Corporate Sustainability Due Diligence Directive: Key Action Points for Procurement Teams
Overview
The European Union (EU) recently approved the Corporate Sustainability Due Diligence Directive (CSDDD) in April 2024, following significant negotiations and debates. This directive aims to ensure responsible and sustainable business practices and human rights transparency across business operations and supply chains within the EU.
Key Milestones and Changes
- Timeline: The CSDDD will be phased in, starting from 2027 and fully implemented by 2033.
- Scope: The revised scope includes companies with over 1,000 employees and a net turnover of over €450 million worldwide, including non-EU companies with over €450 million in global turnover.
- Exceptions: Smaller companies in high-risk sectors (e.g., textiles and mining) are exempted if they have over 250 employees and €40 million in turnover.
- Phase-In Period: Large companies have a three-year phase-in period, while high-risk SMEs have a four-year phase-in period.
- Due Diligence Requirements: The directive focuses on a risk-based approach, with comprehensive oversight across all sectors.
- Enforcement: Proportional penalties are introduced, based on the severity of violations, company size, and efforts to comply (up to 5% of annual turnover).
- Support for SMEs: Provisions for technical help, guidelines, training, and financial assistance are included.
Impact on Procurement and Supply Chain Activities
- Organizational Assessments: Companies should start conducting organizational and operational assessments by 2025 to understand the current state and define the "to-be" model.
- Tool Implementation: Tools and processes for ensuring CSDDD compliance, such as contract management and risk monitoring, should be implemented.
- Supplier Segmentation: Suppliers should be segmented based on business impact and spend volume. Strategic suppliers requiring dedicated attention will be prioritized.
- Supply Chain Mapping: Detailed mapping of the supply chain is necessary to identify all potential risk points and enhance transparency.
- Risk Monitoring: Regular risk assessments and monitoring processes should be established, with higher frequency for high-risk suppliers.
Strategic and Operational Adjustments
- Supplier Diversification: Companies should plan for greater supply chain resilience by diversifying their supplier base and considering sustainability and human rights records.
- Reporting Mechanisms: New reporting responsibilities include detailed sustainability and due diligence reports, requiring robust data collection and analysis processes.
- Contractual Obligations: Contracts with suppliers must include clauses requiring adherence to CSDDD standards, with comprehensive and enforceable terms.
- Enhanced Due Diligence Protocols: Comprehensive risk assessments of suppliers and subcontractors are required, focusing on labor practices, environmental impact, and ethical standards.
Immediate Action Points
- Supplier Segmentation: Prioritize and segment suppliers based on business impact and spend volume.
- Supply Chain Mapping: Map the supply chain in greater detail to identify all potential risk points.
- Risk Monitoring and Mitigation: Establish criteria for assessing supplier compliance and ensure regular reviews.
- Capacity Building: Invest in developing the capability and expertise of procurement teams to manage the new requirements.
Key Considerations for Procurement Leaders
- Capacity Building: Develop the skills and knowledge of procurement teams to effectively manage sustainability and due diligence requirements.
This phased approach and the new requirements will significantly impact how procurement and supply chain functions operate, necessitating proactive planning and strategic adjustments to ensure compliance with the CSDDD.