Starting strong with CSDDD: 10 smart steps

In June 2023, the European Parliament approved the Corporate Sustainability Due Diligence Directive (CSDDD): a potential game-changer for businesses, society, and the planet. This legislation aims to limit the negative impacts on human rights and the environment throughout chains of activities by introducing a mandatory due diligence obligation. This entails that businesses must identify and mitigate the negative impacts of their activities on human rights and the environment.

While the CSDDD is still in development¹, we advise businesses not to delay their preparations. Establishing and implementing the so-called due diligence policy will incur significant costs. Suppliers and customers will need to scrutinize each other, potentially leading to the revision or termination of existing contracts and negotiations for new ones. Additionally, new negotiations will need to take place for contract drafting, as unilaterally altering agreements is often not feasible. Therefore, it’s advisable to engage in dialogue and collaborate on finding solutions.

It’s prudent to start well in advance by:

• Developing human rights and environmental policies;
• Conducting a risk analysis of the value chain;
• Establishing a complaints mechanism;
• sIdentifying management involvement in these matters; and
• Evaluating the role, expertise, and staffing of the legal and compliance departments.

We assist you in getting a head start on your preparation for the CSDDD in 10 steps.

A strong start

1. Carefully review the text of the CSDDD
   Ensure familiarity with the terminology and expressed expectations therein. Most requirements outlined in the CSDDD regarding the due diligence process are based on existing soft-law initiatives. Investigate how other businesses currently report on these initiatives and consult the Practical Guide for Companies on CSR and OECD Due Diligence.
2. Conduct a gap analysis
   Compare your current situation with the requirements outlined in the CSDDD to determine the necessary steps to take. What sustainability information do you already possess, and have policies been implemented accordingly?
3. Engage with your stakeholders and map your value chain
   Collaborate with your stakeholders to map out the value chain, identifying the topics that are relevant (material) to them. Understanding your value chain, both upstream and downstream, is crucial.
4. Develop human rights and environmental policies
   Examine companies in the same sector, as their value chains likely resemble yours to some extent and may encompass similar potential risks of human rights and environmental violations. It’s essential to enforce contractual guarantees from your business partners within your value chain through cascade agreements to ensure compliance with your policies.
5. Perform a risk analysis of the value chain
   Review or terminate existing contracts and negotiate new ones. Once you have a clear understanding of your business partners and the actual and potential negative impacts on human rights and the environment in your value chain, it’s wise to engage in discussions to ensure respect for these rights.
6. Continuously execute the due diligence process
   Once you have identified the value chain and actual or potential negative effects, take appropriate action to terminate or reduce these violations. This process is ongoing and responds to changes in the business.
7. Establish a complaints mechanism
   Businesses are required to establish an effective complaints procedure to enable stakeholders to file complaints when they have legitimate concerns about human rights violations and the adverse impact of the business on the environment. This includes within its own operations, those of its subsidiaries, and within its value chain. It’s crucial that complaints are handled independently and impartially.
8. Develop a reporting system and framework
   Develop a framework, including KPIs, benchmarks, objectives, and a robust data strategy. Reporting on compliance and progress in sustainability is only possible if your business has the necessary data of the required quality. Gathering reliable data becomes more challenging the deeper you delve into the value chain.
9. Compile a transition report
   Measure progress and gather data to compile a transition report. This report provides insight into ‘where your business stands’ concerning exercising due diligence in its value chain.
10. Evaluate and improve
    Evaluate the transition report and implement the findings into your business’s due diligence policy. Many businesses will require several years to carry out a due diligence process that fully complies with the CSDDD. Depending on progress, it may be necessary to repeat steps 9 and 10. Want to learn more?

Our consultants are here to assist you in establishing a due diligence policy that meets all CSDDD requirements. Learn more about how we can help you prepare for the CSDDD, or feel free to contact us for further information.

1. The final compromise text on the CSDDD was put forward for endorsement by Ambassadors at Coreper. The current situation will now be assessed and the feasibility of addressing the concerns raised by member states will be explored, in collaboration with the European Parliament. ↩︎