How to Implement CSDDD

The Corporate Sustainability Due Diligence Directive (CSDDD), adopted in 2024, introduces binding human rights and environmental due diligence obligations for large companies operating in or exporting to the EU.

Over the next five years, companies within its scope must identify, prevent, and mitigate negative impacts on human rights and the environment across their operations and supply chains.

While aimed at large companies, the directive’s impact cascades down to smaller businesses in the value chain.

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CSDDD Requirements: The Implications for SMEs

Compliance and Scope

Large EU-based companies and non-EU exporters to the EU must comply directly with the CSDDD. This requires them to adopt a risk-based approach to due diligence, integrate safeguards across their supply chains, and publicly report efforts. Business partners, including SMEs, will face pressure to align with these requirements to maintain their position in supply chains, even though they are not directly bound by the directive.

Shared Responsibility and Cascade Effects

The CSDDD establishes the principle of shared responsibility, compelling large companies to obtain contractual assurances from their direct business partners. This "cascade strategy" risks disproportionately burdening SMEs, requiring them to adapt their processes and policies to meet compliance demands, despite limited resources.

Legal and Financial Risks

Non-compliance carries serious consequences, including financial liability, monitoring by regulatory authorities, and exclusion from public contracts. SMEs indirectly affected by the directive must adopt proactive measures to minimize risks, potentially requiring significant operational or business model changes to meet the expectations of larger, in-scope companies.

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