The Corporate Sustainability Due Diligence Directive, CSDDD – regarding due diligence in relation to companies' responsibility for the environment and human rights – will be implemented in two years. It is therefore high time to familiarise yourself with the regulations – because even though only very large companies are directly affected, subsidiaries and suppliers are affected indirectly. For the fact is that the requirements set apply to the entire operational chain, note Johanna Lindqvist and Izabell Zaza – who here describe the content in, and implication of, the new directive.
Background
Four years ago, the European Commission took the initiative to regulate companies' responsibility for human rights and the environment in their operational chains. After several years of negotiations, a new directive, the Corporate Sustainability Due Diligence Directive (CSDDD) was adopted in May 2024. The Directive is an important step in the EU's green deal, a strategy that has the aim of making Europe climate-neutral through a just transition no later than 2050. In December 2024, the government appointed a commission of enquiry in relation to the directive's implementation, which will report by 16 December 2025 at the latest. The point of departure for the commission is that the rules shall be implemented at minimum level in Swedish law. The Directive shall be implemented in Swedish law no later than 26 July 2026.
The Directive in brief
CSDDD requires that large companies demonstrate due diligence in their operations through identifying, addressing and ameliorating adverse impacts on human rights and the environment. The Directive is a minimum directive and the member countries have two years in which to implement it in national legislation. The rules start to apply incrementally from 2027.
Which companies are included?
Only very large companies are directly covered by the directive, which corresponds to about 5,000 companies in the EU or 0.05% of all companies. For Sweden's part, it is estimated that some 300 companies are included. The threshold values for inclusion are:
- EU companies: Over 1,000 employees and global net sales of at least 450 million Euros.
- Non-EU companies: Net turnover of at least 450 million Euros within the EU.
Certain groups that have entered into franchise- or licence agreements are also included.
Indirect impact on smaller companies
Even though small and medium-sized companies are not directly covered, they are affected as suppliers to larger companies. These larger companies can set requirements for their business partners through agreements, which can entail increased administrative and financial burdens for smaller companies. To counteract this, the directive proposes fair and proportional conditions, as well as support from larger companies to their smaller partners.
What does due diligence entail?
According to CSDDD, due diligence is a process that consists of six steps:
- Integrate diligence principles: Introduce policies and procedures that ensure compliance.
- Identify risks: Assess potential and actual adverse effects on human rights and the environment.
- Institute measures: Design and implement action plans, make investments, or in certain cases terminate business relationships.
- Monitor effectiveness: Continuously follow up and adapt policies based on results.
- Communicate transparently: Present the work in annual reports.
- Provide remedial action. Offer compensation or rectification in connection with damages.
Supervision and sanctions
Supervisory authorities in the member countries will have the power to check compliance and impose sanctions, including fines. Companies can have civil liability if either intentionally or through negligence they cause damage through non-compliance.
Concluding remarks
CSDDD is a significant part of the EU's sustainability work. The Directive is expected to speed up the transition to a more sustainable business world, but at the same time it entails challenges for companies, particularly small and medium-sized ones, which can be indirectly affected. Its implementation in national law will require extensive modifications and new regulations.
It is crucial that companies get started on the work of understanding and preparing for the requirements that CSDDD involves. By integrating sustainability principles and strengthening cooperation with suppliers, companies can contribute to a more sustainable future and simultaneously minimise the risks of adverse effects in their operational chains.
