CSDDD: Corporate Sustainability Due Diligence – Explained

The CSDDD harmonizes on a European scale the rules concerning the duty of vigilance of companies. In particular, it goes further than the French law of 2017 in this area, considerably expanding the perimeter of the companies concerned. Thus, its role is to empower companies on ESG subjects so that they warn and reduce the risks linked to the environment and to work as part of their activities.

What is the CSDDD Directive (CS3D)?

Definition of the CSDDD (CS3D) and European legal framework

The CSDDD Directive (Corporate Sustainability due to Directive Diligence), or CS3D was adopted on April 24, 2024. It introduces a duty of vigilance of companies across Europe. Its objective is to empower companies by forcing them to prevent environmental, social and governance risks (ESG).

The CS3D therefore implies risk prevention. It therefore requires cartography of the latter in order to anticipate them and not only deal with problems once they are proven. Once these risks have been identified, companies will have to take measures to reduce them or even eliminate them. These vigilance obligations concern the entire company’s value chain (suppliers, trading partners, subcontractors).

A duty of European vigilance more ambitious than the French framework

The CS3D was inspired by the 2017 French law relating to the duty of vigilance within the framework of the European Green Pact. However, its field of action is much more extensive. Indeed, it includes a much larger number of companies and concerns the entire value chain of the latter. French law concerns only companies with more than 5,000 employees whose head office is in France as well as foreign companies with more than 10,000 employees.

The CSDDD is also more restrictive because it requires preventing and reducing any infringement of human rights and the environment. However, French law stipulates to prevent and reduce serious damage. The perimeter of the European directive is therefore wider.

A human rights approach and the environment

The CSDDD approach is based on the concept of reasonable diligence (or due diligence). It implies an investigation and risk prevention analysis process. The UN has guided this notion around respect for human rights. The OECD has integrated its principles into the protection of the environment and people. In this sense, the organization has issued intersectoral standards to prevent these risks.

Thus, the CSDDD incorporates the concept of reasonable diligence in a framework close to these directives. It imposes a duty of vigilance for the integration of social, environmental and governance risks.

CSDDD and CSRD: What are the differences?

The CSDDD is closely linked to the CSRD which entered into application in January 2024. The CSRD (Corporate Sustainability Reporting Directive) is a directive concerning the harmonization and the obligation of extra-financial reporting of companies. It supervises sustainability reporting around ECG challenges.

Companies must, in fact, include risk mapping in their reporting. In this context, they are required to carry out a double materiality analysis. These provisions join the CSDDD risk prevention objectives. According to these two directives, the companies concerned must also have a strategy to reduce their carbon footprint in accordance with the European Green Pact and the Paris Agreements.

Read also: CSRD directive: extra-financial sustainability reporting

What are the objectives of the CSDDD Directive (CS3D)?

Protection of human rights and the environment

The CS3D incorporates a social component which includes respect for human rights and in particular decent working conditions. For this, she refers to the 1998 ILO Declaration of International Labor Organization.

The environmental component of the directive requires obligations to reduce the risks and the impact of companies on biodiversity, in particular because of pollution. It also aims to limit global warming to + 1.5 ° C as provided by the Paris agreements with the creation of a climate transition plan.

Responsibility of European and international companies

Business responsibility can be engaged if moral, physical or environmental damage is noted. This damage can be proven, for example by injuries or to visible and measurable ecological damage. It is noted in the event that the company has not taken measures to prevent or mitigate risks.

The CSDDD therefore aims to empower companies operating in the EU. It encourages the latter to implement sustainable and transparent business practices.

Harmonization of the regulatory framework at European level

The harmonization of the regulatory framework at European level is important. It avoids the divergence of measures between EU member states which can lead to difficulties. It is much easier for intra-European trade to adopt common rules rather than having to adapt to that of each country on a case-by-case basis.

CS3D directive: companies and sectors subject to the duty of European vigilance

Large companies established in the European Union

Large companies that are established in the EU (limited liability companies and partnerships with more than 1,000 employees and global net turnover greater than € 450 million. This represents around 6,000 European companies.

Large foreign companies operating on the European market

Large companies established outside the EU, with a net turnover greater than € 450 million in the EU. This represents around 900 multinationals.

Micro-enterprises and SMEs: what exclusions?

Micro-enterprises and SMEs are not affected by CS3D rules. However, they can be impacted when they are part of the value chain of the companies affected by the directive. They could therefore comply with certain requirements indirectly. Thus, the legislation has added support and assistance measures to protect SMEs.

Risk sectors targeted by the CS3D directive

The sectors identified as the most at risk are particularly targeted by the CS3D. The latter have complex value chains with increased risks for human and environmental rights. The extractive industry, the textiles, the food industry, the energy sector and that of new technologies are specifically concerned.

What are the obligations imposed by the CS3D directive?

