On May 24, the Council of the European Union took the final step to formally adopt the European Corporate Sustainability Due Diligence Directive (CSDDD). It is an important step towards promoting compliance with human rights and environmental standards along the global supply chain and establishing a minimum standard for all member states of the European Union. But it also presents new challenges for companies.     

The Aim of the CSDDD

The Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to identify human rights and environmental risks throughout their entire activity chain. They must take preventive and corrective action, establish a grievance procedure, and develop a climate action plan. These due diligence obligations apply both to upstream business partners such as suppliers and to certain downstream activities such as distribution or recycling. Companies must establish appropriate governance and management processes for verification.     

These companies are affected     

Compared to the original 2023 version, the scope of the EU Supply Chain Act has recently been significantly narrowed. EU companies with more than 1,000 employees and a global annual net turnover of more than €450 million will be affected. Non-EU companies with a net turnover in the EU of more than €450 million will also be affected. Parent companies of groups meeting the above thresholds are also covered. Special rules apply to franchise and holding structures. In total, around 5,500 companies in Europe will be affected.  

Implementation of the Directive   

The EU Supply Chain Act is expected to be published in the Official Journal of the European Union in the summer of 2024 and will enter into force 20 days after publication. Member states will then have two years to implement the regulation into national law. In Germany for instance, the existing German Supply Chain Act (LkSG) is expected to be adapted accordingly. The CSDDD will be applied in stages:   

Year	Scope of application of the EU Supply Chain Act
2027  (3 years after enactment)	EU companies with more than 5,000 employees and more than €1.5 billion in global turnover     Non-EU companies with more than €1.5 billion turnover in the EU
2028  (4 years after enactment)	EU companies with more than 3,000 employees and more than €900 million in global turnover      Non-EU companies with more than €900 million turnover in the EU
2029  (5 years after enactment)	EU companies with more than 1,000 employees and a global turnover of more than €450 million    Non-EU companies with more than €450 million turnover in the EU

CSDDD vs. LkSG – What is the difference?  

In Germany, the EU Supply Chain Act will probably be implemented by amending the German Supply Chain Act. In terms of turnover and number of employees, however, the EU directive will not lead to any extensions in Germany for the time being: the LkSG has already been in force since January 2024 for companies with at least 1,000 employees. The CSDDD, or “CS3D”, differs from the German LkSG in several key points. While the LkSG generally covers direct suppliers and specific risks such as forced labor and environmental protection, the CSDDD also requires measures to be taken against indirect business partners. A significant tightening of the content is the civil liability for damages. While the LkSG did not introduce any new civil law liability bases for breaches of due diligence, the draft EU regulation explicitly provides for civil law liability, with the member states having extensive regulatory options.     

Consequences of non-compliance    

Violations of the EU Supply Chain Act can result in significant sanctions. These are determined by member states on a national basis. Fines of up to five percent of global net turnover are possible. However, the authorities should take into account a company’s cooperation and efforts to minimize the negative impact.    

The right preparation  

The CSDDD requires the collection, processing and preparation of large amounts of data for a complete risk-based review of the entire supply chain. It is essential for affected companies to implement automated assessment systems. This is the only way to quickly identify and respond to risks. Robust data management is essential to ensure the integrity and availability of the required data.  This task cannot be accomplished manually. A software solution like the osapiens HUB is a useful way to analyze and manage data efficiently, compliantly and easily.   

All aspects of compliance on one platform – more than just software

This Software-as-a-Service (SaaS) solution can support the implementation and legal compliance of ESG regulations such as the CSDDD, as well as other relevant aspects. It also provides a transparent and established complaint system that allows stakeholders to effectively report concerns or breaches of due diligence obligations.    

Companies can also use the software solution to accurately calculate their CO2 emissions: The EU Supply Chain Law requires them to create a transition plan to ensure their business model is in line with the Paris Climate Agreement’s goal of limiting global warming to 1.5°C.    

With so many different requirements, companies need to digitize and automate their reporting processes. A holistic software solution is essential. The osapiens HUB is able to collect, process and prepare large amounts of data for professional reporting. This data is used for complex Tier N analysis to monitor indirect supply chains and for flexible adjustments in risk analysis. The osapiens software solution complies with all relevant ESG regulations and their aspects. This makes the osapiens HUB adaptable to different regulatory and legal requirements.