In an era where businesses are increasingly attuned to their environmental and social footprint, the European Union has ushered in a transformative era by introducing the Corporate Sustainability Due Diligence Directive (CSDDD). Anticipated to take effect in 2024, this groundbreaking legislation is poised to reshape the landscape for companies operating within the EU and beyond its borders.
At its essence, the CSDDD compels large companies to:
Initially targeting large enterprises in high-risk sectors such as mining, textiles, and chemicals, it’s crucial to note that the definition of a “large company” is still subject to finalization and may potentially encompass medium-sized enterprises in the future.
While the CSDDD poses challenges, it concurrently presents substantial opportunities for conscientious businesses. Potential outcomes include:
While the CSDDD originates from the EU, its effects will extend well beyond the confines of the bloc. Although non-EU companies operating directly within the EU will immediately experience its influence, the repercussions could reach much farther, potentially shaping business practices in diverse corners of the world.
An essential consideration is that the CSDDD establishes a new global standard for responsible business conduct. This could trigger a chain reaction, compelling companies outside the EU to adopt analogous due diligence measures under pressure from their European counterparts, including suppliers, customers, and investors. This pressure may manifest in the following ways:
EU companies subject to the CSDDD will be required to map and scrutinize their entire value chain, encompassing non-EU suppliers. This incentivizes those suppliers to showcase their due diligence initiatives to maintain strong business ties. Investor expectations: With socially conscious investors prioritizing companies with robust sustainability practices, non-EU companies seeking investments from such sources may need to adjust their practices to align with CSDDD principles. Reputation concerns: As global consumers become increasingly mindful of ethical sourcing and sustainability, reputational risks associated with environmental or human rights violations can transcend borders. Non-EU companies might face scrutiny from international NGOs and consumers, even if they operate beyond the legal jurisdiction of the EU.
The CSDDD is a significant shift in the corporate landscape, compelling businesses towards heightened accountability for their environmental and social impact. While navigating this uncharted territory may seem formidable, it allows responsible companies to showcase their commitment to ethical practices and sustainable growth. By proactively preparing and embracing the CSDDD requirements, your company can ensure compliance and emerge as a frontrunner in the realm of responsible business practices. If you have any questions, contact our ESG team.
Author: Milica Novaković