Here are all the obligations imposed by the CS3D directive:

• Integration of duty of alertness In the company governance policy must be subject to a code of conduct applicable to the company and its business partners.
• The Negative impact mapping real or potential linked to business activities and that of their value chain must be carried out.
• The prevention of these impactstheir attenuation or their elimination must be implemented in particular by contractual guarantees with their partners.
• Real negative impacts should be repaired.
• The consultation and information collection with stakeholders in the value chain are necessary to develop an action plan.
• Companies must Provide procedures In the event of a complaints in connection with the impacts that have an impact on their activities.
• The control of the effectiveness of measures taken by the company must be carried out with the use of appropriate KPIs.
• The public communication On the duty of vigilance of companies is carried out through the reporting obligations of the CSRD on the basis of ESRS standards.
• And Climate transition plan must be developed: it must be compatible with a sustainable economy and the limitation of global warming in accordance with the Paris Accords.

What sanctions in the event of non-compliance with the CSDDD?

Each EU member state is responsible for the application of these measures. Everyone will have to designate a control authority to check the application of the CS3D. However, the European Commission will also set up a network of representatives of the control authorities.

Thus, the Member States are free to define the appropriate sanctions. However, the European Commission has provided for certain rules:

• Any financial sanction must be proportional to the global turnover of the sanctioned company while not exceeding 5 % of this turnover.
• The principle of name and shame, that is to say, publicly communicate the names of companies that do not respect the rules, can be applied.

Integrate the duty of vigilance in the CSR strategy

Structuring the company’s CSR approach is the best way to anticipate the CSDDD. To do this, you can create a CSR committee. This will have a advice role, but will also create a real ESG approach by taking into account the regulations, such as the CS3D, the green taxonomy or the CSRD.

Mobilize the supplier ecosystem

To integrate the entire company’s value chain, as requested by the CS3D, it is necessary to collaborate with the various stakeholders. This involves setting up clear communication to collect useful information. This approach must give rise to contractual clauses that comply with the regulations and can involve the co-construction of standards.

Rely on French digital and partners

To collect useful data and comply, you can use ESG digital platforms. The latter allow you to calculate your carbon footprint, make your sustainability reports or even eco-conceive your products in accordance with the various European regulations. You can, for example, opt for Tennaxia, Sami or Openlca according to your needs.

It is also possible to benefit from CSR support with Bpifrance. SMEs and ETIs can follow the CSR or Sustainable SME Impact Program even if they are not directly affected by CS3D. This allows them to understand the challenges of the various European regulations and to structure their CSR approach to respond to any requests from companies that integrate them into their value chain.

Articulation of the CSDDD with other European regulations

As we have seen, the CS3D is perfectly consistent with the regulations such as the ILO and the UN directives. It also completes the CSRD and the ESRS.

It is also closely linked to European green taxonomy. These regulations make it possible to classify the activities of companies according to their sustainable nature. Its objective is to guide funding towards the most sustainable activities. It therefore joins the principles of the CS3D which allows companies to become aware of environmental risks and to reduce them to have more sustainable activities.

In addition, the CS3D also joins the ESCR (Ecodesign for Sustainable Products Regulation). This is the European regulation on eco -design. The latter wants to strengthen the sustainability of products and fight against planned obsolescence. It requires companies to make their activity more sustainable and to promote the circular economy.

Read also: European green taxonomy: definition, objectives, business applications

What is the CSDDD implementation calendar?

Companies have sufficient delay to apply the CSDDD directive according to a progressive calendar.

Transposition of CS3D directive in national laws (2027)

Each EU member state must adapt its national law according to the directive. This may consist of the creation of new laws or an adaptation of existing laws. The deadline for this measure initially scheduled for July 26, 2026 was postponed to July 26, 2027.

First wave of companies concerned from 2028

The application of the directive to large companies with more than 5,000 employees with net turnover of more than € 1.5 million has also been postponed. It was initially scheduled for July 26, 2027, but was postponed on July 26, 2028. It mainly concerns large multinational groups.

Progressive extension in 2028 and 2029 for other companies concerned

The entry into force for the other companies concerned is not postponed. So ;

• For companies with more than 3,000 employees and having a net turnover of more than € 900 million in turnover, the CSDD came into force on July 26, 2028.
• For companies with more than 1,000 employees and who have a net turnover greater than € 450 million in turnover, the directive comes into force on July 26, 2029.

FAQ around the CS3D directive

What differences between CS3D, CSDDD and the French law on the duty of vigilance?

The CS3D and the CSDDD designate the same European text. As for the French law on the duty of vigilance, it was promulgated in 2027 and partly inspired the CS3D. It only applies to large companies. The CS3D directive goes much further with an enlarged application framework.

Should SMEs prepare for the CS3D even if they are not directly concerned?

Yes. The subcontracting SMEs of the companies concerned will have to meet the requirements of their principals. This involves documenting their social and environmental commitments and participating in traceability or audit devices.

CRDDD: to more responsible European companies

In accordance with European regulations on transparency in terms of ESG commitments, the CRDDD is a new step towards more responsible companies. It forces them to map the risks linked to their activities. As a result, they become tangible and can be reduced, improved or removed. This leads member countries to benefit from a single legal framework to support their efforts to the climate transition.

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