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What does the new Corporate Sustainability Due Diligence Directive require of business?

EU institutions are now negotiating the final pieces of the new Corporate Sustainability Due Diligence Directive (CSDDD). Agreement on the final Directive is expected by the end of 2023.
| Article | Written by Jenny Sandvig
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Here is our take on what to expect, and how to prepare:

  • Due diligence: Companies must identify impacts they may have on human rights and the environment and take appropriate measures to prevent or stop such impacts.
  • Climate: Companies must adopt a plan to ensure that their business model and strategy are compatible with limiting global warming to 1.5 °C. This, in turn, requires at least halving GHG emissions by 2030 and credible net zero plans.
  • Value chain: The Directive may apply to whole or parts of the value chain, although uncertainties remain.
  • Supervision: The Directive will be enforced through a national Supervisory Authority, supported by a European counterpart, with powers to order interim measures and impose penalties that could reach 5% of the company’s worldwide net turnover.
  • Liability: Companies can be sued for damages in case of non-compliance.
  • Applicability: The Directive will likely apply to large companies with > 500 employees and > EUR 150 million in turnover, and possibly also to companies with > 250 employees and > EU 40 million in turnover.

Once adopted, EU Member States will have two years to transpose the Directive into national law.

The CSDD Directive will be EEA relevant, and the Norwegian Transparency Act must likely be amended to keep up with Brussels.

The Directive will go further than the Norwegian Transparency Act in at least three ways:

  • It will cover negative impacts on protected environmental interests as such, not only indirectly through effects on human rights.
  • It will require companies to align their business plan with the 1.5 °C target.
  • It may make it plain that the due diligence obligation extends to the entire value chain. On paper, the Norwegian Act is limited to the supply chain, yet it requires assessments of potential negative impacts that the company “contributes to” irrespective of where such impacts ultimately stem from.

 

For any inquiries, please contact:

Jenny Sandvig, partner and Head of Sustainability

Malin Tønseth, partner and Head of Compliance and Risk