Change is coming – are you ready?
The Corporate Sustainability Due Diligence Directive (CSDDD) is a European Commission directive that represents a significant shift in how companies approach sustainability and ethical practices. It compels companies to integrate rigorous due diligence processes into their corporate frameworks, aiming to hold companies accountable for negative environmental and human rights impacts across their operations, subsidiaries, and value chains.
What are the implications for businesses?
The CSDDD directive mandates compliance across various aspects of a business, including procurement, legal, and contractual processes. It requires a comprehensive approach that helps to ensure that sustainability and ethical practices are integrated into the core operations of the company.
How can businesses prepare?
While most people would agree that considering sustainability and ethical practices are good for the world and good for business, some work will be needed by most businesses. Some of the challenges include:
- Data Collection: Obtaining reliable supply chain data is critical yet challenging. Companies need accurate information to identify potential risks and adverse impacts.
- Value Chain Compliance: Ensuring compliance across the entire value chain requires extensive coordination and communication. This involves engaging with suppliers, partners, and subsidiaries.
- Departmental Fluidity: Effective implementation requires an integrated approach across departments within the organisation, from procurement to legal to strategy.
Getting ready
To prepare for CSDDD, companies should start by mapping their existing due diligence policies.
- Map Existing Due Diligence Policies: Conduct a thorough assessment of current policies and procedures related to environmental and human rights impacts. This mapping exercise will help identify areas that need improvement or updating.
- Identify Gaps and Determine Readiness: Identifying the potential gaps in compliance frameworks is a crucial step for understanding the level of effort required to meet CSDDD standards.
- Plot Out the Supply Chain: Companies need a detailed understanding of their supply chain. This includes identifying all suppliers, partners, and any other entities involved in the value chain. Mapping the supply chain helps pinpoint where potential risks might arise and where to focus due diligence efforts.
- Identify Business Partners for Support: Engaging with business partners who can support compliance efforts is essential. This might include consulting firms, legal advisors, and sustainability experts who can provide guidance and assistance.
The implementation timeline
The implementation of CSDDD will be staggered, starting with the largest companies first. This phased approach allows smaller companies more time to adapt to the new requirements, but it underscores the urgency for all businesses to begin preparations immediately.
Enforcement
The enforcement of CSDDD is stringent. Companies that fail to address and prevent adverse impacts face severe penalties, including fines of up to 5% of their net worldwide turnover. Moreover, affected individuals have the right to claim compensation for damages, adding another layer of accountability. This legal framework ensures that the financial consequences of non-compliance are significant, making the cost of inaction potentially higher than the cost of compliance.
The CSDDD does not yet apply in New Zealand, but businesses here would be wise to consider how they might respond when similar requirements do come into force in Aotearoa. We would be pleased to discuss these provisions with interested businesses.
This article is not a substitute to legal advice and if you have any questions please do not hesitate to contact our experts here at Parry Field Lawyers.
We help answer questions all the time. If you would like to discuss further, please contact one of our team on stevenmoe@parryfield.com, sophietremewan@parryfield.com or annemariemora@parryfield.com.
