Classification of the CSDDD

The CSDDD provides a framework that requires European businesses to adopt responsible practices while also aiming to enhance competitiveness. The EU seeks to reduce or prevent future adverse impacts on human rights and the environment across the operations and chain of activities of European businesses.

Who is affected by the CSDDD?

EU member states have until July 26, 2026, to transpose the CSDDD into their national laws. The directive will begin applying to companies in 2027, following a phase-in approach:

*According to the CSDDD, a company is defined as a legal entity created in one of the legal forms specified in Annexes I and II of Directive 2013/34/EU (in the case of companies from third countries, comparable legal forms) or as the supervised financial institutions specified in Directive (EU) 2024/1760 Article 3 (1) a) iii).

What does the CSDDD cover? Chain of activities and beyond

The directive requires companies to take action to prevent or mitigate adverse impacts on human rights and the environment in relation to:

• their own business activities
• the business activities of their subsidiaries and
• the operations of their business partners across the company's chain of activities.

The directive uses the new term "chain of activities", a concept similar to the “supply chain” used in other EU legislation. However, the chain of activities has distinct features that companies should be aware of (particularly in relation to other directives). In simple terms, the chain of activities includes the following:

i) The activities of a company's upstream business partners related to the production of goods or the provision of services by that company, including the design, extraction, sourcing, manufacture, transportation, storage and supply of raw materials, products or parts of products and the development of the product or service, and

ii) the activities of a company's downstream business partners related to the distribution, transportation and storage of a product of that company, where the business partners carry out those activities for the company or on behalf of the company.

What needs to be done? Due diligence duties under the CSDDD

Some of the CSDDD due diligence obligations are also found in other EU legislation. However, the CSDDD introduces new elements and builds on existing requirements. For example, while the Corporate Sustainability Reporting Directive (CSRD) already covers the disclosure of a climate transition plan, the CSDDD expands this by enhancing related due diligence obligations

Companies are subject to the following due diligence obligations:

Due diligence obligations that may be covered under the CSRD (Corporate Sustainability Reporting Directive)