Introduction
As of July 25 2024 the EU Corporate Sustainability Due Diligence Directive (CSDDD) has come into force. [1] It sets forth an obligation to undertake Human Rights and Environmental Due Diligence (HREDD) in supply chains, distribution and transportation value chains for larger corporations. Therefore, it is more limited than the UNGPs or OECD Guidelines for Multinational Enterprises as it does not govern all business and not the entire (also downstream) value chain either.
As Recital 19 explains it entails an obligation of means, so the corporations governed by it do not have to provide guarantees that no impact in their supply, distribution or transportation chain will occur. The only exception to this rule is Article 12. Corporations have to provide remedy if required by this Article.
As it is a directive, therefore it has to be transposed in the national laws of the member states by July 26 2026, pursuant to Article 37(1) CSDDD.
This directive is part of broader HREDD legislation in the EU which set forth product oriented or specific human rights related adverse impacts-oriented approaches. These are, for example, the Deforestation-free products regulation,[2] Articles 47-53 of the Batteries Regulation[3] and the envisaged Forced Labor Regulation.[4]
Scope
According to Article 2(1) the CSDDD will ultimately govern European companies which have more than 1,000 employees on average and a worldwide turnover of 450 million or which are the ultimate parent company of a group that reached this threshold. The CSDDD also governs companies entered into or which are the ultimate parent company of a group that entered into franchising or licensing agreements in the EU in return for royalties with independent third-party companies and if those royalties amounted to more than EUR 22.5 million if the company had or is the ultimate parent company of a group that had a worldwide turnover of more than EUR 80 million. The CSDDD also applies to companies which are not based in the EU, but sell goods or services on the European market and meet the indicated turnover thresholds. However, the turnover threshold for non-EU based companies is based on turnover in the EU instead of worldwide turnover.
Beyond this, the indicated thresholds will, pursuant to Article 37(1), apply in five years. The national laws transposing the CSDDD have to apply their laws to EU companies with an annual worldwide turnover of 1.5 billion and 5,000 employees after three years and of 900 million and 3,000 employees after four years. For non-EU based companies the same approach and turnover thresholds will apply, however, based on turnover in the EU.
Due Diligence
The CSDDD by and large implements the UNGP and OECD Due Diligence requirements in Article 5 and elaborates this in the following Articles, however, limited to the supply chains, distribution and transportation. Beyond this, the CSDDD implements the obligation to adopt and implement a climate change plan in Article 22. The relevant Articles of the CSDDD implementing HREDD are shown in the following figure based on the OECD Due Diligence Cycle.[5]
Liability and Public Supervision
The Directive sets forth public supervision in Articles 24-28 CSDDD. Pursuant to Article 24 member states have to designate one or more supervisory authorities, which have the powers as set forth by Article 25 and may impose penalties mentioned in Article 27. Article 28 requires the establishment of a European network of national supervisors. Article 26 requires member states to establish a channel with the public supervisor(s) in which affected individuals, groups or the representatives may file substantiated concerns.
Article 29 requires member states to adopt liability in their national laws for non-compliance with Articles 10 and 11 CSDDD (taking appropriate measures to address potential or actual adverse impacts). Member States shall also allow representation by third parties, such as trade unions or civil society organizations and include rules on taking of evidence. Article 29 requires member states to make this Article as transposed in their national laws of overriding mandatory application in cases where the law applicable to the claims would otherwise not be the national law of this member state.
