The much-anticipated EU Directive 2024/1760 on Corporate Sustainability Due Diligence (the CSDDD) has been published in the Official Journal of the European Union and will enter into force later in July 2024. This article provides an overview of the CSDDD's purpose, scope, and due diligence obligations, as well as suggested next steps.
Purpose of the CSDDD
The CSDD sets out rules for companies on:
- The actual and potential human rights adverse impacts and environmental adverse impacts caused by their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies;
- Their liability for violations of those obligations; and
- Their obligation to adopt and put into effect a transition plan for climate change mitigation.
Scope of the CSDDD
The CSDDD will apply to companies incorporated in the EU that fulfil one of the following conditions:
- The company had more than 1,000 employees on average and had a net worldwide turnover of more than EUR 450 million in the last financial year.
- The company did not reach the foregoing thresholds but is the ultimate parent company of a group that reached those thresholds in the last financial year.
- The company entered into (or is the ultimate parent company of a group that entered into) franchising or licensing agreements in the EU in return for royalties with independent third-party companies provided:
- The agreements ensure a common identity, a common business concept and the application of uniform business methods,
- In the last financial year, the royalties amounted to more than EUR 22.5 million and the company had or is the ultimate parent company of a group that had a net worldwide turnover of more than EUR 80 million.
The CSDDD will also apply to companies incorporated outside the EU that fulfil similar conditions.
Due Diligence Obligations under the CSDDD
Ireland and other EU Member States must ensure that companies conduct risk-based human rights and environmental due diligence into their own activities or those of their subsidiaries and, where related to their chains of activities, those of their business partners, by carrying out the following actions:
- Integrating due diligence into their policies and risk management systems and have in place a due diligence policy that ensures risk-based due diligence.
- Identifying and assessing actual or potential adverse impacts.
- Preventing potential adverse impacts or where prevention is not possible. mitigating potential adverse impacts.
- Bringing actual adverse impacts to an end.
- Providing remediation for actual adverse impacts.
- Carrying out meaningful engagement with stakeholders.
- Establishing and maintaining a notification mechanism and a complaints procedure for stakeholders.
- Monitoring the effectiveness of their due diligence policy and measures based, where appropriate, on qualitative and quantitative indicators.
- Publicly communicating on due diligence by publishing on their website an annual statement.
Next steps
Ireland, and other EU Member States, must implement the CSDDD by 26 July 2026 and apply the implementing legislation to within scope companies (as above) starting from 26 July 2027. Irish companies and Irish subsidiaries of EU and non-EU groups should act now to assess if they are directly within the scope of the CSDDD or indirectly, for example, as part of the supply or value chain for larger companies falling within the scope of the CSDDD and Irish implementing legislation.
For more information, please contact John Gaffney or your usual contact in Beauchamps.
