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Towards Sustainable Supply Chains: An Updated EU CSDDD

The EU Corporate Sustainability Due Diligence Directive - CSDDD will set obligations for large companies regarding actual and potential adverse impacts on human rights and the environment, with respect to their own operations, those of their subsidiaries, and those carried out by their business partners.

It is worth noting that due diligence is the ongoing, proactive and reactive process through which companies put in place systems and processes to make sure they are able to identify, manage and report on risks in their supply chain. 

And since our previous analysis, a revision to the final proposal of the CSDDD was made on March 15, 2024. The Legal Affairs (JURI) committee of the European Parliament approved the revised political agreement on the Corporate Sustainability Due Diligence Directive with a clear majority on March 19, 2024.

Key Updates from this revision: Scope

Updated definition for “chain of activities”: the downstream part of the definition has been limited by deleting the references to the disposal of the product, and by limiting it to business partners who carry out activities for the company or on behalf of the company (deletion of ‘indirect’ relationships).

The high-risk sectors approach has been deleted, that approach would have expanded the scope to include companies that do not meet the employee or turnover thresholds but operate in industries with a high likelihood of facing human rights or environmental conflicts.

Climate change: the obligation for in-scope companies to promote the implementation of the plan including through financial incentives has been deleted.

Supply Chain Due Diligence Process

The CSDDD establishes due diligence rules to ensure large EU companies effectively tackle adverse human rights and environmental impacts caused by their economic activities.

All companies within the scope, including financial institutions, will be required to establish and put into effect transition plans in line with the Corporate Sustainability Reporting Directive.

Large financial institutions are included in the text’s due diligence requirements but only for their upstream value chain and own operations. The potential extension to the downstream part of their value chain (i.e. clients) is subject to a review clause.

Next steps: The Directive needs to be approved by the European Parliament’s plenary on April 24, 2024, before a formal adoption by the Council of the EU.

Manage Compliance Cost

Firms will be liable if they do not comply with their due diligence obligations and will have to fully compensate their victims. Non-compliance can include fines of up to 5% of companies’ net worldwide turnover. Foreign companies will be required to designate their authorised representative based in the member state in which they operate, who will communicate with supervisory authorities about due diligence compliance on their behalf.

The Corporate Sustainability Due Diligence Directive (CSDDD) is likely to have a significant impact on Chinese companies, especially those with business ties to the European Union.Raising compliance costs” due to the upcoming CSDDD is the major concern of these companies.

A 2023 survey conducted by the Chinese Chamber of Commerce to the EU (CCCEU) with nearly 180 enterprises found that over 80% of Chinese firms set sights on expanding their businesses in Europe, with policy complexity cited as one of the key challenges to their business operations in the region.

Increased compliance costs from CSDDD are manageable through active strategic sustainability planning. Since the approved CSDDD will only start to take effect on large companies in a staged approach. Most large companies are already under requirements for sustainability reporting obligations such as the EU Corporate Sustainability Reporting Directive (CSRD) or the sustainability disclosure rules for listed companies in China, the US, and other regions.

Extending their responsibility to supply chain sustainability could help hold their suppliers accountable and stimulate their capacities for supply chain mapping and stakeholder engagement. Meeting their commitments towards sustainable transitions throughout value chains.

Achieving credible due diligence outcomes under CSDDD means first identifying and engaging relevant stakeholders, creating an imperative for this information to be public, as recommended by GRI (Global Reporting Initiative). Due diligence is not possible without supply chain mapping - effectively assessing potential impacts linked to a company’s products, including the use of raw materials, necessitates transparent and traceable supply chains.

Supply transparency to sustainable practices is vital to maintaining a well-functioning supply chain. Enhanced transparency can lead to better decision-making, improved sustainability measures, and increased accountability, ultimately contributing to a more resilient and efficient supply chain.

Managing compliance costs from CSDDD by integrating sustainable practices into long-term operation strategies and enterprise risk management systems can help manage the costs and improve market positioning.

Growing sustainability advantage via built supply chain due diligence processes, and reporting on sustainable practices not only helps manage compliance costs. Businesses could also benefit from gaining new market shares by attracting more consumers and helping secure investors with certified sustainable outcomes through marketable solutions such as eco-labels. Check out our latest guide to sustainable product strategies: Tracking Product Life Cycle Carbon Footprint - The New Norm for Sustainable Transitions.

GC Insights helps businesses and investors mitigate risks and enhance ESG processes by engaging different vendors in the entire ESG eco-chain, streamlining ESG/sustainability reporting and due diligence processes for your compliance and productive setups. Contact us at to get an assessment of your ESG strategies and a guide to navigating through sustainability-related policy complexity.

Meanwhile, get up to speed on how to enhance your supply chain’s sustainability with strategic upgrades and technological advancements in these guides: Supply Chain Sustainability (I) – All the basics you need to know, and Supply Chain Sustainability (II) – Improve Your Supply Chain Sustainability. And for financial institutions, don’t miss out on our recommended ESG Due Diligence Process for Financial Undertakings

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