Directive on the due diligence with regard to human rights and the environment (CSDDD) - what will change for companies?
On June 1, the European Parliament adopted by a large majority the draft directive on the duty of care of companies with regard to sustainable development. This directive aims to integrate human rights and environmental impact into corporate governance. Child labor and biodiversity loss will be among the issues addressed. This is another important step following the introduction of the CSRD by the European Commission, which obliges companies to disclose information on social and environmental issues.
The due diligence Directive would apply to European and non-European companies with more than 500 employees and global sales of over €150 million, including €40 million in the European Union, as well as to companies with more than 250 employees and sales of over€40 million in Europe. They will have to respect human and environmental rights throughout their supply chain. In other words, they will be required to identify and address the impacts of their subsidiaries' activities, as well as those of their business partners and subcontractors.
In addition to these requirements, companies will have to put in place climate transition plans in line with the objectives of the Paris Agreement, aimed at limiting globalwarming to 1.5°C. The implementation of these transition plans will have consequences for the variable remuneration of directors of large companies with more than 1,000 employees. Finally, all information relating to the duty ofcare will have to be made available on the European Single Access Point (ESAP).
Companies failing to comply with these rules will be subject to criminal and financial sanctions by national supervisory authorities. These sanctions could take the form of fines representing up to 5% of their worldwide sales, or the withdrawal of their products from certain markets.
Financial institutions are not to be outdone either, as banks will also have a due diligence towards their principal customers, i.e. those to whom they lend directly.
Simply put, this directive offers the opportunity to improve operations and supply chains by taking into account human rights and environmental impacts. It represents a paradigm shift, holding companies accountable for their impacts and recognizing their role in creating a sustainable future. Compliance not only ensures legal certainty and risk management, but also fosters customer confidence, employee engagement, access to finance and attracts sustainability-minded investors and talent, ultimately leading to long-term success and resilience in a changing business landscape.
For Jean-Emmanuel Challan Belval CEO of Greenscope, it's time for companies to "get their act together" and "adopt the right practices to assess the level of risk across their entire value chain. At Greenscope, we support and equip our customers to audit the ESG impacts of their suppliers".