Companies must monitor compliance with environmental standards and human rights across their supply chains: that is what the due diligence directive (CSDDD) requires.
Mapping one's own value chain in order to identify, prevent and reduce the risk of environmental harm or human rights violations. That, in a nutshell, is the purpose of the European due diligence directive (CSDDD). A text that is revolutionary in its own right, because it assigns companies responsibility for activities that take place outside their own facilities, in the factories of suppliers and sub-suppliers often scattered across every corner of the globe. Large companies, in short, cannot claim ignorance: they must do everything possible to avoid risks – for example by revising contracts, conducting audits or changing suppliers – and remedy any violations.
After a lengthy and not always straightforward legislative process, the text was approved in spring 2024. But the following year the European institutions decided to streamline it, alongside the Corporate Sustainability Reporting Directive (CSRD), through the first Omnibus package. The underlying principles remain unchanged, but the scope of companies affected has been reduced and the burdens made lighter.
The application threshold, initially set at one thousand employees and 450 million euros in net turnover, has been raised. The political agreement reached between the European Parliament and the Council stipulates that the directive will apply to companies with at least 5,000 employees and 1.5 billion euros in net turnover. The timelines have also been revised: member states will be required to transpose the directive by 26 July 2028, and companies will have until July 2029 to comply, with no further staggered timetables based on company size.
The negotiations also addressed the informational scope of the directive. The agreed text no longer requires a full mapping of the supply chain, but instead introduces a more flexible approach based on reasonably available information. Companies will be expected to direct their due diligence activities towards the areas where they estimate a higher likelihood of negative impacts, taking into account both direct and indirect suppliers. The option of limiting due diligence to the first tier (Tier 1), which was considered during negotiations, has been dropped: a priority hierarchy is nonetheless established, whereby, where risks are of equal severity and likelihood, the company may begin its analysis with direct business partners before moving on to others.
The Omnibus package also removes the obligation to draw up transition plans for the mitigation of climate change, as well as the harmonised civil liability regime at European level. This means that any compensation claims will continue to be governed by national legislation, with procedural differences across member states. With regard to sanctions, the co-legislators agreed on a maximum cap of 3 per cent of the company's worldwide net turnover: the Commission will subsequently provide more detailed guidance.