Key Obligations under the CSDDD

Kristy Duane

In this video, Kristy dives deeper into the EU's Corporate Sustainability Due Diligence Directive (CSDDD) and covers the specific due diligence obligations that in-scope companies must follow, focusing on human rights and environmental impacts. Additionally, she discusses the climate transition plan requirements that aim to align companies with the EU’s net-zero greenhouse gas emissions target by 2050.

Regulation and Initiatives

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Key Obligations under the CSDDD

17 mins 7 secs

Key learning objectives:

Understand the six specific due diligence obligations outlined in the CSDDD
Understand the criteria for a climate transition plan under the CSDDD

Overview:

The due diligence obligations in the CSDDD are modelled closely to the steps defined in the OECD’s Due Diligence Guidance for Responsible Business Conduct. It is important for in-scope companies to understand the specific due diligence obligations in the CSDDD so that they can take the required steps for integrating human rights and environmental considerations into business practices. These include details such as policy integration, impact assessment, stakeholder engagement and remediation.

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Summary

What are the specific key due diligence obligations for in-scope companies?

The CSDDD’s due diligence obligations are modelled on the OECD’s Due Diligence Guidance for Responsible Business Conduct. The Directive outlines several key obligations:

Integration of Due Diligence - Companies must integrate human rights and environmental due diligence into their policies and risk management systems, consulting with employees and setting out a code of conduct for themselves, their subsidiaries, and business partners. These policies must be reviewed at least every two years or whenever significant changes occur.
Identify, Assess, and Prioritise Impacts - Companies are required to identify, assess, and prioritise both potential and actual adverse human rights and environmental impacts in their operations and across their value chain. This includes direct and indirect business partners and requires comprehensive mapping and stakeholder engagement to ensure transparency and effectiveness.
Addressing Adverse Impacts - Companies must take steps to prevent and mitigate potential impacts and remedy actual impacts where they have caused or contributed to them. The Directive encourages measures such as action plans, financial support, and, where necessary, the termination of business relationships, but only as a last resort.
Complaints Procedures - The CSDDD requires companies to establish complaints procedures for those affected by adverse impacts, allowing for anonymous or confidential reporting.
Monitoring - Ensure there is monitoring of own operations, the operations of their subsidiaries and business partners. Also monitor the various measures the company has put in place to address adverse impacts, in order to assess the adequacy and effectiveness of a company’s due diligence processes. Assessments must be carried out after any significant change that may have any bearing on the due diligence policy and processes, or at the least every 12 months.
Communication - Companies must publish an annual statement on their website every 12 months.Companies that are also in-scope for the CSRD are exempt from this obligation because they already have to meet an equivalent requirement under the CSRD.

What are the climate transition plan obligations for in-scope companies?

Ensure the company’s business model and strategy are compatible with the EU’s objective of achieving climate net zero greenhouse gas emissions by 2050
The plan has to be updated annually and include a description of the progress the company has made towards achieving its targets
This obligation applies to all in-scope companies, including those in the financial services sector

A company that is also subject to the CSRD has to report a transition plan in accordance with the requirements of the ESRS and will be deemed to have complied with the CSDDD requirement to adopt a plan, but not the requirement to put that plan into effect.

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Kristy Duane

Kristy Duane, a corporate partner at CMS, advises listed companies and fund structured investors in the real assets sector. She has been advising since 2010 on ESG, particularly supply chain sustainability, which plays a crucial role in governance structures and investment decisions. Kristy has experience in helping companies plan for and integrate new regulatory frameworks, such as ESG regulations, into their businesses.

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