We consume fruit from Africa and South America, chocolate from Côte d'Ivoire, and coffee from Brazil. We wear clothes made in Asia and use mobile phones made from parts manufactured all over the world by people who earn a living through their work. However, the rights of these people, who produce goods for the European market, are often not adequately protected. In fact, 1.4 billion workers worldwide work under inhumane conditions. The number of victims of forced labour and slavery is increasing significantly. According to the latest estimates by the International Labour Organisation (ILO), there are now 28 million people in this situation. Similarly, an increasing number of children worldwide are being forced to work because their parents' wages are insufficient — in gold mines in Burkina Faso, as textile workers in Bangladesh, and on cocoa plantations in Côte d'Ivoire, for example. The situation worsened further during the pandemic, with the ILO currently estimating that there are around 160 million working children. Half of them are under the age of 12.
Because it is a community based on shared values and the world's largest single market, accounting for around 15 percent of global GDP and ranking second in world trade directly after China, the European Union (EU) has a special responsibility to take action against these abuses. Several member states, including Germany, France and the Netherlands, have already adopted national due diligence laws. The EU has also regulated certain areas, such as minerals from conflict areas, the timber market and sustainability reporting, and there is a clear international trend towards making corporate responsibility legally binding, including in the United Nations, the United States of America, Canada, Australia and the United Kingdom. Against this backdrop, concerns about greater global corporate responsibility, legal certainty, and equal and fair competitive conditions within the EU's internal market are becoming increasingly important.
On 23 February 2022, the European Commission presented a proposal for a directive on sustainable corporate governance. On 14 December 2023, a provisional political agreement on the directive was reached between the Presidency of the Council of the European Union and the European Parliament. On 15 March 2024, a qualified majority of EU Member States voted in favour. The European Parliament's Committee on Legal Affairs (JURI) then adopted the political agreement on the directive on 19 March 2024, with 20 votes in favour and 4 against (no abstentions). The European Parliament formally approved the agreement on 24 April 2024. The Council of the European Union formally approved the agreement one month later, on 24 May 2024. Thus, the final step in the decision-making process has been completed and the legal act has been adopted.
The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) contains both human rights and environmental due diligence obligations as well as requirements for a climate plan. The aim is for companies in the EU to implement certain due diligence obligations in order to avoid negative impacts of their business activities on human rights and the environment in their supply chains within and outside Europe.
The directive stipulates that companies within its scope must identify risks in their business area, as well as those relating to their subsidiaries and business partners. They must then take preventative and remedial measures, and report on them. When doing so, companies must appropriately consider both the upstream chain (e.g. raw material extraction and manufacture) and, to a limited extent, the downstream chain (e.g. transport to the end customer). The CSDDD is closely modelled on Germany’s Act on Corporate Due Diligence Obligations in Supply Chains in many respects. It also aligns closely with the UN Guiding Principles on Business and Human Rights, containing clearly formulated due diligence obligations for companies to respect human rights and environmental concerns within their value chains.
The Corporate Sustainability Due Diligence Directive at a glance
The most important components of the directive are
Scope
Companies with more than 1,000 employees and a worldwide net annual turnover of 450 million euros fall under the scope of the directive. Third-country companies also do if they generate more than 450 million euros in turnover per year in the EU. Small and medium-sized enterprises (SME) do not fall within the scope of the directive.
Due dilligence
Companies must identify human rights and certain environmental risks in their value chains, take preventive and remedial measures and publish reports. Companies are only to do what is appropriate in light of the severity of the risk and their individual influence. The annexes to the directive contain internationally binding agreements on both internationally protected human rights and international environmental agreements, from which specific obligations for companies are derived.
Scope of corporate responsibility
This includes the activities of a company's business partners in the upstream supply chain, namely the manufacture of goods and the provision of services. This includes, in particular, product development, raw material extraction, procurement, processing, transport, delivery and storage of products or components. Indirect suppliers in the upstream supply chain are also covered by the regulation.
