European businesses to conduct due diligence on their human rights and environmental impacts

In March 2024, the European Union (EU) Parliament approved a revised version of the proposed Corporate Sustainability Due Diligence Directive (CSDDD) which integrates risk-based due diligence into corporate operations.

What is the CSDDD?

Under the CSDDD, businesses will be required to conduct a due diligence process to identify, mitigate, prevent, and account for negative impacts on human rights and the environment, or face potential sanctions or civil liability. Due diligence measures for in-scope companies will have to address adverse environmental and human rights impacts in their own operations, the operations of their subsidiaries, and across the value chain (including operations of direct and indirect business partners).

Which entities must comply with the CSDDD and when?

The following types of entities will have to comply with this directive as follows:

Criteria

Large, EU limited liability companies

Non-EU companies (third country companies active in the EU)

 

Phase 1

(Three years after adoption)

Phase 2

(Four years after adoption)

Phase 3

(Five years after adoption)

Phase 1

(Three years after adoption)

Phase 2

(Four years after adoption)

Employee numbers

5,000+

3,000+

1,000+

N/A

N/A

Net worldwide turnover

Net EUR 1,500 million+

Net EUR 900 million+

Net EUR 450 million+

N/A

N/A

Turnover generated in the EU

N/A

N/A

N/A

Net EUR 1,500 million+

Net EUR 900 million+

Note that there is no employee threshold for non-EU companies.

The latest version of the proposed CSDDD will be phased in over a longer period than originally intended, and will apply to companies and financial institutions with operations in the EU.

Members of the EU Parliament will now vote on the legislation at a plenary session in April. If approved, the CSDDD will be published in the Official Journal and may go into effect for Phase 1 group in 2027 (i.e. three years after adoption). Member states will have two years to transpose the requirements into law.

More information

More information about the CSDDD is available here.

Here to help

We understand that keeping tabs on sustainability reporting legislation is difficult and time-consuming, particularly for Australian entities operating in the EU that will have to comply with the CSDDD, as well as the European Sustainability Reporting Standards (ESRS). Our sustainability reporting experts are here to help. Please contact us today.