Workiva Q&A: All About the CSDDD and its Sustainable Impact

ESG regulations aim to make the world a better place and businesses more attractive, but they can be tricky to navigate.

The CSDDD has added a new layer of complexity, with some businesses expected to start complying as soon as 2027. 

Workiva is a software platform that connects financial reporting, ESG, audit and risk to simplify the reporting process.

The software is used by more than 6,000 global companies including Kraft Heinz, Air France KLM Group and Iberdrola. 

Andromeda 'Andie' Wood is the Vice President for Regulatory Strategy at Workiva, where she oversees EMEA strategy and regional growth with expertise of the technology and regulation landscape in Europe. 

Andie shares her expertise with Sustainability Magazine. 

What is the CSDDD and what does it aim to achieve? 

The Corporate Sustainability Due Diligence Directive (CSDDD) is EU legislation that requires regulated companies to monitor risks related to human rights and environmental impacts, both internally and in their ‘chains of activities’.

Requirements to manage the risk in supply-chains are not new but many are focussed on very specific issues, for example the UK Modern Slavery statements.  

Notably, the CSDDD covers both ‘social’ and climate implications requirements, and of course action to reduce risks where identified.

Companies are specifically mandated to recognise and tackle both climate risk and negative human rights impacts throughout their entire value chain, which includes their operations, subsidiaries and suppliers.

It also asks companies to act upon that information by specifically producing a climate transition plan as well as requiring them to report on compliance, introduce penalties and some level of legal liability.

These requirements are a crucial element of the directive's emphasis on sustainability due diligence. 

Overall, the aim of the directive is to foster a more responsible and sustainable corporate behaviour in organisations’ operations via a harmonised legal framework.

By unifying the reporting in this way, organisations will have more visibility over their suppliers’ and partners’ risks, which will, in turn, boost their risk management, resilience and competitiveness.

How could CSDDD impact supply chains? 

Many companies already perform due diligence on a number of supply-chain related risks.

With this directive however, businesses can gain greater visibility into a broader range of risks and gain the leverage needed to act up.

This is essential for risk management, allowing companies to assess suppliers more effectively based on their environmental and social impacts.

As a result, businesses can make more informed decisions. And in turn, this also impacts existing supplier relationships, sourcing strategies and negotiations.  

Ultimately though, businesses need to use the insights to improve practices within their operations and, over time, the CSDDD will encourage companies to adopt more sustainable practices which will have a marked impact on global supply chains.  

To simplify the data gathering, initial actions for companies may include aligning internal governance and ownership, engaging with suppliers and refining future contract language.

For companies with complex supply chains, technology may be necessary to manage data and track risks efficiently.

Ultimately, the distributed nature of CSDDD requirements makes early action essential, ensuring teams and processes remain synchronised.

Will companies outside the EU be affected by CSDDD? 

The CSDDD will apply to large non-EU businesses which receive considerable EU revenue.

Businesses assessing their eligibility to comply can distinguish this by their size and net turnover — for example, a company with 900 or more employees and a net turnover within the EU of at least US$450m million are required to comply.  

Companies outside of the EU could also be affected by CSDDD if a non-EU company provides products or services to an EU company that is subject to compliance, most companies are both buyers and suppliers.  

For organisations outside of the EU, the CSDDD will provide more transparency on the nature of their European connections and activities that, previously, may not have been available.

Many companies are also already working to collect relevant data for reporting purposes and will find that – with appropriate use of technology – they can already gain a greater understanding of their activities and find process efficiencies. 

How does CSDDD relate to CSRD? 

The CSDDD and the Corporate Sustainability Reporting Directive (CSRD) are both part of the EU drive towards more sustainable business.

The CSRD brings market transparency and the CSDDD asks for actions to back up that disclosure, both require high-quality data.

A recent independent study commissioned by Workiva shows that 97 percent of executives believe that integrating financial and sustainability data is crucial for risk management, as well as identifying performance gaps.

Access to this shared data is essential for executives to make better, informed decisions, leading to improved outcomes like greater efficiencies. 

They are both tied together by the fundamental aim to move to more sustainable business practices and provide transparency into those practices.

Data, collaboration and processes are key to both and therefore a technological solution will be essential moving forwards.

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