Corporate Sustainability Due Diligence Directive (CSDDD)

  • The Corporate Sustainability Due Diligence Directive (CSDDD) is a European Union directive aimed at fostering sustainable and responsible corporate behavior. Adopted in 2024 and in force since July 2024, it requires companies to identify and address adverse human rights and environmental impacts within their operations and across their global value chains. The directive establishes a comprehensive framework for due diligence, ensuring that companies take proactive measures to mitigate risks and promote sustainability.

  • Improve Human Rights and Environmental Protection:
    The CSDDD aims to enhance the protection of human rights and the environment by requiring companies to conduct thorough due diligence. This includes identifying potential and actual adverse impacts, implementing measures to prevent or mitigate these impacts, and monitoring the effectiveness of these measures. By doing so, the directive seeks to create a healthier environment and better living conditions for present and future generations.

    Increase Transparency and Accountability:
    The directive mandates that companies disclose information about their due diligence processes and the measures they have taken to address adverse impacts. This transparency allows stakeholders, including investors, consumers, and the public, to make informed decisions and hold companies accountable for their actions. The CSDDD also requires companies to integrate sustainability considerations into their corporate governance and decision-making processes.

    Harmonize Legal Framework:
    The CSDDD establishes a harmonized legal framework across the EU, creating legal certainty and a level playing field for companies. By standardizing due diligence requirements, the directive ensures consistency and comparability of sustainability practices across different sectors and member states. This harmonization also reduces the administrative burden on companies and facilitates compliance.

    Core Due Diligence Obligations include :

    • Identification : Map actual and potential adverse human rights and environmental impacts across all operations and value-chain tiers.

    • Prevention and Mitigation : Implement measures to eliminate or minimize identified risks, from supplier engagement to contractual safeguards.

    • Remediation : Establish or participate in grievance mechanisms allowing affected stakeholders to raise concerns and seek remedy.

    • Monitoring and Reporting : Track the effectiveness of due-diligence measures and publicly report on policies, risk assessments, and outcomes.

  • The CSDDD applies to a wide range of companies, including:

    Large EU Companies

    All large EU limited liability companies and partnerships with over 1,000 employees and a global net turnover of over €450 million are subject to the directive. This includes approximately 6,000 companies.

    Large Non-EU Companies

    Non-EU companies with a net turnover of over €450 million within the EU are also covered by the directive. This includes around 900 companies.

    SMEs 

    Micro companies and SMEs are not covered by the proposed rules. However, the Directive provides supporting and protective measures for SMEs and SMCs (Small Midcaps Companies) with no more than 500 companies which could be indirectly affected as business partners in value chains.

  • The CSDDD introduces phased implementation for companies, meaning the new due diligence obligations will apply in stages depending on company size and turnover. This staggered schedule is intended to give larger companies (with greater resources and impact) the earliest compliance date, and smaller in-scope companies slightly more time to prepare. All phases are counted from the July 2024 entry into force:

    Phase 1 – July 2027:

    Three years from entry into force, on 26 July 2027, the rules begin to apply to the largest companies. This includes EU companies with over 5,000 employees and more than €1.5 billion in global net turnover, as well as non-EU companies with over €1.5 billion in turnover within the EU. These very large firms must comply first, by mid-2027.

    Phase 2 – July 2028:

    Four years from entry into force, by 26 July 2028, the directive extends to the next tier of large companies. This covers companies with over 3,000 employees and above €900 million turnover. EU companies above these thresholds (global turnover) and non-EU companies with over €900 million turnover in the EU fall into this second phase. (Notably, under the original text some of these mid-sized EU companies would have been in Phase 1, but a planned schedule change will unify their start date in 2028.)

    Phase 3 – July 2029:

    ive years after entry into force, on 26 July 2029, the remaining in-scope companies must comply. This final phase captures all other companies meeting the directive’s minimum scope thresholds: generally, those with more than 1,000 employees and over €450 million in turnover. By this date, essentially all companies that meet the CSDDD criteria are under obligation. This phase also includes certain franchisor or licensor businesses with significant franchising revenue (e.g. EU firms with >€80 million turnover and >€22.5 million in franchise royalties), which are expressly brought into scope by 2029.

    These application dates reflect when companies must begin conducting due diligence as required by the directive. In other words, from July 2027 (or 2028/2029 for later phases), companies in the respective categories should have their due diligence policies and measures in place and operating in line with the directive. Enforcement (such as regulatory supervision and potential penalties) will kick in for each company once its applicable date arrives. The directive’s sanctions and civil liability provisions will thus start to bite on a rolling basis, beginning with the largest firms after July 2027.

  • Simplification EU Omnibus Package
    On 26 February 2025 the European Commission put forward its Omnibus Package, which includes a proposal for a directive amending both the CSRD and the CSDDD to reduce the administrative burden on companies and give them more time to prepare for compliance.

    On 3 April 2025 the European Parliament used a fast-track procedure to approve those changes, moving the draft amendment of the CSDDD to the Council for final adoption. The package also includes draft delegated acts to amend taxonomy disclosures and streamline environmental and due diligence requirements, subject to public consultation.

    Proposed Commission Amendments (26 February 2025)
    The European Commission’s Omnibus proposal of 26 February 2025 aims to strike a balance between easing reporting obligations and preserving the Directive’s ambition under the EU Green Deal. Key objectives include:

    • Simplifying due diligence scope for smaller entities

    • Clarifying value-chain assessment requirements

    • Aligning CSDDD obligations with existing sustainability reporting standards and governance frameworks

    Political Negotiations and Member-State Engagement
    Since April 2025, political negotiations on implementing and enforcing the CSDDD have gained momentum. Member States and EU institutions are actively debating:

    • The precise scope of companies and value-chain actors in scope

    • National enforcement regimes and penalties

    • Coordination with existing corporate sustainability and human-rights laws

    Next Steps and Outlook
    The Council of the EU is expected to finalise the Omnibus amendments to the CSDDD later in 2025. Once adopted, Member States will have two years from entry into force to transpose the revised Directive into national law. Businesses should monitor delegated-act consultations and prepare for updated due diligence guidance under the revised framework.