FAQ Corporate Sustainability Due Diligence Directive (CSDDD)

1. What exactly is the CSDDD?

The European Union’s Corporate Sustainability Due Diligence Directive requires large companies to incorporate responsible conduct principles into their business models and strategies within global value chains. It obliges companies to identify and avoid human rights and environmental risks in future. To this end, the Directive sets out specific due diligence obligations (see FAQ 13: What are the requirements for companies under the CSDDD?) that apply to the entire value chain of a company.

2. What is the EU’s aim in adopting this directive?

The goals of the CSDDD are essentially the same as those of Germany’s Supply Chain Due Diligence Act, which is why the CSDDD is often referred to as the European Supply Chain Act. Like the German Act, the CSDDD aims to promote greater social justice and environmental sustainability within companies' value chains. EU companies are expected to implement certain due diligence obligations to prevent their operations from having an adverse impact on human rights and the environment, both within and outside Europe.

3. Why is the CSDDD necessary?

Over the past few decades, it has become clear that voluntary self-commitments by companies are insufficient to make globalisation fair and socially sustainable. Serious human rights violations and environmental degradation resulting from product manufacturing are still not uncommon. Conversely, the CSDDD aims to future-proof Europe’s economy by making it more sustainable and socially fair. Such a transformation lies at the heart of all EU policies. The European Directive on corporate sustainability due diligence is also about these goals. It provides companies in the European single market with a binding legal framework that defines their due diligence obligations in this process (see FAQ 13: What are the requirements for companies under the CSDDD?).

The CSDDD forms part of a network of existing European and international efforts by individual countries to establish binding rules to protect human rights and the environment, both nationally and transnationally. This includes the United Nations' 2011 Guiding Principles on Business and Human Rights, which were adopted by consensus by UN member states, including Germany. These principles are considered binding under international law. In addition, there have been negotiations about a global instrument for the protection of human rights and the environment at the international working level as part of what is called the UN treaty process. since 2014.

4. Are there international standards for corporate sustainability due diligence obligations?

In 2011, the United Nations Guiding Principles on Business and Human Rights were adopted. The UN Guiding Principles were created in reaction to a pressing global challenge: the uneven distribution of the benefits and downsides of globalisation. The Guiding Principles aim to make globalisation more socially sustainable and to enforce the responsibility of companies for human rights.

The 31 Guiding Principles are grouped into three pillars. On the one hand, individual states have a duty to protect their citizens from human rights violations - some of which are committed by companies. On the other hand, they also include a responsibility for companies to provide this protection - even if states fail to fulfil their duties. This demand was also included by the Organisation for Economic Co-operation and Development (OECD) in its Guidelines for Multinational Enterprises. The OECD introduced its guidelines as far back as 1976 to promote responsible business conduct and has updated them regularly, most recently in 2023. Today, the Guidelines not only cover areas such as human rights, workers’ rights, environmental protection and corruption, but also climate protection and biodiversity. Both the UN Guiding Principles and the OECD Guidelines aim to give people affected by human rights violations better access to effective complaint mechanisms.

The CSDDD refers to the UN Guiding Principles and the OECD Guidelines directly and establishes a binding legal framework within the EU by requiring companies to respect human rights pro-actively. The CSDDD creates an obligation for companies to identify and address risks in their entire value chains. This also applies to their subsidiaries and suppliers. Recommended reading: Read the interview (in German) with Maxi Kammbach, Sustainability Analyst at Vattenfall, on why her company welcomes this European legislation.