Secondly, the chain of activity also includes some of the activities of a company's downstream business partners. This includes the distribution, transport and storage of a product if business partners carry out these activities for or on behalf of a company. Indirect business partners are not included here.
Climate action
To combat climate change, all companies under the scope of this directive are required to adopt and put into effect a transition plan for climate change mitigation in order to align their corporate strategy with the 1.5°C target, contribute to the goal of climate neutrality and set corresponding emission reduction targets.
Enforcement
A combination of official controls, including fines and civil liability, is envisaged. The member state authorities are authorised to conduct investigations, carry out inspections, issue orders and impose fines in the event of breaches of due diligence obligations. The national legislator must provide for a maximum fine of 5 percent of the net annual turnover, which is to be applied based on the circumstances of the individual case.
The directive also provides for civil liability, as is already possible under current law in Germany. What is new is that, in future, the law of the EU member states will apply to transnational situations (damages occurring in Bangladesh or Pakistan, for example) instead of the law of the place of damages abroad, as was previously the case. This will improve access to civil court remedy for those affected and simplify proceedings. Otherwise, liability will be governed by German law. This means in particular: Companies are only liable for their own culpability and only for foreseeable and avoidable damages. Companies that have tried to the best of their ability are not liable. In addition, the directive contains further protective elements in the area of access to justice that are already common in Germany’s Act on Corporate Due Diligence Obligations in Supply Chains or in EU law and have been transposed into national law (representative action, statute of limitations, access to information).
The text of the directive provides for numerous support measures, simplifications and efficiency improvements for companies and especially for indirectly affected SME.
The annexes to the directive contain the internationally binding agreements on both internationally protected human rights and international environmental agreements, from which specific obligations for companies are derived.
Entry into force
The directive was published in the Official Journal of the EU on 5 July 2024 and entered into force on 25 July 2024 (20 days after its publication). Member states were initially required to transpose the directive within two years; after this deadline was extended by the so-called "stop-the-clock directive" (Directive (EU) 2025/794), the directive must be transposed into national law by 26 July 2027. Thereafter, the national implementation laws will come into force in stages according to company size until the above-mentioned scope of application applies five years after adoption. Companies are already well prepared for this thanks to Germany’s Act on Corporate Due Diligence Obligations in Supply Chains. In accordance with the provisions of the coalition agreement between the CDU, CSU and SPD for the 21st legislative period, Germany’s Federal Government will implement the directive with a minimum of bureaucracy and in an enforcement-friendly manner.
The gradual implementation of the directive is planned as follows:
- In 2028 (four years after coming into force), the directive will apply to companies with more than 3,000 employees and a turnover of more than 900 million euros;
- In 2029 (five years after entry into force), companies with more than 1,000 employees and a turnover of more than 450 million euros will be included in the final step.
How it all started
The German EU Council Presidency of 2020 as the starting point
As a community of shared values and biggest single market worldwide with a share of 15 percent in all global imports, the EU has a particular responsibility to fight against negative implications on human rights and the environment in global supply chains. In the framework of the German EU Council Presidency, the Federal Ministry of Labour and Social Affairs had invited important stakeholders to an online conference on "Global Supply Chains - Global Responsibility" which took place on 6 and 7 October 2020. The guest list included EU Commissioners Nicolas Schmit and Didier Reynders, the Director-General of the ILO, Guy Ryder, the then Federal Minister of Justice, Christine Lambrecht, the former Federal Minister for Economic Cooperation, Gerd Müller, the Portuguese Minister of Labour, Mendes Godinho, and the Slovenian Minister of Labour, Cigler Kralj, as well as representatives from the European social partners, civil society and businesses. Panel discussions and workshops were held, discussing the question how an EU action plan - "Human Rights and Decent Work in Global Supply Chains" - could be strengthened in order to enhance corporate responsibility across the EU.
The conclusions focused on five fields of action:
- Mandatory due diligence
- European sector dialogues
- EU quality criteria for National Action Plans (NAPs)
- Eliminating child labour, forced labour and human trafficking
- Access to remedies
You can download the conclusions of the conference [PDF, 1MB].