The European Corporate Sustainability Due Diligence Directive (CSDDD)

The European Corporate Sustainability Due Diligence Directive (CSDDD), formally adopted as Directive (EU) 2024/1760 and published in the Official Journal of the EU on 5 July 2024, represents the most comprehensive mandatory human rights and environmental due diligence (mHREDD) legislation in the world. Building on the UN Guiding Principles on Business and Human Rights (UNGPs) and OECD Due Diligence Guidance, CSDDD creates enforceable legal obligations for large companies to identify, prevent, mitigate, and account for actual and potential adverse human rights and environmental impacts throughout their global value chains—with civil liability, administrative penalties up to 5% of global net turnover, and public naming of violations as enforcement tools.

CSDDD Scope: Which Companies Are Affected?

CSDDD applies in phases based on company size. Phase 1 (from 26 July 2027): EU companies with more than 5,000 employees and €1.5 billion net worldwide turnover, and non-EU companies generating more than €1.5 billion net turnover within the EU. Phase 2 (from 26 July 2028): EU companies with more than 1,000 employees and €450 million net worldwide turnover, and non-EU companies generating more than €450 million net turnover within the EU. Additionally, Phase 1 captures EU companies and non-EU companies with turnover thresholds derived from franchising or licensing agreements exceeding specified thresholds.

Core Due Diligence Obligations Under CSDDD

CSDDD establishes a risk-based due diligence process with six core steps derived from the OECD Due Diligence Guidance. First, companies must integrate due diligence into their corporate policies and risk management systems, including a code of conduct describing expected supply chain conduct and a due diligence policy updated annually. Second, companies must identify and assess actual and potential adverse impacts—covering a defined list of human rights violations (from ILO core conventions and international human rights instruments listed in Annex I) and environmental harms (including climate change, biodiversity loss, pollution, and deforestation listed in Annex II)—in their own operations, subsidiaries, and value chain business partners.

Third, actual adverse impacts must be prevented or mitigated through corrective action plans, contractual assurances from business partners, investment in supplier capacity, and collaboration with other companies in industry initiatives. Fourth, companies must establish complaint mechanisms accessible to affected persons, trade unions, and civil society organizations. Fifth, companies must monitor the effectiveness of due diligence measures and update them based on monitoring results. Sixth, CSDDD requires public reporting on due diligence activities—which for CSRD-in-scope companies can be fulfilled through CSRD ESRS S1 (Own Workforce), S2 (Workers in the Value Chain), and S3 (Affected Communities) reporting.

Value Chain Scope: Upstream vs Downstream

CSDDD’s value chain scope covers upstream business partners (suppliers providing goods or services used in the company’s products or services, including raw material extraction, manufacturing, and logistics) and, for large companies, downstream partners for specific activities (product distribution and retail, but not product use or end-of-life). Critically, CSDDD adopts a “chain of activities” concept rather than requiring exhaustive mapping of all tiers: companies must focus due diligence where adverse impacts are most likely and severe, based on sector-specific risk profiles and country-level governance indicators.

Civil Liability and Penalty Framework

CSDDD’s enforcement framework includes two distinct pathways. Administrative supervision by national supervisory authorities can impose penalties up to 5% of global net worldwide turnover (with minimum thresholds), publication orders (naming and shaming non-compliant companies), and exclusion from public procurement. Civil liability provisions allow victims of adverse impacts to bring compensation claims before EU courts when a company failed to fulfill CSDDD due diligence obligations and this failure caused or contributed to an adverse impact. Limitation periods must be at least five years, and access to justice provisions include representative action mechanisms for civil society organizations.

Companies subject to both CSRD and CSDDD benefit from significant integration opportunities: CSRD double materiality assessments inform CSDDD risk prioritization, ESRS S2 workforce data supports CSDDD audit evidence, and joint reporting structures reduce compliance duplication. Explore sustainable supply chain management strategies and ESG compliance investment at our Sustainability Opportunities Hub.