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The European Union blazed a trail in the fight against modern slavery when it adopted the Corporate Sustainability Due Diligence Directive (CSDDD) in July 2024. What France and Germany have accomplished with similar laws in their jurisdictions, the CSDDD is now bringing throughout the region.
For EU and multinational companies, the question is: how can they prepare for the new law? While implementation of the CSDDD will take place in phases beginning 2027, there are four things they should do now, according to Nicola Bonucci, former director of legal affairs of the Organisation for Economic Cooperation and Development (OECD).
In a webinar presented by Ethixbase360 in June 2024, Bonucci explained the significance of the CSDDD to the international business world. He noted that until now, guidelines pertaining to human rights due diligence have been nonbinding, such as the United Nations Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance for Responsible Business Conduct. France and Germany have binding laws, but they are applicable only within their jurisdictions. The CSDDD surpasses them all as a binding regulation applicable in the entire region.
CSDDD Requirements
The CSDDD mandates all companies doing business in the EU to conduct human rights and environmental due diligence across their operations and supply chains. It includes both reporting and due diligence requirements. About 5,000 EU companies will be impacted by CSDDD and 1,000 non-EU companies that do business in the region.
The directive will apply to:
- EU Companies: Businesses with more than 1,000 employees and an annual net worldwide turnover of more than €450 million or ultimate parent companies of such a corporate group; companies with EU franchising or licensing agreements for annual royalties that exceed €22.5 million and an annual net worldwide turnover of more than €80 million or ultimate parent companies of such a corporate group.
- Non-EU Companies: Businesses with an annual net turnover of €450 million generated in the EU or ultimate parent companies of such a corporate group; companies with EU franchising or licensing agreements for annual royalties that exceed €22.5 million in the EU and an annual net turnover of more than €80 million in the EU or ultimate parent companies of such a corporate group.
4 Ways to Prepare Now
Under the CSDDD, companies must incorporate human rights and environmental due diligence in their operations, their subsidiaries’ operations, and their value chain, including upstream and downstream partners.
Bonucci advised companies to prepare for the CSDDD by taking the following steps.
#1 All affected companies should move toward compliance now. “The biggest mistake you can make is to wait until the directive takes effect in 2027,” said Bonucci. “You should review your relevant policies and due diligence procedures now.”
The complexity of the CSDDD requires ample time for companies to align their compliance programs with it. In terms of the directive’s human rights due diligence (HRDD) component, companies are expected to:
- Identify and assess actual and potential adverse impacts.
- Prevent and mitigate potential impacts.
- Eliminate or reduce to the minimum actual adverse impacts.
- Establish and maintain a notification and complaints mechanism.
#2 Use the OECD for reference. Like any new law, there are uncertainties pertaining to how the CSDDD will be interpreted. Companies are seeking guidance, especially on how the directive applies to small and medium-sized enterprises.
In the meantime, Bonucci advised companies to use the much older OECD Guidance as reference. The OECD has published a report showing that between 2011 and 2022, 40% of more than 200 cases with possible human rights violations submitted to the OECD’s National Contact Points, which serve as its remedy mechanism, showed insufficient due diligence. Looking at OECD cases can help companies evaluate their own risk areas, he said.
#3 Leverage existing antibribery and anticorruption (ABAC) due diligence processes and methodologies.
Most large companies and MNCs comply with laws meant to prevent bribery and corruption in obtaining and retaining business. Companies with ABAC due diligence programs already in place should see how they could leverage existing processes and methodologies in HRDD. “You can’t really superpose them [ABAC and human rights], but there are clearly interdependencies,” said Bonucci.
Some of the most important ABAC regulations include the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, the French Criminal Code, and the German criminal code.
#4 Engage with value chain partners, board members, national authorities, and stakeholders.
Companies must engage their value chain partners in meaningful discussions about raising ethical standards and compliance with the new directive. In addition, Bonucci advised businesses to engage their board members, who should take a more proactive role when it comes to HRDD and any corresponding actions.
Bonucci also encouraged companies to engage with civil society – nongovernmental organizations, trade unions, and other stakeholders – in discussing the CSDDD. They should express their concerns about potential issues to national authorities. “At the end of the day, for the CSDDD to be useful, we should take a more collaborative, open-discussion approach,” he said.
How Ethixbase360 Can Help
The business world has traditionally looked at compliance and sustainability separately until now. The CSDDD presents an opportunity for companies to incorporate sustainability with compliance by elevating ethical standards for their operations and value chains.
Ethixbase360 is committed to empowering businesses with a purpose-built third-party risk management platform and risk-based intelligence necessary to comply with the CSDDD and other HRDD regulations.
Contact us today and learn how we can help you and your value chain in identifying, managing, and reporting on modern slavery and human rights risks across multiple jurisdictions.
