As part of its strategy for a greener and more responsible economy, the European Union has adopted one of the most ambitious regulations of recent years: the Corporate Sustainability Due Diligence Directive (CSDDD). This new legislation, adopted in 2024, is a key pillar of European regulatory law towards sustainable business practices that respect human rights and the environment.
The CSDDD imposes binding legal obligations on a wide range of companies, requiring them to identify, prevent, mitigate, and remedy the negative impacts of their business activities — and those of their business partners — across their entire value chain. Therefore, if your company operates in the European market, whether as a parent company, subsidiary, supplier, or subcontractor, it is essential to understand this Directive.
What is the CSDDD and who does it apply to?
The Corporate Sustainability Due Diligence Directive (CSDDD), also known as the sustainability due diligence directive, aims to ensure that companies integrate environmental, social, and governance (ESG) criteria into their business strategies.
Companies directly subject to the Directive
The following entities will be required to comply with the CSDDD:
- EU-based companies with more than 1.000 employees and a global net turnover exceeding EUR 450 million.
- Parent companies of groups exceeding these thresholds on a consolidated basis.
- Non-EU companies that generate the same level of turnover within the territory of the European Union.
These companies will be required to implement due diligence policies, establish monitoring mechanisms, and ensure the existence of effective whistleblowing channels.
Companies indirectly affected
In addition, many SMEs, suppliers, and subcontractors will be indirectly affected, especially if they are part of the supply chains or business relationships of large corporate groups. In practice, even smaller companies will need to adapt to new contractual, transparency, and compliance standards in order to maintain commercial relationships.
🗓️ Timeline: implementation deadlines for the CSDDD
To ensure a gradual transition, the Corporate Sustainability Due Diligence Directive (CSDDD) establishes a phased implementation timeline:
- 2024 – Formal adoption of the Directive: The Council of the European Union and the European Parliament officially adopted the Directive in 2024.
- 2025–2026 – Transposition into national laws: EU Member States have a maximum of two years to transpose the Directive into their national legal systems.
- 2027 – Application to large companies (over 5,000 employees): Companies with more than 5,000 employees and a global net turnover exceeding EUR 1.5 billion.
- 2028 – Application to companies with more than 1,000 employees and turnover above EUR 450 million.
What does the corporate sustainability due diligence directive require from companies?
Legal obligations in corporate sustainability
The Corporate Sustainability Due Diligence Directive (CSDDD) establishes a set of legal obligations that must be integrated into the strategy and governance of companies. These obligations are not merely ethical; non-compliance can result in civil liability, administrative sanctions, and reputational damage.
Specifically, the Directive structures compliance into six major stages, ranging from risk identification to public disclosure of results. These are detailed below:
1. Risk identification and assessment
The first step in due diligence is to carry out a comprehensive analysis of actual and potential risks arising from business activities, both directly and indirectly. Companies must examine their value chains to identify possible breaches related to:
- Human rights (forced labour, child labour, discrimination)
- Decent working conditions
- Occupational health and safety
- Environmental impacts (emissions, deforestation, resource use)
- Loss of biodiversity
This analysis must cover all subsidiaries, suppliers, and business partners—without exception.
2. Prevention and mitigation of risks
Once the risks have been identified, companies are required to adopt appropriate measures to prevent or, if not possible, mitigate them. Required actions include:
- Internal sustainability and due diligence policies
- Contractual clauses with suppliers
- Internal and external audits
- Codes of conduct
- Training and awareness-raising plans for employees and business partners
These measures must be proportionate to the level of identified risk and tailored to the sectoral and geographical context of the company.
3. Cessation or minimisation of adverse impacts
When a company detects that its activities—or those of its partners—are causing adverse effects on human rights or the environment, it has a legal obligation to cease such conduct or, at the very least, minimise it as far as possible.
This may include, for example, terminating contracts with non-compliant suppliers, reviewing operational practices, and applying compensation measures for affected individuals. Failure to act in the face of a known violation may result in direct legal liability for the parent company.
