The European legal initiative for a Corporate Sustainability Due Diligence Directive ("CSDDD") on supply chains due diligence was executed to correspond to the German Act on Supply Chains, which was enacted on 1 January 2023.

Prominent examples of the flourishing global movement for responsible business legal requirements are the LkSG (Lieferkettensorgfaltspflichtengesetz) in Germany also called SCDDA and the EU's CSDDD, which encourages companies to undertake environmental and human rights due diligence to detect actual as well as potential threats to both the environment and humans.

Why is the Act Required?

Supply chains are currently being examined more closely for both their efficiency as well as any potential violations of environmental and human rights. As a result, nations all over the world are starting to consider the potential of controlling supply chains to prevent environmental risks and violations of human rights.

What's the Act's Purpose?

The draft European Supply Chain Act needs EU companies to cautiously handle social and environmental impacts along their whole value chain, including their operations, direct & indirect suppliers, and products & services.

According to the draft European Supply Chain Act, EU companies must cautiously handle social and environmental impacts throughout their whole value chain, which would include their operations, direct & indirect suppliers, and products & services.

What is the Act's Plan?

The due diligence directive establishes rules for larger companies' obligations regarding both actual and potential negative impacts on human rights and the environment associated with their operations, those who are their subsidiaries, and the operations of their business partners.

The European Commission revealed its draft directive on supply chain compliance needs, known as the CSDDD, on February 23, 2022. The European Council approved and adopted the draft in December 2022. The next step will be for the EU Parliament to rectify multiple positions on the regulation's implementation in May 2023.

Companies would be needed by the CSDD to record their impacts on society, and the environment including their supply chain activities, which are considered to encompass internal business operations.

As with EU Directives, every EU member state will have two years from the date of adoption to enact the Directive into their national laws. Federal legislation will need to be adjusted in nations with their own supply chain rules, such as Germany, where the new German Supply Chain Act was executed earlier.

What will be the Act's Applicability and Purpose?

Companies with legal status in an EU member state that employ more than 500 people or generate more than €150 million in yearly revenue would be subject to the draft legislation. This requirement might fit roughly 10,000 businesses.

The regulation might apply to a larger group of companies in other sectors that have been identified as high-risk industries Textile, forestry, agriculture, leather, mining, and fisheries industries are a few examples. This would cover companies with over 250 staff members and yearly sales of at least €40 million. This definition encompasses over 3,500 companies. For these industries, there would also be a two-year transitional period.

Companies who aren't legally covered by the Directive's scope will still have an indirect impact because they might serve as suppliers to a bigger organization that must prove its compliance with the supply chain

What will the European Supply Chain Act Require?

Companies that fall within the Directive's legal scope must undertake and demonstrate complete supply chain due diligence with respect to how their actions affect human rights and the environment. For instance, this could be:

• Performing the necessary diligence to prevent occurrences of violations in the future and including this in the management systems of the companies.
• Establishing and enforcing a system for registering complaints.
• Merging due diligence with company policies.
• Identifying any potential negative effects on the environment and human rights that may exist inside the supply chains of the companies. Companies should then take the necessary steps to rectify them if they have been found. • Preventing and eliminating any possible negative impacts.
• Driving companies to be transparent about their due diligence duties, accomplishments, and annual reports as publicly available information.
• Describe how your company will contribute to the Paris Climate Agreement's goals.
• Promote a more equitable and sustainable global economy, as well as accountable corporate governance, by ensuring environmental protection and appropriate human rights standards.
• Revealing these operations transparent to society.

How can we help?

We can provide consultation and help you get the data for meeting the CSDDD requirements with our software tool.

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