5. Why does the EU not count on voluntary activities by companies to improve human rights and the environment?

Existing legal frameworks by the United Nations and the OECD have already exhorted companies to take voluntary action in order to prevent environmental degradation and human rights violations in their supply chains. There are good reasons for that: Studies show that companies become more resilient and innovative if they incorporate sustainability aspects in their business processes and value chains (see question 18: What does the CSDDD mean for European companies?). Although a study commissioned by the European Commission found that about one in three of all companies from all sectors were conducting sustainability assessments, their actions were usually not broad-based. Rather, they primarily focused on companies from the next level or tier of their value chain. However, human rights violations and environmental degradation usually occur at the bottom end of the value chain. Thanks to the CSDDD, the EU will ensure an equal and more rapid transformation process, meeting the global responsibility, to which the EU member states have committed themselves, in a legally binding way.

6. When does the CSDDD enter into force?

The Directive entered into force on 25 July 2024 (20 days after its publication). Implementation by the Member States was initially due to take place within two years. Following the extension of this deadline by the so-called ‘Stop-the-Clock Directive’ (Directive (EU) 2025/794) and the Omnibus I Directive, the CSDDD must be transposed into national law by 26 July 2028.

7. What changes does the Omnibus I Directive introduce?

After its entry into force in July 2024, the European Supply Chain Directive (CSDDD) was renegotiated as part of the Omnibus I Directive. The aim of the omnibus procedure was to effectively reduce unnecessary administrative burdens and simplify procedures for businesses while maintaining the level of protection for human rights and the environment. One of the most significant changes is that the scope of the CSDDD has been narrowed to apply only to companies with 5,000 employees and a turnover of 1.5 billion euros. Other limitations include the deletion of the EU-wide civil liability standard and of the requirement to draw up a climate transition plan. The risk-based approach enabling companies to focus on the most serious shortcomings across the entire supply chain has been adopted.

8. To what extent does the CSDDD influence other EU Directives or initiatives on sustainability and human rights?

The CSDDD provides companies with a general legal framework for making their business models sustainable and socially fair. Sector-specific laws with the same goals but more far-reaching or more specific obligations override the general requirements of the CSDDD in case of a clash of rules.

The EU Corporate Sustainability Due Diligence Directive complements other EU initiatives for the protection of human rights or the environment. Moreover, the CSDDD contains references to existing legal provisions for certain obligations. For example, the Directive contains a reference to the Corporate Sustainability Reporting Directive (CSRD) regarding reporting obligations, avoiding unnecessary duplication for companies that fall under the scope of both directives. For companies not already covered by the CSRD, the EU Corporate Sustainability Due Diligence Directive complements the existing rules by providing a simplified and harmonised reporting framework.

9. Which companies and business areas fall under the scope of the CSDDD?

The new version of the EU Directive applies to companies with more than 5,000 employees and an annual net turnover of more than 1.5 billion euros. It also applies to non-EU companies if their annual net turnover in the EU exceeds 1.5 billion euros. In addition, the CSDDD covers franchisors/licensors that work with self-employed persons in the EU, generating royalties of more than 75 million euros and a total global net turnover of more than 275 million euros.

The CSDDD extends to the activities of a company and its business partners related to the manufacturing of goods and the provision of services in the upstream and parts of the downstream supply chain. This includes, in particular, the design of products, the extraction of raw materials, sourcing, manufacture, transport, supply and storage of products or parts of products. As is the case under the German Supply Chain Act, the CSDDD also covers the activities of indirect upstream suppliers in the supply chain.

Moreover, some activities of a company’s downstream business partners also come under the scope of the CSDDD, namely the distribution, transport and storage of the product, where the business partner carries out those activities for the company or on its behalf.

10. What does the CSDDD mean for small and medium-sized companies?

Micro-enterprises and small and medium-sized companies (SMEs) do not fall under the scope of the CSDDD. However, they may nonetheless be affected by the CSDDD standards if they supply products or services to a company that falls under the scope of the CSDDD. However, companies may, in principle, only request such information from business partners with fewer than 5,000 employees that cannot be obtained from other sources with reasonable effort. Moreover, the CSDDD provides for various kinds of support and safeguards for SMEs operating as business partners of companies within its scope.

