CSDDD: An Overview of the law and its current state of play 

The Corporate Sustainability Due Diligence Directive (CSDDD), adopted by the EU in May 2024, obliges large EU and non-EU companies operating in the Union to take steps to ensure their business practices throughout their global operations respect human rights and the environment. The law is also expected to equip victims of corporate abuse with new avenues to hold companies accountable. 

Whilst imperfect, Swedwatch along with many civil society organisations welcomes this long-awaited and potentially game-changing law. Below is an overview of its components and what Swedwatch expect from the Swedish government as it transposes the directive into national legislation.  

What CSDDD does – the basics 

By requiring very large companies to perform human rights and environmental due diligence (HREDD) across their global operations, the new EU law aims to protect workers and communities from abuses such as forced labor, environmental pollution, and suppression of trade unions. An important aspect of carrying out HREDD is to involve and talk to workers and communities affected by the operations – so-called “meaningful engagement with stakeholders”. 

Apart from identifying human rights and environmental risks, the law requires companies to take measures to prevent and/or mitigate those risks as well as remediate harm that has occurred. Examples of appropriate measures could be financial and non-financial investments, providing support to small- and medium-sized enterprises, changing business plans, or obtaining contractual assurance from partners. 

In the case of actual harm, the measures should aim to minimise or, if possible, bring the harm to an end and remediate the damage. In the case of risks, companies are expected to do what is reasonable and effective to prevent the risk from materialising. If companies are unable to respond and handle all harms and risks at the same time, they will be required to prioritise and address the most severe and likely risk first (also known as the “risk-based approach”). 

Improving access to justice 

A crucial component of the law is that it provides rightsholders with avenues to hold companies civilly liable for human rights abuse. Apart from the ability to monitor human rights compliance and report breaches, the law helps to tackle some long-standing barriers that have prevented victims from seeking justice. For example, judges will have the power to compel companies to disclose relevant evidence which otherwise could have been withheld from plaintiffs. Moreover, the law will enable eligible organisations to represent plaintiffs in their juridical cases, thereby helping to make transnational civil claims more feasible. Additionally, Member States must ensure that the costs of the proceedings for victims are not prohibitively expensive. 

What’s covered by the law, and what’s not? 

After long and tough negotiations, the final text was, as Swedwatch has previously reported, severely watered down compared to the UNGPs and OECD Guidelines. Below is an overview of what is covered in the final law, and what is not. 

Company size 

Following last-minute pressure from France, the law will now only apply to EU companies with more than 1000 employees and a net turnover of more than EUR 450 million (roughly 0.05% of EU companies). Third-country companies meeting the EUR 450 million threshold are also included, regardless of the number of employees. 

In the case of Sweden, these thresholds mean that only an estimated 328 companies fall under the scope of CSDDD. However, as these companies tend to have long and complex value chains, many of their contractors and subcontractors – in Sweden and aboard – may be indirectly affected by the law. 

Value chain scope 

The CSDDD requires companies to identify and address risks and harms across their “chain of activities”. The chain of activities includes all corporate activities on the supply side (upstream), for example the extraction, sourcing, design, manufacture and transport of materials or products. 

Downstream activities covered include transport, distribution, or storage of end-products. However key components of downstream due diligence as set out in international norms are omitted, including obligations on the sale, use, disposal, dismantling and recycling of products, as well as activities related to the services provided by financial undertakings.  

Environmental considerations 

To meet the environmental due diligence obligations, companies must prevent and mitigate harm resulting from breaches of international environmental obligations (the obligations and related instruments in question are defined in the text). The environmental areas covered include biodiversity and habitat protection, chemical and waste management, and pollution prevention.  

Companies are also required to develop and put into effect climate transition plans to ensure that their business operations comply with the target to limit global warming to 1.5 °C. However, companies will not be required to financially rewards their directors for promoting the actual implementation of such plans. 

How will the CSDDD be enforced? 

The CSDDD entered into force on 25 July. From this date, EU Member States have two years to transpose the directive into national law. Once transposed, companies will be gradually phased in and expected to comply with the requirements. By 2027, companies with >5000 employees and EUR 1,5 billion turnover will be covered. By 2029, all companies in scope of the directive will be subject to the CSDDD regime. A first review of the directive is scheduled to take place in 2030. 

Swedwatch’s expectations on Sweden 

Swedwatch will closely be following the transposition process into Swedish law. As EU member states are free to go beyond the minimum requirements set out in the CSDDD, Sweden has an opportunity to recover some key elements currently missing, for example in relation to downstream due diligence, company scope and the role of the finance sector.  

In addition to progressively transposing the directive, the Swedish government has a responsibility to maximise its impact, including by putting in place effective enforcement structures which result in real change for rightsholders in global value chains. Hence, the success of the CSDDD also hinges on effective implementation.

Panel discussion at Global Festival 23/8👇🏼about CSDDD and its implications for companies (in Swedish)

More on the topic:

Blog post: Sweden’s U-turn and steps forward

Article: Weakened law on corporate responsibility voted through

Overview of CSDDD by European Coalition for Corporate Justice

Contact

Mathieu Vervynckt, Head of Unit Value Chains, Swedwatch
+46 (0)76 550 32 38
mathieu@swedwatch.org