4. Internal complaints mechanism
The Directive requires companies to establish an accessible, transparent, and secure complaints mechanism for all stakeholders, including employees and trade unions, suppliers and subcontractors, affected communities, NGOs, and human rights defenders. This system must ensure the right to file complaints confidentially and receive an effective response from the company.
5. Monitoring, verification and control of measures adopted
Implementing measures is not enough: companies must establish an ongoing system of monitoring and evaluation to assess the effectiveness of the implemented policies and detect any deviations. The CSDDD requires:
- Periodic review (at least annually)
- Compliance indicators
- Documented results
6. Transparency and public communication
Finally, the Directive imposes an obligation of transparency. Companies must publish an annual report on their due diligence policy, which must include:
- The measures taken at each stage of the process
- Monitoring findings
- Corrective actions implemented
- Available complaints mechanisms
This report must be publicly available and easily accessible.
What are the legal consequences of non-compliance with the CSDDD?
Failure to comply with the obligations imposed by the Corporate Sustainability Due Diligence Directive (CSDDD) entails serious legal consequences. Companies that do not properly integrate these requirements into their structures and operations may face:
- Significant financial penalties, imposed by national supervisory authorities (up to 5% of the company’s global net turnover)
- Reputational damage, resulting from a lack of commitment to ESG principles
- Civil liability claims for damages, brought by affected natural or legal persons
Indeed, the CSDDD requires Member States to establish an administrative supervisory system. This system will empower competent authorities to carry out inspections and audits, and to request information and documentation from companies.
In addition, the Directive explicitly recognises the right to bring civil liability actions for non-contractual damage, where harm has been caused to third parties due to a company’s non-compliance.
Real impact on the supply chain and business relationships
In practice, this means that you will need to adapt to new conditions contractually imposed by your key clients or business partners. These requirements will have concrete repercussions on:
- Adaptation of contracts and liability clauses
- Review and monitoring of suppliers: it will be necessary to verify the traceability of products or services, ensuring respect for human and environmental rights throughout the entire value chain
- Certifications, audits, and external controls: companies may be required to obtain sustainability certifications, undergo compliance audits, and participate in independent verification systems
- Strengthening of compliance and sustainability departments: this includes implementing clear internal policies, appointing responsible officers, training staff, and establishing whistleblower channels
As a result, failing to adapt in time to the indirect requirements of the CSDDD may lead to a loss of competitiveness, including contract cancellations, exclusion from EU public tenders, difficulties in accessing financing, and loss of trust from investors and stakeholders.
Competitive advantages of anticipating the corporate sustainability Due Diligence Directive
Beyond legal compliance, anticipating the application of the Directive can position your company as:
- A preferred supplier in European public procurement processes
- A reliable partner for international groups seeking traceability and sustainability
- An attractive company for ESG-focused investors
- A reputable brand in the eyes of increasingly responsible consumers
How does the corporate sustainability due diligence Directive align with other existing EU regulations?
The Corporate Sustainability Due Diligence Directive (CSDDD) does not operate in isolation, but rather forms part of a broader EU regulatory framework aimed at achieving a responsible, green, and rights-respecting economy. The Directive must be coordinated with the following key instruments:
- CSRD – Corporate sustainability reporting Directive: The CSRD requires companies to publicly report on their sustainability risks, policies, and performance. The two directives are complementary: what cannot be substantiated in sustainability reports (CSRD) may give rise to legal liability under the CSDDD.
- EU Green taxonomy regulation: This regulation defines technical screening criteria to determine which economic activities can be considered environmentally sustainable. While the Taxonomy provides classification, the CSDDD requires action—specifically, to address activities that pose environmental or social risks.
- Regulation on deforestation-free products: This regulation prohibits the placing on the EU market of products linked to deforestation, and requires companies to ensure traceability and verification. The CSDDD complements this by imposing cross-cutting due diligence obligations regarding environmental impacts across the supply chain.
