CSDDD enters into force, what should companies be aware of?

On the 25th July 2024, the Corporate Sustainability Due Diligence Directive (CSDDD/CS3D) formally entered into force. As previously reported here, businesses operating within the European Union with more than annual turnover of EUR 450 million are subjected to this directive irrespective of their location of origin. 

While the CS3D marks an important step in corporate governance, it is an undeniable fact that this law will have a major impact on both EU and non-EU companies, including from ASEAN. ASEAN companies having annual group-wide revenues from the EU market of more than EUR 450 million, regardless of whether they have any branches or subsidiaries in the EU. 

The Directive will also convert UN Guiding Principles on Business and Human Rights, and the provision of three international human rights conventions, the eight fundamental ILO conventions, eleven environmental law conventions and climate mitigation targets of the Paris Agreement into binding law for companies. The legislation will include enforcement mechanisms and proposes monetary penalties for violations. The legislation also confers private rights of action to those adversely affected, including trade unions, NGOs and consumers. 

If not implemented properly, the CSDDD presents significant challenges to companies covered by the legislation, but also SMEs and smaller companies that may be suppliers or clients of these in-scope companies. Certain aspects, such as equal pay and non-discrimination, also need to be navigated carefully so as not to infringe on the religious and cultural beliefs of other sovereign states. The issue of extra-territoriality is also raised, as non-EU subsidiaries of affected companies and their direct and indirect suppliers could likewise be covered and may be subject to liabilities brought by those adversely affected. 

The CSDDD also raises the question of how non-EU based parent companies may be exposed to civil liability caused by indirect suppliers and how affected groups of stakeholders outside the EU will be able to bring disputes before EU courts. Such issues need to be further clarified in guidance documents that can help inform companies on how to ‘restructure’ their supply chains.  

As the legislation enters into the period of transposition, the process by which EU member states incorporate EU directives into national law, companies are fretting about what to do while waiting for the guidance documents to be published. The period of transition is also not long – companies have just one year from the end of transposition to fully comply with the CS3D. Judging from past experience with the EUDR, the guidance document would be a crucial tool to help businesses navigate this bureaucratic transition. The Commission should take great care in publishing these documents as soon as possible to avoid a repeat of what happened with the EUDR. You can read more about what happened with the EUDR here.

ASEANcham-EU would like to alert ASEAN companies who have connections or links, either directly, or indirectly, to a company caught under this regulation (i.e. a company that has more than EUR 450 annual revenue generated in the EU) to look the CSDDD closely and consider their obligations and liabilities under this regulation, Feel free to reach out to us for more information.  

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