected by the policy).

How can companies comply with the CSDDD?

Compliance with CSDDD involves implementing due diligence, risk assessment, mitigation strategies, and transparent reporting. Companies need to show that they’ve addressed any risks they identify in accordance with the below implementation timeline.

CSDDD Implementation Timeline

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Kickstarting the journey to Corporate Sustainability Due Diligence Directive (CSDDD) is critical for businesses to ensure timely compliance. Here's a detailed look at important, upcoming CSDDD milestones and dates:

• 2024 Spring: The final text of the CSDDD is expected to be approved by the necessary EU bodies and subsequently begins.
• 2024 Fall: The EU Commission is set to provide model contract clauses as an implementation tool for businesses.
• 2024-2026: During this period, EU Member States will be begin implementing CSDDD provisions into their domestic legal frameworks.
• 2026-2027: By 2026 or 2027, the CSDDD will take effect across the EU, marking the directive's full implementation. From this point onwards, in-scope companies must fully comply with the directive's requirements, incorporating due diligence processes into their operations to address and report on human rights and environmental impacts.

Please note that the size of the company will affect the specific compliance timelines:

• Over 5,000 employees and turnover of €1.5 billion will have three years to comply
• Over 3,000 employees and a turnover of €900 million will have four years
• Over 1,000 employees and a turnover of €450 million will have five years

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CSDDD vs. CSRD

While the CSDDD focuses on due diligence in human rights and environmental domains, the CSRD emphasizes the transparency and reporting aspects of sustainability efforts within the ESG framework. Both directives complement each other, with the CSDDD providing the framework for action and the CSRD ensuring that these actions are transparently reported according to the latest sustainability/ESG standards.

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The Benefits & Risks of CSDDD

"It's really hard to understand your impact when your materials are manufactured so distantly from the end product... Voluntary standards aren't translating into enough change. The intention [of CSDDD] is to encourage real change." - Maureen O'Donnell, BWR Mark Manager at Business in the Community Ireland

Benefits to People & Planet

The directive, within the framework of ESG & Sustainability Reporting, is a significant step towards ensuring that companies contribute positively to society and the environment. It encourages businesses to take a holistic view of their impact, leading to more sustainable practices.

Risks to Companies for Non-compliance

Non-compliance with the Corporate Sustainability Due Diligence Directive (CSDDD) carries significant risks for companies, extending beyond reputational damage to include legal and financial repercussions. Understanding these consequences is crucial for businesses to prioritize and ensure adherence to the directive's mandates.

Civil Liability

The directive mandates that member states must ensure any victims have the right to compensation for damages resulting from a company's failure to fulfill its obligations under the new proposals. This aspect underscores the directive's focus on providing tangible recourse for individuals and communities affected by corporate activities, placing a significant onus on companies to maintain rigorous due diligence and compliance processes.

Penalties

For companies that fail to pay fines imposed on them in the event of a directive violation, the provisional agreement outlines several injunction measures. These measures consider the company's turnover to impose pecuniary penalties, with a minimum maximum set at 5% of the company's net worldwide turnover. This approach ensures that penalties are not only punitive but also proportionate to the size and financial capacity of the company, making compliance a financially sound decision.

CSDDD Data Capture & Reporting Best Practices

Achieving compliance with the CSDDD requires meticulous, reliable, and secure due diligence data management and reporting. Here’s how businesses can leverage these practices to fulfill the directive’s requirements, and how a supply chain data visibility platform like BanQu can play a pivotal role in facilitating compliance — even beyond CSDDD.

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a. Primary Due Diligence Data

Importance for CSDDD Compliance: Primary due diligence data encompasses all relevant information about a company’s operations, supply chains, and the potential impacts on human rights (living wage, anti-forced labor, etc.) and the environment (Scope 3, reforestation, etc.). This data forms the foundation for identifying risks, implementing mitigation strategies, and monitoring the effectiveness of these measures. Accurate and comprehensive data collection is crucial for companies to demonstrate their commitment to sustainable practices and compliance with the CSDDD.

How BanQu Helps: BanQu's blockchain-based platform enables secure and transparent capture of primary due diligence data. By providing an immutable record of transactions and interactions across the supply chain, BanQu ensures that companies can easily access and verify the information needed for due diligence processes, making compliance more streamlined and manageable.

b. Chain of Custody Tracking

Importance for CSDDD Compliance: Chain of custody tracking is vital for tracing the origin of materials and products, ensuring they meet environmental and human rights standards throughout the supply chain. This level of traceability is essential for CSDDD compliance, as it allows companies to quickly pinpoint and address risks associated with their products and materials, from raw materials or recyclables to production to final sale.

How BanQu Helps: BanQu’s blockchain-based solution offers a transparent and unalterable ledger for recording every step in the supply chain. This functionality not only provides companies with the ability to monitor their chain of custody but also offers stakeholders and regulators clear insights into the compliance and sustainability practices being upheld.

c. Secure, GDPR-Compliant Data Handling

Importance for CSDDD Compliance: Secure, GDPR-compliant data handling ensures that personal data collected during due diligence processes is protected against unauthorized access and breaches. This compliance is particularly crucial when dealing with sensitive information across borders, reflecting the CSDDD’s emphasis on ethical and legal considerations in business operations. Moreover, GDPR compliance is essential for maintaining stakeholder trust and safeguarding company reputation.

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How BanQu Helps: BanQu prioritizes data security and privacy, incorporating advanced blockchain-powered encryption and compliance measures to protect data. Its platform is designed to comply with GDPR and other relevant data protection regulations, ensuring that companies can manage their due diligence data from throughout their supply chains without compromising on security. This approach not only aids in ongoing CSDDD compliance - and beyond - but also reinforces a company's commitment to ethical data practices.

Conclusion: Capture Reliable Sustainability Data & Simplify Your CSDDD Reporting, with BanQu

The journey towards CSDDD compliance is critical for building a sustainable future. Whether you’re needing help with a risk assessment, collecting due diligence data, or ensuring your reports are reliable and comprehensive, BanQu can help. BanQu’s blockchain-based visibility platform addresses the critical aspects of CSDDD compliance—primary due diligence data collection; chain of custody tracking; and secure, GDPR-compliant data handling. Embrace the future of sustainability with confidence, knowing that BanQu is here to support your CSDDD and sustainability reporting journey every step of the way. Even as regulations shift or new directives emerge. Schedule a call with our team today to see if BanQu is right for you.

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