The European Parliament finally approved the Corporate Sustainability Due Diligence Directive, and although it is not yet legally binding or applicable to companies’ sustainability reports, it is crucial that we begin to understand the direct and indirect scope of the upcoming CSDDD.
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In an earlier installment of our sustainability news, we talked about the importance of understanding what the upcoming CSDDD would mean for companies’ sustainability strategies and reports.
By focusing on its three core characteristics, due diligence, liabilities and public disclosure, it became easier to comprehend why the latter is so relevant, as well as why member states have taken time to finally and officially approve it.
But today we are focusing on a different aspect regarding the importance of the upcoming EU regualtions, specifically on the CSDDD scope; although the legal text will solely apply to a set number of organizations, its scope is indirectly a lot broader.
The official CSDDD scope
After a few but significant changes, the European Parliament officially passed the Corporate Sustainability Due Diligence Directive on April 2024 with the intention for it to come into force in the time span of 3, 4 or 5 years since the adoption of the regulation, depending on the type of entity.
Here is an overview of when the directive will take effect depending who it applies to:
3 years form the entry into force, it applies to companies with more than 5000 employees, and more than €1.5 billion net worldwide turnover in the last financial year. Reporting under CSDDD should apply for financial years starting on or after 1 January 2028.
4 years from the entry into force, it’ll apply to companies with more than 3000 employees and more than €900 million net worldwide turnover in the last financial year. Reporting under the directive should apply for financial years starting on or after 1 January 2029.
5 years from the entry into force, the directive will apply to companies with more than a 1000 employees and more than €450 million net worldwide turnover. Reporting should apply in the last financial year starting on or after 1 January 2030.
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The indirect scope of the CSDDD
As we have mentioned before, there were few but quite significant changes that were proposed and approved prior to the official approval of the complete legal text of the CSDDD or CS3D.
These changes radically changed the beginning intentions of the directive, or, to be more precise, it significantly reduced the scope of application of the due diligence directive, focusing exclusively on larger corporations and leaving aside SMEs.
But it would be naive to think that the directive solely impacts said large corporation who are, or will be, legally required to report under the CSDDD sooner or later. But what exactly do we mean when we talk about the indirect CSDDD scope?
We are referring to the impact the Corporate Sustainability Due Diligence Directive has on those companies who are not (and will not be) legally required to report under the upcoming directive.
Nonetheless, given the nature of the directive itself, it is difficult for it not to impact virtually every company that one way or another works for or with bigger companies who are indeed affected by the directive, this is, obliged to report on the sustainability and human rights issues of the entire value chain.
Furthermore, the CSDDD’s indirect scope transcends European borders, as, more often than not, big corporations’ supply chain is international.
Guide to conduct a materiality analysis
All in all, the indirect CSDDD scope and impact refers to the fact that as big corporation begin to report under the new directive regarding their value chain and its sustainable practices, small and medium companies that somehow work for or with the latter will need to comply with the necessary sustainability requirements in order to fit into regulatory standards.
In a way, the changes in scope that the directive went through prior to its approval will allow for the regulatory pressures of compliance and reporting to be taken off of small companies’ backs, which have less resources, yet they will still indirectly be asked for a relative degree of compliance to sustainable and responsible practices.
Engage employees in the sustainability strategy
In DoGood, we aim to simplify the complex web of sustainability objectives for companies by offering a platform that translates the high-level ESG (Environmental, Social, Governance) objectives into actionable tasks for every single employee.
Then, each employee not only knows how to make an impact but also feels empowered to contribute meaningfully to the greater sustainable strategy.
No more vague directives. No confusion. DoGood automates the process, making it seamless for the workforce to know precisely what steps to take.
