EY: The Corporate Sustainability Due Diligence Directive
Legislation is a hot topic in 2024, and rightly so. Sustainability hinges on action, but these acts can’t be properly benchmarked without the core reporting standards and regulations in place to govern the ways in which companies present their data.
The Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) is an overarching law set out by the European Union (EU) ensuring that corporations factor in human rights and environmental impacts into their operations. Effectively, this is the formal commitment requirement for businesses to take action on environmental and social issues.
Company leaders made responsible for sustainability
According to Andreas Blomquist, Partner, Head of Capital Markets Law for EY Sweden, the new requirements for due diligence put corporate managers at the helm of their negative impacts. From social implications to emissions, leaders will be responsible for the direction in which their companies are heading.
Blomquist also says: “Companies must also have a plan to ensure that the company’s business model aligns with limiting global warming in accordance with the 1.5-degree goal”.
What are the key steps of CS3D?
The directive outlines several steps to take as a corporate leader. The first is to embed due diligence within company policies and, on paper, build a strategy around this. Companies will also be expected to draft a code of conduct, showing their efforts to influence business partners in order to be compliant with various scopes of responsibility.
Physical due diligence includes identifying the impacts of the company and the supply chain on human rights and the environment, in order to achieve full transparency and benchmark progress moving forward.
Following due diligence, businesses will have to demonstrate appropriate actions to mitigate the effects recognised through emissions reduction efforts and strategy for fairer structures for employees and other people that come into contact with its suppliers and partners.
Who will be impacted by the CS3D?
The regulation targets EU entities established under the law of a member state and parent companies with a workforce exceeding 500 and a worldwide revenue surpassing 150 million euros.
Additionally, it encompasses EU businesses with more than 250 employees and a revenue exceeding 40 million euros, particularly if they earn at least 20 million euros in sectors such as textile, clothing, and footwear manufacturing and wholesale, agriculture along with forestry and fisheries, food product manufacturing, and agricultural raw materials wholesale, mineral resource extraction and wholesale or related manufacturing, and the construction sector.The regulation also extends to non-EU entities and parent companies with a corresponding revenue within the EU.
For more insight, read the full thought leadership from Blomquist.
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