Understanding the Corporate Sustainability Due Diligence Directive
CSDDD Explained
The global business landscape is shifting rapidly towards greater environmental and social responsibility. One of the most significant legislative developments driving this change is the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) ,also referred to as CSD3. This new law introduces mandatory sustainability obligations for large companies operating in the EU, with a particular focus on human rights and environmental risks across their operations and value chains.
In this article, we outline what the CSDDD is, who it applies to, its key requirements, recent updates, and most importantly — what UK businesses need to know and how to prepare.
What is the CSDDD?
The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU law designed to make companies more accountable for the impacts of their activities on both people and the planet. Specifically, the directive requires businesses to proactively identify, prevent, mitigate and remedy adverse impacts on human rights, such as child labour, unsafe working conditions, or exploitation and on the environment, such as pollution, deforestation, and biodiversity loss, throughout their entire supply and value chains.
The directive’s broader purpose is to embed responsible corporate behaviour across sectors, supporting the EU’s wider commitments to climate neutrality and sustainable development.
Who Does the CSDDD Apply To?
The CSDDD primarily targets large EU companies and non-EU companies with significant operations in the EU market. Specifically, it applies to:
- EU Companies:
- With more than 1,000 employees and a net worldwide turnover of €450 million or more.
- Non-EU Companies:
- That generate at least €450 million in turnover within the EU, even if they are headquartered elsewhere.
There are certain sector-specific thresholds for businesses operating in high-risk sectors such as textiles, agriculture, and minerals, but in general, the directive focuses on larger businesses with extensive value chains.
Small and medium-sized enterprises (SMEs) are not directly covered by the directive, but may be impacted indirectly if they are part of the supply chains of larger companies subject to the law.
What Are the Key Requirements?
Under the CSDDD, affected companies will be required to:
- Conduct Due Diligence:
Identify and assess potential and actual adverse impacts on human rights and the environment across their own operations, subsidiaries, and business partners. - Prevent and Mitigate Risks:
Implement appropriate measures to prevent, mitigate, or bring to an end any identified negative impacts. - Establish a Complaints Procedure:
Set up processes to allow stakeholders (such as workers, NGOs, or trade unions) to raise concerns about potential violations. - Monitor Effectiveness:
Regularly assess the effectiveness of their due diligence policies and measures. - Communicate Transparently:
Publicly report on their due diligence efforts and the steps taken to address risks. - Adopt Climate Transition Plans:
Large companies must also adopt and implement a climate transition plan to ensure their business model aligns with limiting global warming to 1.5°C, in line with the Paris Agreement.
What Are the Latest Changes?
Following extensive negotiations, the final form of the CSDDD was approved by the European Parliament in April 2024. Notable adjustments from earlier drafts include:
- Higher Applicability Thresholds:
The final version raised the turnover and employee thresholds, reducing the number of companies in scope compared to earlier proposals. - Climate Plan Requirement:
Companies must now link directors’ duties to the implementation of their climate transition plan. - Enforcement and Penalties:
Stronger mechanisms have been introduced, including national supervisory authorities and potential civil liability for companies that fail to meet their obligations.
What Should UK Businesses Know?
Although the UK is no longer part of the EU, the CSDDD will still impact UK-based companies that:
- Have operations or subsidiaries in the EU, or
- Generate €450 million or more in turnover from EU markets.
In practice, this means many large UK businesses, especially those with pan-European supply chains or customer bases, will need to comply.
Additionally, UK SMEs may face indirect obligations if they supply goods or services to larger EU-based firms subject to the CSDDD. These smaller companies may be asked to provide data, implement certain policies, or demonstrate compliance with sustainability standards to maintain commercial relationships.
When Will the CSDDD Take Effect?
The directive is expected to come into force in 2026, with a phased implementation based on company size:
- 2027: For companies with 5,000+ employees and €1.5 billion turnover.
- 2028: For companies with 3,000+ employees and €900 million turnover.
- 2029: For companies with 1,000+ employees and €450 million turnover.
This staged approach gives affected businesses time to understand, plan for, and implement the necessary changes.
How Can Companies Prepare?
Businesses in the UK and beyond should act now to ensure readiness. Recommended steps include:
- Map the Supply Chain:
Gain visibility into your direct and indirect suppliers, especially those operating in high-risk sectors or regions. - Identify Risks:
Conduct robust assessments of potential human rights and environmental impacts throughout your value chain. - Develop Due Diligence Policies:
Formalise policies and procedures to manage risks, prevent harm, and demonstrate compliance. - Engage Stakeholders:
Establish effective grievance mechanisms and communicate transparently with stakeholders, from suppliers to customers. - Prepare for Reporting:
Build internal systems to capture data and produce the required public reports on your sustainability efforts. - Align with Climate Goals:
Start or refine your corporate climate transition plan to meet the directive’s climate-related obligations.
Final Thoughts
The CSDDD represents a major shift in how corporate responsibility is legally enforced, setting a new standard for due diligence and sustainability in Europe and beyond. While UK businesses may believe that post-Brexit regulation shields them from EU directives, the reality is that many UK firms will need to comply or risk fines, reputational damage, and lost contracts with EU partners.
By starting preparations now, companies can turn CSDDD compliance into an opportunity: to build more ethical, resilient, and sustainable operations that meet the rising expectations of regulators, investors, and consumers alike.
Need help understanding your sustainability obligations or preparing your business for future regulations?
Contact Enexus today to find out how we can support your journey towards compliance and corporate responsibility.
