27 May 2024

EU passes the Corporate Sustainability Due Diligence Directive

A pivotal moment for human rights and addressing modern slavery in global supply chains.

The CSDDD has been in the making for many years and aims to transform the lives of millions of people affected by modern slavery in supply chains. Photo Credit: Grace Forrest.

The EU has finally passed the Corporate Sustainability Due Diligence Directive (CSDDD) following months of uncertainty and delay.

While not perfect, this Directive has the potential to transform global supply chains and benefit the most vulnerable people and ecosystems around the world.

But what is the CSDDD, why did it nearly fail, and how will it help transform the lives of some of the most vulnerable workers?

What is the CSDDD and how can it help end modern slavery?

The CSDDD is landmark EU legislation that means large companies will have to conduct human rights and environmental due diligence across their operations and value chains.

Companies captured by the new laws will have to:

  • conduct due diligence on their operations, suppliers and business partners;
  • monitor and assess actual and potential adverse impacts of their own activities, as well as those in their value chain; and
  • implement governance structures to understand and address these risks, such as stakeholder engagement processes and a grievance mechanism.

This includes identifying, addressing, and reporting modern slavery and labour exploitation risks and cases across their business operations and value chains.

What are the consequences for businesses that don’t comply?

Companies covered by the laws will be liable for fines of up to 5% of the company’s net worldwide turnover.

The Directive will also create civil liability, meaning individuals who have experienced the adverse impacts will be able to bring claims against the company where there has been intent or negligence.

What impact will the CSDDD have on modern slavery globally?

The CSDDD represents a monumental step forward in the fight against modern slavery.

By mandating that large companies proactively identify, address and prevent adverse human rights impacts, and penalising noncompliance, the Directive will cause a significant shift in accountability for business practices in supply chains.

Will it only impact EU countries and manufacturing?

No. While the due diligence requirements only directly apply to large EU-based companies or those with a large EU-derived turnover, these companies will now be examining their entire values chains to look for human rights and environmental abuses.

Companies of any size, anywhere, whose products and services end up in these value chains need to take a hard look at their own operations – action now to eradicate human rights and environmental abuses will provide a competitive advantage.

Smart governments outside of the EU will also introduce their own due diligence laws now – legislative moves will need time to produce the cultural shift required to eradicate human rights and environmental abuses across business operations, which will be critical for any countries who want to keep trading with the EU.

Why did the CSDDD nearly get voted down?

The CSDDD approval looked like a sure thing after both the EU Council and Parliament supported it in December 2023. But then:

  • The FDP, a small party that holds the balance of power in Germany, announced its intention to block the law as it would be too administratively burdensome for business; and
  • Italy then saw an opportunity to trade its support for CSDDD for concessions on other legislation.

France also announced its abstention and proposed a deal, which significantly watered down the CSDDD.

What were some of the key compromises made?

Scope: the Directive would have applied to companies with over 500 employees and €150 million in revenue. Now, companies with over 1000 employees and a turnover of €450 million (or non-EU companies with an EU-generated turnover of €450 million) will be impacted.

Phased application: Legislation will be phased in over a longer period, targeting the largest companies first: after three years for companies with 5,000 employees and €1,500 million in turnover; four years for companies with 3,000 employees and €900 million turnover and five years for companies with 1,000 employees and €450 million turnover.

Application to high-risk sectors: Previously, the scope included some smaller companies operating in high-risk sectors such as textiles and mineral extraction. The agreed directive has abandoned this approach.

Next steps: Now the text is agreed, the European Parliament must vote on the legislation at the end of April. It will then be up to each member state to implement legislation that is at least as strong as the Directive.