INVERTO: Are Companies Ready for Upcoming CSDDD Deadlines?

The Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to identify, prevent and mitigate their social and environmental impact.

This piece of legislation, passed by the EU earlier this year, not only demands that firms self-scrutinize but also extends this scrutiny to their suppliers. EU member states are now on a tight deadline of two years to embed these regulations, with dedicated bodies set to oversee adherence.

Those found lacking could incur fines as much as 5% of their global turnover.

The deadline by which companies must implement the new rules is broken down by company size or turnover, as follows:

• 5,000+ employees or €1.5bn+ (US$1.57bn) turnover – by 2027
• 3,000+ employees or €900m+ (US$944m) in turnover – 2028
• 1,000+ employees or €450m+ (US$472m) in turnover – 2029

The challenges with CSRDDD

Despite the upcoming deadlines, a report from INVERTO, part of Boston Consulting Group, indicates that only about 20% of retail and consumer goods companies have initiated serious measures in accordance with CSDDD.

“This new directive is focused on creating much greater visibility of the credentials of supply chains and a clear audit trail,” explains Katharina Erfort, Principal at INVERTO.

“This new law will force many companies to take the sustainability of their supply chains much more seriously.

“Maintaining this visibility could be especially difficult for firms with suppliers in emerging markets. But, with deadlines to implement the rules now starting to approach, firms need to get this right first time – or risk facing hefty fines.”

More than one-third of those surveyed indicated difficulties in achieving full transparency. Additionally, 30% identified comprehension of the regulations as a major barrier to action.

Less than half of the companies felt well-versed with the existing national legislations that govern their environmental and social duties—a troubling statistic, especially with the sweeping demands of the CSDDD.

Ongoing costs and anticipated benefits

Increasing costs are a certainty for nearly three-quarters of the entities surveyed, however most foresee only moderate financial strain.

There's an overriding optimism that investments made in compliance will eventually yield returns. Responding positively to the regulation, companies anticipate enhanced public image and supplier relations, potentially gaining a competitive edge while respecting human and labour rights.

About 68% of the surveyed firms believe that the CSDDD might tide over into beneficial returns, underlining the directive's potential to enhance their market positions.

Navigating regulation

The groundwork laid by companies to meet the CSDDD's standards is extensive. Strategies include drafting detailed annual financial reports, honing processes to identify CSR risks, and reforming supplier selection criteria.

Despite financial performance reigning as a primary concern for 60% of the companies, the environmental and social impacts of supply chains are now gaining unprecedented focus.

The directive provides a canvas for procurement teams to manifest leadership in sustainability.

“Procurement teams need to take the initiative and ensure greater transparency in the supply chain,” adds Katharina. “Companies should request missing data from their suppliers and adapt processes accordingly.

“To successfully adapt to the new CSDDD rules, companies have to proactively develop a performance plan that effectively combines cost control, ESG engagement and increased resilience.

“In order to respond to supply chain risks, companies will need to review their current strategies to ensure they are properly considering the need to have a framework and the pros and cons of having it in place. This includes diversifying supplier bases, rightshoring and introducing rigorous risk-assessment processes.

“This directive represents a great opportunity for procurement teams to be seen as providing value within the business by showing leadership when it comes to sustainability.”

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