CSDDD: What Can Businesses Do to Stay Ahead of the Curve?

After an extensive legislative process, the EU has approved the Corporate Sustainability Due Diligence Directive (CSDDD), also known as CS3D. But what is the real-world significance of these five letters for businesses?

The CSDDD represents a pivotal shift towards climate change mitigation and sustainable business practices. This directive requires businesses to take accountability not only for their direct actions but also for those of their subsidiaries and supply chain, particularly in managing scope 3 emissions.

Requirements of the Corporate Sustainability Due Diligence Directive (CSDDD)

CSDDD mandates companies to integrate corporate due diligence procedures into their operations. These include:

1. Integrating due diligence into management systems and policies:‍

• Incorporate sustainability principles into the core management systems.
• Ensure policies reflect due diligence commitments and practices.

2. Identifying and assessing adverse human rights and environmental impacts:

• Conduct thorough assessments to identify potential risks in operations and supply chains.
• Prioritise high-risk areas for detailed scrutiny.

3. Preventing, ceasing, or minimising adverse impacts:

• Implement measures to prevent or mitigate identified risks.
• Develop strategies for ceasing activities that cause significant harm.

‍4. Assessing the effectiveness of measures:

• Regularly monitor and evaluate the impact of implemented measures.
• Adjust strategies based on effectiveness assessments.

5. Communicating measures publicly:

• Ensure transparency by publicly reporting due diligence activities and outcomes.
• Maintain open communication channels with stakeholders.

‍6. Providing remediation:

• Establish mechanisms for addressing and remediating any adverse impacts.
• Ensure affected parties receive appropriate remediation.

Implications of CSDDD

Companies must understand that their environmental impact extends beyond their immediate operations. Scope 3 emissions represent the majority of emissions for many sectors, making it important for companies to be aware of relevant sources of Scope 3 emissions in their value chain. Following the Omnibus I amendments, CSDDD takes a risk-based approach: companies may focus their due diligence on the areas where adverse impacts are most likely and most severe, based on reasonably available information, rather than exhaustively mapping the entire value chain.

Additionally, CSDDD requires businesses to develop and implement a climate change mitigation transition plan. This plan must align with the 2050 climate neutrality goal of the Paris Agreement, aiming to limit global warming to 1.5°C. The plan should include intermediate targets as set by the European Climate Law.

Applicability of CSDDD

Following the Omnibus I simplification package, CSDDD now applies to a narrower set of very large organisations: 

• EU Companies: Companies (and partnerships) with at least 5,000 employees and €1.5 billion net worldwide turnover, including on a consolidated basis for ultimate parent companies of groups. 
• Non-EU Companies: Non-EU companies with at least €1.5 billion net turnover within the EU, including on a consolidated basis for ultimate parent companies of groups.

Micro companies and SMEs are not directly covered by CSDDD. However, the Directive includes supporting and protective measures for SMEs, Small Midcaps, and other smaller business partners that may be indirectly affected as part of the value chains of larger companies — including limits on the information large companies can request from them, guidance, and model contractual clauses. For example, if a major retailer like Tesco is subject to these regulations, their SME suppliers may still see indirect effects, such as new information requests, but with safeguards in place to limit the burden.

Timeline for implementation

Following the Omnibus I amendments, the phased threshold-based rollout has been replaced with a single set of deadlines: 

• Member States must transpose the amended rules into national law by 26 July 2028. 
• The rules apply to in-scope companies from 26 July 2029. 
• Reporting-related obligations (Article 16) apply for financial years starting on or after 1 January 2030. 
• The Commission is also due to issue guidance to help companies comply: main guidelines by 26 July 2027, with additional guidance by 26 July 2028. 

Despite the later dates, businesses should begin preparations now to stay ahead of the curve, as sustainability legislation is continually evolving.

Enforcement of CSDDD

Member States will designate national authorities to supervise and enforce compliance, with powers including injunctive orders and penalties. Financial penalties are capped at 3% of a company's net worldwide turnover for the most serious violations. At EU level, the Commission will coordinate a European Network of Supervisory Authorities. Companies held liable under national law for damage caused by non-compliance may also face civil liability claims, with affected persons entitled to full compensation.

How Zevero Can Help

Whatever stage your company is at with CSDDD, getting ahead of the curve on emissions measurement and reduction is good business practice – not just a compliance exercise. At Zevero, we make it easy to measure, reduce and report your carbon emissions, using AI to cover scope 1, 2 and 3 across your entire value chain.

Setting a net zero target and building a credible climate transition plan puts you in a stronger position as regulation evolves, and it also matters to investors, customers and supply chain partners who increasingly expect clear climate action from the businesses they work with.

Contact us to find out more about how Zevero can help your company on its journey to net zero