Corporate Sustainability Due Diligence Directive (CSDDD)
The European Union (EU) has adopted the Corporate Sustainability Due Diligence Directive (CSDDD) to ensure that companies manage their impacts on human rights and the environment more responsibly. This directive imposes obligations on large EU and non-EU companies to respect human rights and minimize environmental impacts in their operations and supply chains.
The necessity for such a directive arises from the limited scope and inadequacy of existing due diligence practices. Companies often restrict their efforts to first-tier suppliers, overlooking human rights and environmental risks deeper within their supply chains. Furthermore, the compartmentalization of human rights and environmental processes hinders a holistic approach. While tools such as contractual clauses, codes of conduct, and audits are commonly used, effective control mechanisms at lower levels of the supply chain are lacking. Hence, the CSDDD aims to mandate a comprehensive and effective approach that considers human rights and environmental impacts across all operational levels.
What is the Corporate Sustainability Due Diligence Directive (CSDDD)?
The CSDDD is a regulation that requires companies to identify, prevent, and address adverse impacts on human rights and the environment throughout their value chains. It extends beyond companies’ own operations to include their partners’ activities within the supply chain. The directive seeks to establish a uniform standard for sustainable and responsible business practices across the EU.
Scope and Implementation Process
The directive applies to large companies, specifically those with over 1,000 employees and an annual net turnover exceeding €450 million, both within and outside the EU. Although earlier drafts proposed lower thresholds, the scope was narrowed, and the implementation timeline extended, reducing the number of companies covered by approximately two-thirds.
A phased implementation schedule has been set, depending on company size:
- From 2027: Applicable to companies with over 5,000 employees and a global turnover exceeding €1.5 billion.
- From 2028: Applicable to companies with over 3,000 employees and a global turnover exceeding €900 million.
- From 2029: Applicable to all other companies within the directive’s scope, including those with over 1,000 employees and a global turnover exceeding €450 million.
Additionally, companies operating in high-risk sectors for human rights violations may also fall under the directive, regardless of their employee count.
Key Responsibilities of Companies
Under the CSDDD, companies have the following primary obligations:
Impact Assessment: Regularly assess the human rights and environmental impacts of their operations and supply chain activities. This includes mapping the supply chain, conducting risk assessments, addressing prioritized risks, establishing grievance mechanisms, and ensuring transparency through public reporting.
Climate Transition Plan: Develop strategies aligned with the Paris Agreement to limit global warming to 1.5°C and achieve net-zero greenhouse gas emissions by 2050.
Penalties and Liabilities
Non-compliance with the directive can result in:
Fines: Up to 5% of a company’s global turnover.
Legal Liability: Companies may be held liable for damages if they fail to prevent or mitigate adverse human rights impacts, subject to a five-year statute of limitations.
Exclusion from Public Procurement: EU member states may consider CSDDD compliance when awarding public contracts and concessions.
While the CSDDD is not directly binding for Turkish companies, it will become a critical obligation for large companies engaging in substantial trade with the EU. Turkish companies seeking to maintain access to the EU market will need to implement the directive’s human rights and environmental due diligence processes and fulfill reporting requirements. This entails developing a management and oversight approach that extends beyond their own operations to include other businesses within their supply chains. By aligning with these obligations, Turkish companies can safeguard their competitive edge in the EU market while transitioning toward a more sustainable business model.
Resources
https://lnkd.in/eiUgsuqW
https://legal.com.tr/blog/ekonomi/avrupa-birliginin-kurumsal-surdurulebilirlik-durum-tespiti-direktifi-uzerine
