Directive (EU) 2024/1760 of the European Parliament and of the Council, of 13 June 2024, on corporate sustainability due diligence — the Corporate Sustainability Due Diligence Directive, CSDDD — published in the Official Journal of the EU on 5 July 2024, introduces for the first time in Europe a legal obligation of due diligence across the full chain of activities of large companies to identify, prevent, mitigate and remediate actual and potential adverse impacts on human rights and the environment.
Scope and Implementation Schedule
The CSDDD establishes a phased timetable for compliance obligations according to company size:
First phase (26 July 2027): European companies with more than 5,000 employees and worldwide net turnover exceeding €1.5 billion, and non-EU companies with net EU turnover exceeding €1.5 billion.
Second phase (26 July 2028): European companies with more than 3,000 employees and worldwide net turnover exceeding €900 million, and non-EU companies with net EU turnover exceeding €900 million.
Third phase (26 July 2029): European companies with more than 1,000 employees and worldwide net turnover exceeding €450 million, and non-EU companies with net EU turnover exceeding €450 million.
Although SMEs are not directly obligated by the CSDDD, they are affected indirectly: large companies in scope will cascade due diligence requirements to their suppliers through supply contracts, audit questionnaires and compliance clauses.
Substantive Obligations: The Due Diligence System
Article 5 of the CSDDD requires in-scope companies to integrate due diligence into their policies and risk management systems. The due diligence system comprises six main elements:
1. Due diligence policies. The company must adopt a due diligence policy including a description of the general approach, a code of conduct for employees and subsidiaries, and measures for applying the code throughout the chain of activities.
2. Identification of actual or potential adverse impacts. Under Article 8, companies must adopt appropriate measures to identify adverse impacts on human rights and the environment in their own operations and those of their subsidiaries, and in those of their business partners across the chain of activities. Human rights reference points include the ILO core labour rights (forced labour, child labour, freedom of association, non-discrimination) and rights under international human rights conventions. Environmental reference points include soil and water contamination, biodiversity loss and serious climate damage.
3. Prevention and mitigation of potential adverse impacts. Companies must adopt appropriate preventive measures, which may include preventive action plans with business partners, investment in improving supplier capabilities, or ultimately suspension of the commercial relationship where impacts cannot be mitigated.
4. Bringing actual adverse impacts to an end. Where the company has caused or contributed to an actual adverse impact, it must take corrective measures and provide effective remediation, which may include compensation, restoration or environmental rehabilitation.
5. Complaints mechanism. Companies must establish a notification procedure and complaints mechanism enabling affected persons, workers and their representatives, and other interested parties to communicate concerns.
6. Monitoring. Companies must periodically assess the effectiveness of their due diligence system using qualitative and quantitative indicators, with at least annual review.
Civil Liability and Administrative Penalties
The CSDDD introduces, for the first time in EU law, a regime of civil liability for companies for breach of their due diligence obligations (Article 29). Affected persons may bring claims against the company before the courts of the Member State where the company has its principal establishment, within a limitation period of at least five years from the date when the victim becomes aware of the damage.
For a claim to succeed, the claimant must establish: (i) that the company failed to fulfil its due diligence obligations; (ii) that the failure caused the damage; and (iii) the nature and extent of the damage. The CSDDD does not reverse the burden of proof, but provides a legal basis for cases that previously had to be pursued through national tort law with less certainty of outcome.
Administrative penalties must be effective, proportionate and dissuasive. The Directive sets a minimum maximum of 5% of the company’s worldwide net turnover, though Member States may set higher amounts. In Spain, the sanctions regime will be established through the transposing legislation that must be adopted before 26 July 2026.
Relationship with the CSRD and the ESG Package
The CSDDD and the CSRD (Corporate Sustainability Reporting Directive) form part of the same European ESG regulatory ecosystem and are complementary: the CSRD requires sustainability information reporting (including information on due diligence), while the CSDDD establishes the substantive corporate conduct obligations that the CSRD requires to be reported. Coherence between the two instruments requires companies to integrate their compliance systems so that the due diligence process feeds directly into the data for the ESRS sustainability report.
Companies that are already developing CSRD-compliant sustainability reporting have a significant head start on CSDDD compliance, as much of the data collection and supply chain mapping required for ESRS S2 (workers in the value chain) overlaps directly with CSDDD due diligence requirements.
At BMC, our legal and ESG advisory team can guide you through CSDDD compliance preparation and supply chain risk mapping. Learn about our ESG and sustainability services.
