As global concerns over human rights, environmental impact, and ethical business practices grow, the European Union has introduced the Corporate Due Diligence Directive (CDDD) to address these issues comprehensively. This new regulation aims to hold companies accountable for their entire supply chains, ensuring they uphold high standards of due diligence. In this article, we explore the essentials of the CDDD, its implications, and the benefits of compliance for your businesses.

Understanding the New CDDD Norm
The Corporate Due Diligence Directive (CDDD) represents a significant step in regulating corporate responsibility and sustainability within the European Union. The directive requires companies to integrate due diligence practices into their operations and supply chains to mitigate human rights abuses and environmental damage.

Key components of the CDDD include:

  • Due Diligence Obligations: Companies must conduct thorough assessments of their supply chains to identify, prevent, and mitigate human rights and environmental risks.
  • Reporting Requirements: Companies are required to report on their due diligence activities, including how they address and manage risks related to human rights and environmental impact.
  • Stakeholder Engagement: Companies must engage with affected stakeholders, including workers and local communities, to address grievances and improve practices.
  • Accountability Measures: The directive introduces mechanisms for holding companies accountable for failures in their due diligence processes, including potential legal liabilities.

Pressures Induced by CDDD

The CDDD creates several pressures for companies, including:

  • Increased Due Diligence Requirements: Companies must invest in extensive due diligence processes to assess and manage risks throughout their supply chains.
  • Higher Compliance Costs: Implementing comprehensive due diligence systems and reporting mechanisms can lead to increased operational costs.
  • Legal and Reputational Risks: Non-compliance with the CDDD can result in legal repercussions and damage to a company’s reputation.
  • Supply Chain Complexity: Companies will need to engage with a broader range of suppliers and partners to ensure compliance, adding complexity to supply chain management.

When Does CDDD Come into Force? The CDDD’s timeline is as follows:

Proposal and Adoption: The CDDD was proposed in February 2022 and is expected to be formally adopted by the EU institutions by late 2024. Implementation Timeline: Once adopted, EU member states will have a period to transpose the directive into national law, typically within 18 months. This means that companies should anticipate compliance requirements beginning in early 2026.

“At its core, the issue of a clean environment is a matter of public health.”
– Gina McCarthy, Administrator for the U.S. Environmental Protection Agency

Who Needs to Comply with CDDD? The CDDD applies to:

  • Large Companies: The directive targets large companies operating within the EU, which includes firms with more than 500 employees and a net turnover exceeding €150 million.
    High-Risk Sectors: Companies in high-risk sectors, such as mining, textiles, and agriculture, will be subject to more stringent due diligence requirements.
  • Non-EU Companies: Non-EU companies with significant operations within the EU will also need to comply if they meet the size and turnover criteria.

Benefits for Companies Implementing the New CDDD Rules

Implementing the CDDD can offer several advantages for companies:

  • Enhanced Risk Management: A robust due diligence process helps identify and mitigate risks related to human rights and environmental issues, reducing potential liabilities.
    Improved Reputation: Companies that demonstrate a commitment to ethical practices and transparency can strengthen their reputation and build trust with consumers and investors.
  • Market Access: Compliance with the CDDD can facilitate access to EU markets and supply chains, where ethical and sustainable practices are increasingly valued.
  • Stakeholder Relations: Engaging with stakeholders and addressing their concerns can improve relationships and foster a positive business environment.

In summary, the Corporate Due Diligence Directive (CDDD) represents a transformative regulation aimed at promoting corporate responsibility and sustainability. By understanding and adapting to the new requirements, companies can better manage risks, enhance their reputation, and position themselves favorably in the evolving global market. As the directive progresses towards implementation, businesses should begin preparing for compliance to reap the benefits of a more ethical and transparent approach to due diligence. 

CONTACT US to understand how to go further and prepare to comply.