The Corporate Sustainability Due Diligence Directive (CSDD), also known as the Supply Chain Act. published in the European Official Journal on 5 July 2024 and entered into force on 25 July 2024, represents a new piece in the legislative jigsaw that the European Union is building to promote afairer and more sustainable economy. As early as next year, all member states will have to transpose the provisions of the directive into their national laws, marking a significant shift in the way companies handle their environmental and social responsibilities.



WHY IS THE CSDDD SO IMPORTANT?

The CSDD is not just another regulation for companies: it is a paradigm shift. It aims to ensure that companies subject to regulation take responsibility for the negative impacts their activities may have throughout the value chain. This includes not only direct suppliers, but also subcontractors, often located in countries with less stringent regulations.

In a context where sustainability is no longer an option but a necessity, the directive introduces stringent obligations to promote responsible business practices. Companies will have to implement due diligence procedures to identify, prevent and mitigate risks, focusing on these main areas:

- Human rights protection, promoting actions such as promoting gender equality;

- Environmental protection, e.g. by containing greenhouse gas emissions in line with international climate targets;

- Responsible governance, through activities such as: transparency in communicating risks and actions taken; and involvement of stakeholders, including workers, local communities, investors and consumers.



KEY OBLIGATIONS FOR COMPANIES

The CSDD requires companies to take a number of steps to align with its provisions. These include:

1.Integrate due diligence into company policies: Companies will need to incorporate due diligence into their risk management systems and strategic decision-making processes.

2.Monitor and assess impacts: It is mandatory to identify and analyse actual and potential negative impacts throughout the value chain.

3.Prevent and mitigate damage: Concrete measures must be put in place to prevent future risks and, if necessary, repair damage already caused.

4.Ensure transparency: Companies should regularly report on their due diligence activities in accordance with the Corporate Sustainability Reporting Directive (CSRD).

5.Provide reporting channels: Tools must be available for stakeholders to raise concerns about the impact of company activities.



WHO IS SUBJECT TO THE CSDD AND WHAT ARE THE TIMELINES?

The directive applies in a phased manner to large companies based in the EU or operating in the European market and provides forstaggered implementation to allow companies to gradually adapt to the new regulations:

- July 2027: Companies with more than 5,000 employees and a turnover of more than EUR 1.5 billion

-July 2028: Companies with more than 3,000 employees and a turnover of more than €900 million

-July 2029: Companies with more than 1,000 employees and a turnover exceeding €450 million

For non-EU companies, the obligations apply from 2027 if they generate a net turnover of at least EUR 450 million in the EU.



WHAT DO NON-COMPLIANT COMPANIES RISK?

The penalties for non-compliance are significant. Member States will have to determine the competent authorities and define the penalties, which may include:

- Fines of up to 5% of the company's net worldwide turnover

-Exclusion from public contracts

-Civil liability with obligation to pay damages

These measures underline the seriousness with which the EU intends to ensure the implementation of the directive.



WHAT ARE THE BENEFITS OF THE CSDD FOR COMPANIES?

Beyond the initial costs and obligations, the CSDD can represent astrategic opportunity for companies. A responsible approach to sustainability can enhance corporate reputation, attract investors and talent and increase consumer confidence. In addition, companies that adopt sustainable practices can better position themselves to access public and private funding.

In Italy, the directive may even benefit SMEs, which may again be favoured over international suppliers with less sustainable practices.



A POSITIVE DOMINO EFFECT

Although the CSDD only applies to a minority of companies, its impact could be much broader. Companies not subject to the directive could voluntarily decide to adopt its principles, both to remain competitive and to benefit from the reputational and strategic advantages associated with sustainability. This domino effect could help spread sustainable practices throughout the entire European economic fabric.



CONCLUSIONS

The CSDD is more than just a regulation: it is an invitation to rethink the role of business in society and the environment. For companies, it represents a challenge but also a unique opportunity to contribute to a more sustainable and just future. With the right preparation and the support of qualified partners, organisations can turn these new obligations into a strategic lever for long-term success.

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