On Friday, March 15, the member states of the European Union approved the Directive on Corporate Sustainability Due Diligence (CSDDD). This pioneering agreement is about to introduce a framework that will require companies operating in the EU to incorporate sustainable practices and due diligence processes in their operations and value chain.
Following this decision by the European Council, the CSDDD still needs to pass through the European Parliament for final approval in a vote scheduled for mid-April. However, this news is already a success, as the continuity of the regulation was not guaranteed until the day of the vote. In the weeks leading up to it, several concessions were made to soften the law due to resistance from countries such as Italy, France, and Germany.
Now, its scope has been reduced by almost 70%, and it only applies to approximately 0.05% of EU companies (around 5,400). However, it will still indirectly affect many more organizations along global value chains, as large companies within the scope will cascade the requirements down to their partners and suppliers. Therefore, the commitment to sustainability remains intact, and it will help improve the protection of human rights and environmental care in supply chains.
The CSDDD will apply to entities with a minimum of one thousand employees, provided that EU companies have a worldwide net turnover of at least 450 million euros or that external companies have a turnover of at least 450 million generated within the EU. After negotiations, the focus on high-risk sectors has been excluded, and companies already covered by the CSRD regulation are not required to comply with the CSDDD.
This approval is a major step towards social and environmental sustainability, as it will not only positively impact people and the planet, but it will also allow companies to better mitigate the risks inherent in a globalized value chain, such as supply chain disruptions, cost volatility, and reputation-related incidents. In the long term, this risk mitigation and due diligence framework will help companies be prepared to comply with carbon emissions legislation and drive the transition towards more sustainable models.
In this way, the CSDDD will have a clear impact on companies’ plans to reduce Scope 3 emissions, which are emissions generated throughout the supply chain by a company’s partners. These emissions can account for up to 90% of pollution. Currently, only 3% of Spanish companies engage their suppliers in reducing carbon emissions, according to EcoVadis’ Carbon Action Report 2023. This puts Spain below France or Germany, countries that already have their own due diligence regulations. Meanwhile, Spain still needs to approve its Law on the protection of human rights, sustainability, and due diligence in transnational business activities, which has been paused since 2022.
The approval of the CSDDD will have a direct impact on these results, but it is essential for entities to stay ahead of the transposition of European laws into local regulations and show their commitment to the environment and society. Therefore, in 2024, we will increasingly see more companies advancing in their sustainable activities not only to comply with regulations but with the goal of demonstrating a real commitment to minimizing risks, building resilience, and improving relationships with their suppliers.
Environmental care is often perceived as a mere obligation or a problem, but in reality, sustainability acts as an economic and competitive value. In fact, brands that anticipate upcoming European legislation and achieve good sustainability results will be better positioned in the sector compared to those that do not yet meet the minimum requirements.
Thus, companies’ commitment to decarbonization begins by analyzing their emissions with assessments like those provided by EcoVadis. From there, it is possible to identify specific objectives and improvement strategies to achieve real results that positively impact their business, society, and the planet.