The SME Compass of the Helpdesk for Business & Human Rights and the das Federal Office for Economic Affairs and Export Control already offers helpful information and guidelines on the implementation of due diligence obligations to German companies.

11. Which human rights does the CSDDD cover?

The CSDDD offers targeted protection for those human rights and environmental concerns that are commonly affected by the adverse impacts of business activities. Annex I of the Directive lists the protected human rights. Protected rights include the right to life, the freedom of association, workers’ health and workplace safety. Annex I contains 16 specific human rights and workers’ rights protected by the Directive. The rights are derived from the international instruments listed in Annex I: the core labour standards of the International Labour Organization (ILO), the two UN human rights covenants of 1966 and other conventions.

12. Which environmental impacts does the CSDDD address?

Annex II of the Directive lists the environmental aspects requiring due diligence on the part of companies: Examples include dangers posed by especially harmful substances (e.g. mercury, persistent organic pollutants and hazardous waste), as well as the protection of biodiversity, the world’s natural heritage, wetlands and the marine environment. The protection of the respective environment-related rights is based on the international conventions listed in Annex II.

13. What are the requirements for companies under the CSDDD?

Under the CSDDD, in-scope companies must introduce a risk-based system to monitor, prevent and remedy human rights violations and adverse environmental impacts. Similar to the German Supply Chain Act, these are the most important aspects:

• Risk analysis: Companies must identify existing risks related to the protection of the environment and human rights both in their own business operations and with a view to subsidiaries and business partners. o Prevention measures: Companies must engage in prevention measures to avoid non-compliance with their due diligence obligations. The required measures depend on factors such as the likelihood and severity of the risk.
• Prevention measures: Companies must engage in prevention measures to avoid non-compliance with their due diligence obligations. The required measures depend on factors such as the likelihood and severity of the risk.
• Complaints procedure: The CSDDD requires the establishment of a complaints procedure. All persons in the entire value chain that may be affected by violations must have access to the complaints procedure. In addition, a reporting mechanism is to be set up to submit information regarding risks.
• Remediation measures: If a violation of the due diligence obligations is identified, companies must take appropriate measures to remedy or minimise the adverse impacts of their activities and the activities of their suppliers.
• Periodic assessments: Companies are obliged to review the effectiveness of their sustainability policies and the associated measures at least every five years and on specific occasions.
• Reporting obligations: Companies must inform the public about how they implement their due diligence obligations. This especially includes annual reports by companies that are not already covered by the CSRD reporting obligation (see FAQ question 8: To what extent does the CSDDD influence other EU Directives or initiatives on sustainability and human rights?).

14. How will the new rules be enforced?

The CSDDD rules will be enforced through administrative supervision in the individual member states. Public authorities in the member states will have the authority to investigate, carry out inspections and impose fines for violations. Companies not meeting the prescribed due diligence obligations can be sanctioned with fines amounting to up to 3 percent of their net worldwide turnover.

Important to note: Under current German civil law, companies are already only held liable for their own failures and only for predictable and avoidable damage. Companies that have undertaken their best efforts will not be held liable.

15. What is new in the CSDDD compared to the German Supply Chain Act?

Important aspects of the CSDDD closely resemble the German Supply Chain Due Diligence Act. Moreover, the CSDDD also draws heavily on the UN Guiding Principles on Business and Human Rights, containing clearly formulated due diligence obligations for companies in the interest of respect for human rights and environmental standards in value chains. While the German Supply Chain Act and the CSDDD have similar provisions regarding human rights protections, the CSDDD goes considerably further in the area of environmental protection: Furthermore, unlike under the German Supply Chain Act, the CSDDD does not require ‘substantiated knowledge’ for the risk analysis in the downstream supply chain. Additionally, the CSDDD expressly restricts the possibility of obtaining information on a blanket basis from smaller companies as part of the risk analysis, in order to protect them from unduly burdensome requests.

