The Pre-CSDDD Landscape: Voluntary Efforts and Fragmented Regulations 

Before the introduction of the CSDDD, corporate responsibility for sustainability in the EU was primarily driven by a mix of market forces, stakeholder expectations, voluntary initiatives, and country-specific regulations. Companies that were proactive in addressing environmental and human rights issues often did so as part of their corporate social responsibility programs or in response to consumer demand. However, these efforts were not universally applied, and many companies, particularly those not under intense public scrutiny, did not prioritize sustainability. 

This fragmented approach meant that businesses faced differing levels of responsibility depending on the frameworks they chose to follow. Many relied on voluntary guidelines such as the United Nations Guiding Principles on Business and Human Rights or the OECD Guidelines for Multinational Enterprises. However, compliance with these guidelines was largely self-regulated, and while some businesses adopted them, enforcement remained inconsistent and often limited to reputational risks rather than legal obligations.

Some member states implemented their own due diligence laws, but these were exceptions rather than the norm. For instance, Germany’s Supply Chain Due Diligence Act and France’s Duty of Vigilance Law imposed specific responsibilities on companies, but such regulations were not widespread. The German law, which initially applies to enterprises with at least 3,000 employees from 2023 and extends to those with at least 1,000 employees from 2024, exemplifies the push for businesses to take greater responsibility for human rights and environmental standards throughout their supply chains.  

However, the existence of different national regulations led to a patchwork of requirements across the EU, making it challenging for businesses operating in multiple countries to implement consistent sustainability strategies. This lack of harmonization not only created compliance challenges but also allowed companies to operate in a relatively risk-free environment when it came to environmental and human rights issues, provided they were not publicly exposed. 

The Introduction of CSDDD: A New Era for Corporate Responsibility 

Under the CSDDD, due diligence is no longer optional, it is a legal obligation that requires green skills and continuous monitoring of potential risks. The new directive mandates that companies not only identify and prevent adverse impacts on human rights and the environment but also take active steps to mitigate them across their entire operations, including subsidiaries and value chains. 

One of the most significant changes is the requirement for companies to implement comprehensive risk assessments. These assessments must be conducted regularly to identify areas where their operations or supply chains may cause or contribute to human rights abuses or environmental degradation. Once risks are identified, companies are obligated to take appropriate measures to prevent or mitigate these impacts. This includes implementing corrective actions, engaging with stakeholders, and adjusting business practices to ensure compliance with the directive. 

In addition to managing risks, companies must also develop and execute transition plans to address climate change. These plans are crucial for aligning corporate activities with the 2050 climate neutrality goals of the Paris Agreement and the European Green Deal.  

The directive's scope is expansive, applying to a significant number of companies both within and outside the European Union. Approximately 6,000 EU-based entities fall under its jurisdiction. These organizations typically employ more than 1,000 individuals and report a net worldwide turnover exceeding EUR 450 million, or generate substantial royalties.  

While small and medium-sized enterprises (SMEs) are not directly subject to the CSDDD, they are likely to experience indirect impacts as integral components of the supply chains of larger companies. 

Impact on SMEs and Supply Chains within the Corporate Sustainability Due Diligence Directive  

The CSDDD’s requirements for large companies naturally extend to small and medium-sized enterprises (SMEs) in their supply chains. As big companies work to meet stricter environmental and human rights standards, they expect their suppliers to provide detailed information and take necessary actions to address any issues. 

SMEs now need to adjust to these higher expectations. This might involve setting up new systems to monitor practices, working with external auditors, and joining industry groups to make sure to meet the standards set by their larger clients. The directive is raising the bar for sustainability across the board, encouraging SMEs to align with the broader industry practices. 

Meeting these new demands can be challenging for SMEs, especially when it comes to balancing these requirements with their day-to-day operations. However, this shift also offers SMEs a chance to improve their reputation marketing and market position by showing a strong commitment to sustainability, which could lead to new business partnerships and opportunities. 

The Role of the CSRD in Complementing CSDDD 

In tandem with the CSDDD, another directive, the Corporate Sustainability Reporting Directive (CSRD) is set to strengthen the EU’s regulatory framework for corporate sustainability starting in 2025. The CSRD focuses on standardizing and expanding sustainability reporting requirements, ensuring that companies provide detailed and comparable information on their environmental, social, and governance performance. 

Although the CSRD will apply to certain European companies starting in 2025, Visable has been moving in this direction well ahead of the deadline. Recently, Visable published its 2023 Sustainability Report, based on data collected throughout the year. This report not only provides a detailed picture of the company’s emission sources but also evaluates how well the company's measurement processes and data quality align with CSRD requirements. This early adoption and proactive reporting underscore Visable's commitment to sustainability and transparency. 

The introduction of the CSRD is closely linked to the CSDDD, as both directives aim to promote responsible business practices and enhance corporate transparency. However, while the CSDDD emphasizes proactive due diligence and risk management, the CSRD focuses on the accurate reporting of sustainability performance. Together, these directives create a robust framework that not only compels companies to act responsibly but also ensures that their actions are visible and verifiable by stakeholders. 

Looking Ahead: The Future of Corporate Sustainability 

The journey towards comprehensive corporate sustainability is ongoing, and the CSRD and CSDDD are just the beginning. Future discussions will likely explore how companies can innovate further, leverage new technologies, and engage more deeply with stakeholders to drive meaningful change. This ongoing dialogue is crucial in shaping a sustainable future where businesses not only comply with regulations but also lead the way in environmental stewardship and social responsibility. The path ahead is challenging but filled with opportunities for those willing to commit to sustainable practices.