- Directive (EU) 2024/825 on greenwashing: This directive on environmental claims prohibits generic, unverifiable green claims in commercial communications. The CSDDD reinforces this by requiring genuine and effective sustainability measures, not just marketing commitments. Companies must avoid misleading commercial practices.
At our law firm, we have specialised legal experts in corporate and European legal reports, ready to guide your business through this evolving regulatory landscape.
Practical cases and scenarios: how can the CSDDD affect you?
To better understand the practical implications of the Corporate Sustainability Due Diligence Directive (CSDDD), we analyse real-life scenarios that we are already working on at Arthur & Marin.
Case 1: Spanish industrial subcontractor working with german multinationals
A medium-sized company in the metal sector with 80 employees began receiving contractual annexes from major European clients, requiring environmental compliance certificates, internal protocols against forced labour, and annual external audits.
✅ Solution: Contract review, implementation of internal policies, whistleblower channel, and rapid training. Result: Contract maintained and ESG profile of the company improved.
Case 2: Textile supplier in France at risk of exclusion
An SME in the fashion industry with 30 employees was warned that it would no longer be able to act as a supplier to a major European luxury brand without providing proof of compliance with new sustainability standards.
✅ Solution: Rapid implementation of a traceability and due diligence system for suppliers in India and Morocco. Result: Supplier retained and commercial reputation enhanced.
Case 3: Belgian tech startup below thresholds
Although the company itself did not meet the thresholds of the Directive, it was included within the compliance perimeter of its majority investor. It was required to submit a due diligence report and amend its contracts with freelancers in Asia.
✅ Solution: Legal advice to adapt international labour clauses and implement an internal compliance policy. Result: Increased perceived value during investment round.
Frequently asked questions about the CSDDD (FAQ)
What is the difference between the CSDDD and the CSRD?
Although both directives are part of the EU’s ESG regulatory framework, they serve different purposes. The CSRD (Corporate Sustainability Reporting Directive) focuses on the obligation to report non-financial information related to sustainability, diversity, human rights, and environmental impact. The CSDDD (Corporate Sustainability Due Diligence Directive), by contrast, imposes an active obligation to identify, prevent, and remedy negative impacts across the value chain.
Which sectors are most exposed to compliance with the Corporate sustainability Due Diligence Directive?
The Directive applies horizontally across industries but particularly affects sectors with complex supply chains and reputational risk, such as:
- Textile, fashion, and footwear
- Agri-food
- Automotive and industrial components
- Energy and raw materials
- Electronics and ICT
- Construction
How does the CSDDD affect private label brands and distributors?
If your company distributes third-party products under its own brand, the Directive assigns you direct responsibility for any negative impacts linked to those products. This means:
- Evaluating manufacturers and their environmental/labour practices
- Setting up control and monitoring mechanisms
- Assuming potential sanctions or legal claims
Can sustainability and due diligence be outsourced?
Certain elements can be outsourced to specialised third parties — such as audits, traceability tools, or training.
However, ultimate responsibility always remains with the obligated company.
Is your company ready to comply with the corporate sustainability Due Diligence Directive?
Anticipating change is key to protecting your reputation, meeting client expectations, and securing access to public tenders and sustainable financing. At Arthur & Marin, we offer comprehensive legal advice to help your company successfully adapt to the new Corporate Sustainability Due Diligence Directive (CSDDD). Our mission is to help you achieve compliance, avoid sanctions, and turn regulatory obligations into a competitive advantage. Our services include, among others:
- Legal audits of sustainability and due diligence throughout your value chain
- Review and adaptation of contracts with suppliers and business partners
- Legal representation in inspections, administrative proceedings, and litigation
We have a team of lawyers specialised in European Union law, regulatory compliance, and corporate sustainability, with extensive experience in highly regulated sectors.
📩 Contact us at info@arthurmarin.com or by phone at +32 465 345 345.
💡Stay ahead of the curve and turn new business obligations into an opportunity.
