March 18, 2024

Reporting

EU Corporate Sustainability Due Diligence Directive (CSDDD): What to Expect and Who It Applies to

EU Corporate Sustainability Due Diligence Directive (CSDDD): What to Expect and Who It Applies to
Contents

The Corporate Sustainability Due Diligence Directive (CSDDD) is designed to have companies and their supply chains report on the impact they have on human rights and the environment, including climate change, and to mitigate those impacts. An agreement was reached in December 2023 and the conclusion has just been settled on March 15, 2024.

The new rules are slated to be enforced at the beginning of either the first or second quarter of 2026. Non-EU companies will undergo a phase-in period before these mandates apply to them.

This article will explore the significance of the CSDDD, its implications for businesses, the types of entities it will impact, and how it presents opportunities for sustainable growth within the supply chain and across various sectors. Additionally, we will demonstrate how Net0 ensures the efficiency and accuracy of your climate change reporting.

Who would the Corporate Sustainability Due Diligence Directive apply to?

The CSDDD would include the following companies in its scope, their value chains, and their subsidiaries, as quoted from the EU Council negotiating mandate:

  • Group one: The company “had more than 500 employees on average and had a net worldwide turnover of more than EUR 150 million in the last financial year for which annual financial statements have been or should have been adopted”
  • Group two: The company “had more than 250 employees on average and had a net worldwide turnover of more than EUR 40 million in the last financial year for which annual financial statements have been or should have been adopted, provided that at least EUR 20 million was generated in one or more of the following sectors associated with the applicable statistical classification of economic activities established by Regulation (EC) No 1893/2006 and listed in Annex II,” (which in brief are considered high-risk), such as manufacturing, textiles, agriculture, raw material industries, food, beverages, having to do with live animals, chemicals, etc.
  • Group three: Companies outside of the EU that “generated a net turnover of more than EUR 150 million in the Union in the financial year preceding the last financial year"; or
  • Group four: Companies outside the EU that “generated a net turnover of more than EUR 40 million but not more than EUR 150 million in the Union in the financial year preceding the last financial year, provided that at least EUR 20 million was generated in one or more of the sectors listed in [the] paragraph” in group two regarding high risk industries

SMEs would not be directly responsible, but they could be affected as contractors or subcontractors to any of the mentioned companies.

Enforcement of the CSDDD

Each member country within the European Union would assign a regulatory authority responsible for ensuring that companies adhere to their responsibilities for due diligence. This will involve a collaborative framework at the EU level, facilitated by a newly formed European Network of Supervisory Authorities, as initiated by the Commission.

The designated regulatory bodies will have the authority to conduct audits and investigations, and to sanction companies failing to meet their obligations. Sanctions may include public exposure and, as reported, fines amounting to as much as 5% of a company's net turnover. In cases where fines are not paid, the preliminary agreement includes provisions for legal action to enforce payment.

Additionally, the legislation requires Member States to introduce novel civil liability laws that enable holding companies accountable for harm resulting from non-compliance with due diligence responsibilities. Individuals affected, along with their advocates (which may include labor unions and non-governmental organizations), will be given a five-year period to file claims for damages. These new civil liability measures will supplement, not replace, existing national legal frameworks. A critical examination of the final version of this legislation will be essential to understand the full scope of its impact on current liability norms.

Actions companies will need to take for CSDDD compliance

  • Incorporate considerations for human rights and environmental protection into their company policies.
  • Detect both existing and possible negative impacts on human rights and the environment in their operations, as well as in the operations of their subsidiaries and their business partners throughout the supply chain (for instance, issues related to child labor, exploitation of workers, pollution, and loss of biodiversity).
  • Mitigate any negative impacts that have occurred.
  • Set up and maintain a system for notifications and a process for grievances.
  • Evaluate the effectiveness of their policies and actions regarding due diligence.
  • Disclose information about their due diligence practices to the public.
  • Stay aligned with the Paris Agreement by setting targets to mitigate carbon emissions.

The CSDDD and climate change 

A few important points to note about the CSDDD and the climate change transition plans:

  • The CSDDD requires a climate change transition plan that builds on the Corporate Sustainability Reporting Directive (CSRD). What is more, ESG investors are making investment decisions that are in favor of the green economy. The data that is necessary to report to the CSDDD and CSRD will also open up doors to gain access to capital.
  • Although the financial industry won’t immediately be in the captured scope regarding external due diligence, they must comply with the climate transition reporting plan. 
  • Given that the CSDDD requires responsibility over the entire supply chain, including scope 3 emissions data will also be obligatory for reporting. 

How Net0 can help with CSDDD compliance

Net0 leverages AI and automation to gather carbon emissions data and quantify it, making it measurable and trackable. Net0 empowers businesses to set targets and take action on carbon mitigation strategies. In addition, it generates government- and investor-grade reports in real-time so companies can report with confidence and stakeholders know they can trust the business when making decisions. 

Reporting requires data and without it, compliance is impossible. Now that reporting is an obligation and there are tools to do it accurately, taking the next step is adopting a trusted emissions management software. 

Why adopting reliable emissions management software is a must:

  • Benchmarking your current climate footprint to understand your starting point.
  • Setting realistic short-term and long-term targets for emissions reduction.
  • Enhancing carbon mitigation strategies to reduce your environmental impact.
  • Ensuring accurate reporting to avoid fines and penalties for non-compliance.
  • Providing investors and stakeholders with reliable and transparent reporting.

To conclude

Not only is CSDDD a mandate, but it’s also an opportunity to improve business practices and strategize for a climate-first economy. Mitigating environmental risk, improving human rights conditions, and abating GHG emissions, are all positive steps towards stakeholder trust and more access to finance. 

Schedule a demo with Net0 to discover how the platform can streamline your emissions reporting process, saving time and effort while ensuring accuracy and precision.

Written by:

Kristin Irish

As a content writer for Net0, Kristin harnesses her expertise and enthusiasm for carbon emissions reduction, merging it with her other passion: the B2B SaaS industry. Her global outlook and dedication enrich the sustainability sector with insightful perspectives.
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