CSDDD, a new era for corporate accountability in Europe

Italian businesses, including prominent corporations like Ferrero, and numerous non-governmental organizations have voiced strong support for the CSDDD. These stakeholders recognize the directive's potential to enhance transparency, foster sustainable business practices, and strengthen Italy's position in the global market​.

On July 5th, the European Union marked a significant milestone in its commitment to corporate responsibility with the official publication of the Corporate Sustainability Due Diligence Directive (CSDDD) in the Official Journal of the EU. This landmark directive aims to enforce stringent due diligence requirements on companies operating within the EU, ensuring that human rights and environmental standards are upheld throughout their global supply chains.

Member States will need to transpose the CSDDD rules into their own national laws and will have two years to do so.

The Italian position

Italy played its part in the Council’s approval of this directive.

Italy and Germany slowed down work on the CSDD in its initial version for some time, complaining about several aspects of it that were detrimental to national companies. Not all Italian companies hade the same view.

Anyway, the current version is the result of a synthesis of different demands.

“The directive on corporate sustainability due diligence will help to ensure that the supply chains of major European companies are as respectful as possible of human rights and environmental sustainability, – Italy emphasised in an official note, reiterating that it had played a key role in achieving a balanced and effective text that shifts the burden to large companies that are better able to monitor their supply chains and contribute both to mitigating the effects of economic activities on climate change and to protecting the human rights of those affected by the company’s activities.

Many perspectives

The birth of the CSDDD was troubled and in italy has seen several stakeholders took sides in favour of the regulation.

Some leading NGOs have intervened over time on the importance of approving the CSDD such as Amnesty International Italy, whose spokesperson, Riccardo Noury, said before approval:
“If the directive is not finalised, the consequences will mainly affect the context outside the EU: purely exploitative working conditions, lack of remedies for human rights violations along the supply chain, illegal evictions and pollution of the environment. This is what the directive should remedy”.

Ferrero took a stand in Italy and also in Germany; Legacoop and Cna, the National Confederation of Craftsmen and Small and Medium-sized Enterprises, took a position through a public statement. The world of finance was also present with the statement of the Forum for Sustainable Finance.

Now, the European Supply Chain Sustainability Directive has become law and opens up huge challenges for large companies but also business opportunities for Italian SMEs, which could supplant foreign suppliers or low-cost criminal micro-companies in the supply chain of large contractors, noticed the main Italian financial newspaper Sole 24 Ore.

CSDDD scope

The CSDDD applies to a wide range of companies, including both EU and non-EU companies with at least 1,000 employees and a net EU turnover of EUR 450 million or more. For the CSDDD to apply to non-EU companies, the EUR 450 million net turnover must be generated within the Union.

This expansive scope ensures that a significant portion of the business community is held accountable for their operational impacts.

CSDDD: key provisions

The directive mandates companies to identify, prevent, mitigate, and account for human rights abuses and environmental harm in their operations and supply chains. This includes conducting regular impact assessments, integrating due diligence into corporate policies, and establishing grievance mechanisms for affected stakeholders.

Moreover, the CSDDD requires companies to engage with stakeholders, including workers, local communities, and civil society organizations, to ensure comprehensive oversight and accountability. This collaborative approach is designed to foster transparency and trust between businesses and the societies in which they operate.

Enforcement and penalties

To ensure compliance, the directive empowers national authorities to conduct investigations and impose penalties on companies that fail to meet their due diligence obligations. Penalties include fines, exclusion from public procurement, and even civil liability for damages. This robust enforcement mechanism is crucial for deterring non-compliance and encouraging proactive corporate behavior.

Implications for business

The CSDDD represents a paradigm shift in the regulatory landscape for businesses operating in the EU. Companies will need to invest significantly in compliance infrastructure, including robust monitoring systems and dedicated compliance teams. While this may pose short-term challenges, the directive ultimately promotes long-term sustainability and risk management, potentially leading to enhanced corporate reputation and investor confidence.

Furthermore, the directive’s emphasis on environmental and social governance (ESG) aligns with the growing global demand for sustainable business practices. Companies that adapt swiftly and effectively to these new requirements may gain a competitive advantage, particularly as consumers and investors increasingly prioritize ethical and sustainable products.

Timing of implementation

The CSDD will be applied progressively:

from 2027: companies with more than 5,000 employees and a turnover exceeding EUR 1,500 million;
from 2028: companies with more than 3,000 employees and a turnover exceeding EUR 900 million; and
from 2029: all other companies falling within the scope of the directive (i.e. those with more than 1,000 employees and a turnover exceeding EUR 450 million).

Global impact

The reach of the CSDDD extends beyond Europe, as multinational companies with operations in the EU will need to ensure compliance across their global supply chains. This extraterritorial impact is likely to influence corporate practices worldwide, raising the bar for human rights and environmental standards on a global scale.

More than 100 large companies, SMEs and networks including Maersk, Aldi Süd Holding, Cisco, Nokia, H&M Group, Scania and Ritter Sport have united to endorse the Corporate Sustainability Due Diligence Directive (CSDDD) at the stage of final formal confirmation, here their full statement and list of signatories.

The CSDDD is substantially aligned with the international standards on Responsible Business Conduct and has been welcomed by th Responsible Business Alliance.

Challenges ahead

Despite its ambitious goals, the implementation of the CSDDD faces several challenges. Ensuring consistent enforcement across EU member states will require significant coordination and resources. Additionally, small and medium-sized enterprises (SMEs) may struggle with the financial and administrative burdens of compliance, necessitating supportive measures from both the EU and national governments.

The publication of the CSDDD in the Official Journal of the EU marks a crucial step towards more responsible and sustainable business practices. By mandating rigorous due diligence requirements, the EU is setting a global standard for corporate accountability. While challenges remain, the directive’s long-term benefits for society, the environment, and the economy are poised to outweigh the initial hurdles, paving the way for a more ethical and sustainable future in global commerce.

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