Stakeholder involvement: Furthermore, the Directive emphasises even greater stakeholder involvement regarding compliance with the due diligence obligations.

The general rule is: Companies that already implement the standards laid down in the German Supply Chain Act or are in the process of implementing them are very well-prepared for the CSDDD.

16. How can companies prepare for the new legislation?

The general rule is: Most major companies in Germany have already addressed the requirements of the German Supply Chain Act. This puts them a step ahead of many other European companies.

To prepare for the new CSDDD early on, they can continue to make use of the various support services provided by the German Government: For example, free advice from the Helpdesk on Business and Human Rights, comprehensive guidance on issues such as risk assessment risk assessment and complaint mechanisms of the Federal Office for Economic Affairs and Export Control or the country-specific information published by Germany Trade & Invest together with the Federal Foreign Office and the German Chamber of Commerce and Industry.

Um sich frühzeitig auf die neue Richtlinie vorzubereiten, können sie auch weiterhin auf die vielfältigen Unterstützungsangebote der Bundesregierung zurückgreifen: Etwa die kostenfreie Beratung durch den Helpdesk Wirtschaft & Menschenrechte, umfassende Handreichungen zu Themen wie z.B. Risikoanalyse und Beschwerdeverfahren des Bundesamts für Wirtschaft und Ausfuhrkontrolle oder auch die länderspezifischen Informationen, die Germany Trade & Invest gemeinsam mit dem Auswärtigen Amt sowie der Deutschen Industrie- und Handelskammer zur Verfügung stellt.

As regards the CSDDD, the EU Commission will offer similar services, too.

17. What does the CSDDD mean for EU citizens?

The CSDDD is in line with the desire of many citizens and civil society organisations for a better protection of human and workers’ rights, including beyond European borders - at least with regard to the manufacturing of products made by EU companies. In future, consumers can be sure that EU companies and companies generating large profits in the EU respect their global due diligence obligations and implement the corresponding measures transparently.

18. What does the CSDDD mean for European companies?

Some EU member states, for example, Germany, had already passed supply chain legislation or were moving in this direction. This has led to a great amount of legal uncertainty for trade within the EU as each law sets different standards. The CSDDD creates clear rules for everyone, ensuring a level playing field and legal certainty for companies, since harmonised rules with regard to due diligence now apply across the EU.

The CSDDD creates clear rules for everyone, ensuring a level playing field and legal certainty for companies, since harmonised rules with regard to due diligence now apply across the EU.

By having to take a closer look at the impact of their activities on human beings and the environment, companies can minimise their risks while boosting their resilience. At the end of the day, this makes them more competitive. Last but not least, they become more attractive for investors and public purchasers, but especially for workers and consumers who care about sustainability.

19. What is the global impact of the CSDDD?

The CSDDD has the potential to lead to a paradigm shift far beyond the borders of the EU. On the one hand, it requires European companies to protect human rights and the environment worldwide, helping to improve people’s living conditions. On the other hand, it also creates obligations for companies operating across the globe that have a large footprint in Europe. In this way, the CSDDD can influence the management of these companies, which has a global outlook (see question 9: Which companies and business areas fall under the scope of the CSDDD?). This will change international production processes in the long-term and make them more sustainable.

In this way, the CSDDD will promote sustainable investment, strengthening companies in the entire supply chain. The CSDDD thus fosters more sustainable business practices around the globe and helps to ensure greater respect for international standards for human rights and environmental protection.

Through the CSDDD, the EU is setting binding standards in an international context, while being part of an international trend. The U.S. already has a law against forced labour; Brazil and Canada are planning supply chain due diligence legislation. Colombia, Chile, Thailand, South Korea, Malaysia and Indonesia are also considering regulations on corporate responsibility. The UN is also working on a globally binding instrument for sustainable business and human rights. These efforts are known as the UN treaty process. The EU can lead the way in these efforts, while already preparing for the business and trade standards of the future.