1. Does the CSDDD apply to your company?
The proposed CSDD applies to EU companies with, on average, more than 500 employees and a net worldwide turnover exceeding EUR 150 million (Group 1). In addition, the CSDDD applies to EU companies with more than 250 employees and a net worldwide turnover of more than EUR 40 million, provided that at least 50% of this net turnover was generated in the previous financial year in one or more of the following high-impact sectors (group 2):
- clothing industry
- food industry
- mineral resources industry.
The same applies to companies based outside the EU, but then the turnover thresholds (EUR 150 million or EUR 40 million) must be achieved within the EU and the employee threshold lacks.
These thresholds may still change as the final text of the CSDD is currently being negotiated by the European Commission, the European Parliament and the Council of Ministers. The European Parliament has proposed to omit for Group 2 the requirement that turnover must have been generated in a high-impact sector and that the Group 1 thresholds would then apply to holding companies. The CSDD will then already apply to companies with more than 250 employees and a net worldwide turnover of more than EUR 40 million.
2. What does the CSDDD mean for your business?
If your company falls under the scope of the CSDDD, it is good to anticipate it in advance. Indeed, the CSDDD requires a lot from companies. Among other things, they must integrate due diligence considerations into all facets of company policy, have a specific due diligence policy on human rights and environment, identify, prevent, terminate and/or mitigate potential and actual adverse effects on human rights and environment, as well as set up a grievance procedure.
Companies falling into Group 1 must prepare a plan to ensure that their business model and strategy is compatible with the transition to a sustainable economy and with limiting global warming to 1.5 °C, in line with the Paris Agreement. If climate change has been or should have been identified as a significant risk to or impact of the company’s operations, emission reduction targets should also be included in the plan.
It is currently being negotiated whether due diligence should extend to activities in the value chain or chain of activities (similar to the supply chain). A key difference is that the value chain should also include consumer behaviour and waste disposal. However, even if due diligence obligations are limited to the chain of activities, the CSRD will still require reporting on some impacts in the value chain. You can find more explanation about the CSRD in this blog. As the CSRD has a broader scope, most companies covered by the CSDD will also have to report under the CSRD.
3. How are you preparing your company for the CSDDD?
Since due diligence considerations should be integrated into all facets of the policy, and due diligence should at least extend to supply chain activities, it is advisable to put together an interdisciplinary team that includes a policy officer, procurement officer and/or product specialist. This team could start by drawing up a plan for collecting data from suppliers, which many companies consider a huge task.
The specific due diligence policy can then be drafted. This should include at least the following: (a) a description of your company’s chosen approach to doing due diligence, including a long-term approach, (b) a code of conduct for employees and subsidiaries, and (c) a description of the processes put in place to implement the due diligence policy, including the measures that will be taken to verify compliance with the code of conduct and extend its application to the value chain or supply chain.
The CSDDD is expected to enable prioritisation. Companies can therefore start with the outcome of the dual materiality analysis they have done for sustainability reporting, as described in my previous blog post ESG | What is the CSRD and how can I prepare my company for it? If this identifies (potential) adverse effects on human rights or the environment, these can be prioritised. So, if your company sells several products, start by mapping the supply chain and impact of the most sold product or the product that obviously has the most adverse effects on human rights or the environment.
If you would like to know more or have any questions about ESG and your business, please feel free to contact Stephanie ter Brake.
