How Does the EU’s CSDDD Impact Company ESG Programs?

According to an article by the Akin Gump firm, the European Union Corporate Sustainability Due Diligence Directive (CSDDD), which has been in effect since July 25, 2024, mandates sustainability due diligence in EU and non-EU companies. 

The directive targets large companies, specifically those generating over €450 million in EU turnover. Its core goal is to promote responsible corporate behavior, requiring companies to identify, mitigate, and report on human rights and environmental risks across their operations and supply chains. 

The CSDDD complements the Corporate Sustainability Reporting Directive (CSRD). The CSDDD is focused on implementing due diligence measures, whereas the CSRD reports these measures, along with sustainability-related impacts, risks, and opportunities.

The CSDDD outlines specific obligations for companies, such as integrating due diligence into policies and risk management systems, identifying and assessing actual and potential adverse impacts, and preventing potential adverse events. Other obligations include ending or remediating actual adverse impacts, engaging stakeholders, and establishing complaint procedures. Monitoring and periodic assessments are also mandated to ensure ongoing compliance.

While the EU’s CSDDD directive mandates due diligence for sustainability, non-compliance can result in penalties, including fines of up to 5% of a company’s global turnover and civil liability for damages arising from due diligence failures. 

Companies are advised to begin preparatory steps to ensure readiness for compliance by 2026, which include reviewing their operations, evaluating and revising current policies, planning due diligence, reviewing existing governance, and establishing reporting and complaint procedures.